Filed with the Securities and Exchange Commission on February 15, 2000
1933 Act Registration File No. 333-_____
1940 Act File 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
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. |_|
THE ARBITRAGE FUNDS
(Exact Name of Registrant as Specified in Charter)
61 West Ninth Street
New York, NY 10011
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
John S. Orrico, President
Water Island Capital, LLC
61 West Ninth Street
New York, NY 10011
(Name and Address of Agent for Service)
Copies of all communications to:
Elaine E. Richards, Esq.
Firstar Mutual Fund Services, LLC
615 East Michigan Street
2nd Floor
Milwaukee, WI 53202
Approximate Date of Proposed Public Offering: As soon as practical after the
effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
___ on ___________ pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on ____________ pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on ____________ pursuant to paragraph (a)(2) of Rule 485.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
Title of securities being registered: The Arbitrage Fund
THE ARBITRAGE FUND
A SERIES OF THE ARBITRAGE FUNDS
61 West Ninth Street
New York, New York 10011
PROSPECTUS
______________, 2000
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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THE ARBITRAGE FUND
The Arbitrage Funds currently offers one fund series to
investors--The Arbitrage Fund. The Fund is non-diversified and
its investment objective is to achieve capital growth by
engaging in merger arbitrage.
This prospectus has information you should know before
investing. Please read it carefully and keep it with your
investment records.
ADVISER
Water Island Capital, LLC
TABLE OF CONTENTS
RISK/RETURN SUMMARY............................................................3
PERFORMANCE....................................................................4
FEES AND EXPENSES..............................................................4
INVESTMENT OBJECTIVE, POLICIES AND RISKS.......................................5
ADVISER........................................................................7
DISTRIBUTION ARRANGEMENTS......................................................8
NET ASSET VALUE................................................................8
HOW TO PURCHASE SHARES.........................................................8
REDEMPTIONS...................................................................10
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS.......................................12
FINANCIAL HIGHLIGHTS..........................................................12
RISK/RETURN SUMMARY
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INVESTMENT OBJECTIVE
The Fund seeks to achieve capital growth by engaging in merger
arbitrage.
PRINCIPAL INVESTMENT STRATEGY
In attempt to achieve its objective, the Fund plans to invest at least
65% of its assets in equity securities of companies that are involved in
publicly announced mergers, takeovers, tender offers, leveraged buyouts,
spin-offs, liquidations and other corporate reorganizations. Equity securities
include common and preferred stock. Merger arbitrage is a highly specialized
investment approach designed to profit from the successful completion of
corporate reorganizations. The Adviser uses investment strategies designed to
minimize market exposure including short selling and purchasing and selling
options.
Arbitrage (Definition) The simultaneous pruchase and sale of the same
or related securities to take advantage of a market inefficiency.
PRINCIPAL INVESTMENT RISKS
As with all mutual funds, investing in the Fund entails risks that
could cause the Fund and you to lose money. The principal risks of investing in
the Fund are as follows:
o MERGER ARBITRAGE RISKS: The principal risk associated with
the Fund's merger arbitrage investment strategy is that the
proposed reorganizations in which the Fund invests may be
renegotiated or terminated, in which case the Fund may realize
losses.
o HIGH PORTFOLIO TURNOVER RATE: The Fund's investment strategy may
result in high turnover rates. This may increase the Fund's
short-term capital appreciation and increase brokerage commission
costs. Rapid portfolio turnover also exposes shareholders to a
higher current realization of capital gains and this could cause
you to pay higher taxes.
o NON-DIVERSIFICATION RISKS: The Fund is not a "diversified" fund,
which means the Fund may concentrate its investments in a
relatively small number of issuers or in a single industry making
it more susceptible to adverse developments of a single issuer or
industry. As a result, investing in the Fund is potentially more
risky than an investing in a diversified fund that is otherwise
similar to the Fund.
o BORROWING RISKS: Because the Fund may borrow money from banks to
purchase securities of companies involved in reorganizations, the
Fund's exposure to fluctuations in the prices of these securities
is increased in relation to the Fund's capital. This can cause the
price of shares to be more volatile than if the Fund did not
borrow money. Borrowing also increases the Fund's expenses because
of the interest the Fund must pay on borrowed money, together with
any additional fees to maintain a line of credit or any minimum
average balances required to be maintained.
o SHORT SALE/PUT AND CALL OPTIONS RISKS: The Fund may engage in
various hedging practices, which by definition entail substantial
risks. If an acquisition is not completed, the Fund may realize
losses on both long and short positions of a short sale in which
it engaged. Also, options transactions involve special risks that
may make it difficult or impossible to unwind a position when the
Fund desires.
WHO SHOULD INVEST IN THE FUND
This Fund is not intended to provide a balanced investment program and
may not be appropriate for people who are risk averse. However, compared with
conventional stock investing, the Adviser considers the Fund's merger arbitrage
investment strategy to be less volatile than overall stock prices.
PERFORMANCE
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Because the Fund has no operating history, there is no performance
information available at this time.
FEES AND EXPENSES
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This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR ACCOUNT)
Maximum Sales Charge (Load) Imposed on Purchases None(1)
(AS A PERCENTAGE OF OFFERING PRICE)
Maximum Deferred Sales Charge (Load) None
(AS A PERCENTAGE OF OFFERING PRICE)
Maximum Sale Charge (Load) Imposed on Reinvested Dividends and None
Other Distributions
Redemption Fee None(2)
(AS A PERCENTAGE OF AMOUNT REDEEMED)
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees 1.50%
Distribution and/or Service (12b-1) Fees 0.25%
Other Operating Expenses 2.25%
Annual Fund Operating Expenses before Expense Reimbursement 4.00%
Expense Reimbursement(3) (2.20)%
Net Annual Fund Operating Expenses after Expense Reimbursement 1.80%
Interest Expense and Dividends on Short Positions 1.10%
Total Annual Fund Operating Expenses 2.90%
(1) IRA accounts will be charged a $12.50 annual maintenance fee as well as fees
for certain transactions.
(2) Although no sales loads or transaction fees are charged, you will be
assessed fees for outgoing wire transfers, returned checks and stop payment
orders at prevailing rates charged by Firstar Mutual Fund Services, LLC, the
Fund's transfer agent.
(3) The Adviser has entered into an Expense Waiver and Reimbursement
contract dated ______, 2000 with the Fund under which the Adviser has
agreed to waive its fees and absorb expenses to the extent that Annual
Fund Operating Expenses (excluding interest expenses and dividends on
short positions) exceed 1.80% of average daily net assets. The contract
is in effect for one year and expires ______, 2000.
EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME
PERIODS INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE
PERIODS. THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH
YEAR, YOU REINVEST ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS AND THAT THE
FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR ACTUAL COSTS MAY BE
HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS, YOUR COSTS WOULD BE:
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1 YEAR 3 YEARS
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$293 $898
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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INVESTMENT OBJECTIVE
The Fund seeks to achieve capital growth by engaging in merger
arbitrage.
PRINCIPAL INVESTMENT STRATEGIES AND POLICIES
To achieve its investment objective, the Fund, under normal market
conditions, will invest at least 65% of its total assets in equity securities of
companies involved in publicly announced mergers, takeovers, tender offers,
leveraged buyouts, spin-offs, liquidations and other types of corporate
reorganizations (all referred to as "corporate reorganizations"). Equity
securities include common and preferred stock.
Arbitrage refers to the investment practice of capturing the difference
between the end value of a corporate reorganization and the prevailing market
prices of the securities of the companies involved prior to the consummation of
the reorganization. It is a highly specialized investment approach designed to
profit from the successful completion of such reorganizations. In fact, merger
arbitrage may serve as a hedge against downturns in the equity markets due to
its relatively steady non-market-sensitive investment results. The discrepancy
in value is attributable to risks that are inherent in corporate
reorganizations, which include the possibility the transaction will not be
completed and the time it takes for corporate reorganizations to be completed.
The Fund continuously monitors not only the investment positions owned
by the Fund, but also other potential mergers and corporate reorganizations.
This enables the Fund to make timely and informed investment decisions if market
prices of other securities adjust enough for the Fund to make new investments
for its own portfolio.
Although a variety of strategies may be employed depending upon the
nature of the reorganizations selected for investment, the most common arbitrage
activity, and the approach the Fund generally will use, involves purchasing the
shares of an announced acquisition target at a discount to their expected value
upon completion of the acquisition. The Fund identifies opportunities, carefully
seeking out potential difficulties as well as potential upsides. The possible
explanations for particular value discrepancies are carefully examined with a
focus on every situation's potential downside versus its potential return. As an
important part of this investment process, the Fund systematically reduces
market exposure by employing various hedging strategies to the extent possible.
Some methods the Fund may use when purchasing and selling securities include
short selling, hedging through the use of put and call options, and borrowing
from banks.
When determining whether to sell or cover a security, the Fund
continuously reviews and rationalizes each investment's risk versus its reward
relative to its predetermined exit strategy. The Fund will sell or cover a
security when the securities of the companies involved in the transaction do not
meet the Fund's expected return criteria when gauged by prevailing market prices
and the relative risks of the situation.
SHORT SALES: The Fund may employ various hedging techniques, such as
short selling in an effort to reduce the risks associated with certain of its
investments. For example, when the terms of a proposed acquisition call for the
exchange of common stock and/or other securities, the common stock of the
company to be acquired may be purchased and, at approximately the same time, an
equivalent amount of the acquiring company's common stock and/or other
securities may be sold short. The Fund will make these short sales with the
intention of later closing out (or covering) the short position with the
securities of the acquiring company received when the acquisition is
consummated. The purpose of the short sale is to protect against a decline in
the market value of the acquiring company's securities prior to the
acquisition's completion. However, should the acquisition be called off or
otherwise not completed, the Fund may realize losses on both the securities of
the target company has purchased and its short position in the acquirer's
securities. At all times when the Fund does not own securities which are sold
short, the Fund will maintain long securities available for collateral
consisting of cash, cash equivalents and liquid securities equal in value on a
daily marked-to-market basis to the securities sold short.
PUT AND CALL OPTIONS: The Fund may employ hedging techniques such as
the selective use of put and call options in an effort to reduce the risks
associated with some of its investments. A put option is a short-term contract
which gives the purchaser of the option, in return for a premium paid, the right
to sell the underlying security at a specified price upon exercise of the option
at any time prior to the expiration of the option. The market price of a put
option will normally vary inversely with the market price of the underlying
security. Consequently, by purchasing put options on securities the Fund has
purchased, it may be possible for the Fund to partially offset any decline in
the market value of these securities.
Options (Definition) A short-term contract that gives the purchaser
of the option the right to sell the underlying security at any time before the
option expires in return for a premium.
As part of an arbitrage strategy involving a pending corporate
reorganization, the Fund may also write (sell) uncovered options. The premium
received by the Fund for the sale of options may be used by the Fund to reduce
the risks associated with individual investments and to increase total
investment return. Currently, the Adviser does not intend to commit greater than
25% of the Fund's net assets to option strategies.
LEVERAGE THROUGH BORROWING: The Fund may borrow from banks to increase
its portfolio holdings of securities on a secured or unsecured basis at fixed or
variable interest rates. When borrowing money, the Fund must follow specific
guidelines under the Investment Company Act of 1940, which allow the Fund to
borrow an amount equal to as much as 50% of the value of its net assets (not
including the amount borrowed). The Fund also may borrow money for temporary or
emergency purposes, but these borrowings, together with all other borrowings,
may not exceed 33% of the value of the Fund's gross assets at the time the loan
is made.
NON-PRINCIPAL STRATEGIES
TEMPORARY INVESTMENTS: Depending upon the level of merger activity and
other economic and market conditions, the Fund may invest temporarily a
substantial portion of its assets in cash or cash equivalents, including money
market instruments such as Treasury bills and other short-term obligations of
the United States Government, its agencies or instrumentalities, negotiable bank
certificates of deposit, prime commercial paper, and repurchase agreements for
the above securities.
INTERNATIONAL SECURITIES: If the opportunity arises, the Fund may
invest in equity securities of non-U.S. companies undergoing corporate
reorganizations. The international equity securities will include international
stocks traded domestically or abroad through various stock exchanges, American
Depository Receipts or International Depository Receipts.
INVESTMENT RISKS
The Fund's investment program involves investment techniques and
securities holdings that entail risks, in some cases different from the risks
ordinarily associated with investments in equity securities. Some of these risks
include:
MERGER ARBITRAGE RISKS: The principal risk associated with the Fund's
arbitrage investments is that certain of the proposed reorganizations in which
the Fund invests may be renegotiated, terminated, or involve a longer time frame
than originally contemplated, in which case the Fund may lose money. If a
transaction takes a longer time to close than the Fund originally anticipated,
the Fund may not realize the level of returns desired.
NON-DIVERSIFICATION RISKS: Because the Fund's assets are invested in a
smaller number of companies or companies within a single industry, there is a
somewhat greater risk associated with investment in the Fund than there would be
if investing in a diversified investment company. Non-diversification makes the
value of the Fund's shares more susceptible to adverse developments affecting
any single issuer or industry and more susceptible to greater losses.
HIGH PORTFOLIO TURNOVER RISKS: The Fund invests a portion of its assets
to seek short-term capital appreciation, which increases portfolio turnover and
causes increased brokerage commission costs. A high turnover rate exposes you to
a higher current realization of capital gains, and thus a higher current tax
liability, than may be associated with investments in other investment companies
that emphasize long-term investment strategies and thus have a lower turnover
rate.
SHORT SALE/PUT AND CALL OPTIONS RISKS: A substantial percentage of the
investments made by the Fund will not lend themselves to hedging strategies and,
even when available, these strategies may not be successful. For instance, if an
acquisition is called off or otherwise not completed, the Fund may realize
losses on the shares of the target company is acquired and on its short position
in the acquirer's securities. Also, options transactions involve special risks
that may make it difficult or impossible to a position when the Fund desires.
These risks include:
o possible imperfect correlation between the price movements of the option and
the underlying security,
o the potential lack of a liquid secondary market at any particular time, and
o possible price fluctuation limits.
BORROWING RISKS: The Fund's borrowing activities will exaggerate any
increase or decrease in the net asset value of the Fund. In addition, the
interest which the Fund must pay on borrowed money, together with any additional
fees to maintain a line of credit or any minimum average balances required to be
maintained, are additional costs which will reduce or eliminate any net
investment profits. Unless profits on assets acquired with borrowed funds exceed
the costs of borrowing, the use of borrowing will diminish the investment
performance of the Fund compared with what it would have been without borrowing.
FOREIGN SECURITIES RISKS: Investing in foreign securities may be
substantially riskier than domestic investments. Risks include currency
fluctuations, political and economic instability, differences in financial
reporting standards and less stringent regulation of securities markets.
ADVISER
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Water Island Capital, LLC, 61 West Ninth Street, New York, New York
10011, a registered Adviser, is the Fund's Adviser. Subject to the authority of
the Fund's Board of Trustees, the Adviser is responsible for the overall
management of the Fund's business affairs. The fee the Adviser charges the Fund
is higher than fees typically paid by other mutual funds. This higher fee is
attributable in part to the higher expenses and the specialized skills
associated with managing a portfolio of merger arbitrage investments. The Fund
pays the Adviser an annual advisory fee of 1.5% of the Fund's average daily net
assets.
John S. Orrico, CFA, is portfolio manager for the Fund. Mr. Orrico
serves as President of the Adviser and also serves as the President and a
Trustee of the Fund. Prior to organizing the Adviser, Mr. Orrico managed private
hedge funds with Lindemann Capital Partners, L.P. during 1999. From 1994 to
1998, Mr. Orrico engaged in mergers and acquisition arbitrage while managing the
Gruss Family Trust for Gruss & Co. Mr. Orrico received two Bachelors degrees
from Georgetown University in 1982--one in Finance and the other in
International Management. He became a Chartered Financial Analyst in 1988.
DISTRIBUTION ARRANGEMENTS
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DISTRIBUTOR
Quasar Distributors, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin, 53202 is the distributor for shares of the Fund. Quasar is a
registered broker-dealer and member of the National Association of Securities
Dealers, Inc.
DISTRIBUTION PLAN
The Fund has adopted a plan of distribution under Rule 12b-1 of the
Investment Company Act of 1940. Under the plan, the Fund may pay up to an annual
rate of 0.25% of the average daily net asset value of shares to Quasar. Quasar
uses this fee to finance activities that promote the sale of the Fund's shares.
These activities include, but are not necessarily limited to, advertising,
printing and mailing prospectuses to persons other than current shareholders,
printing and mailing sales literature, and compensating underwriters, dealers
and sales personnel.
NET ASSET VALUE
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The net asset value per share of the Fund will be determined on each
day the New York Stock Exchange is open for business and will be computed by
determining the aggregate market value of all assets of the Fund less its
liabilities, and then dividing by the total number of shares outstanding. The
determination of net asset value for a particular day is applicable to all
applications for the purchase of shares, as well as all requests for the
redemption of shares, received before the close of trading on the NYSE on that
day.
HOW TO PURCHASE SHARES
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You may purchase shares of the Fund at net asset value without any
sales or other charge by sending a completed application form to one of the
following addresses:
REGULAR MAIL EXPRESS/OVERNIGHT MAIL
The Arbitrage Fund The Arbitrage Fund
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 East Michigan Street
Milwaukee, Wisconsin 53201-0701 Milwaukee, Wisconsin 53202
MINIMUM AND ADDITIONAL INVESTMENT AMOUNTS
The minimum initial investment for individuals, IRAs, corporations,
partnerships and trusts is $2,000. There is no minimum for subsequent
investments. Shares of the Fund are offered on a continuous basis. The Fund,
however, reserves the right, in its sole discretion, to reject any application
to purchase shares. Applications will not be accepted unless they are
accompanied by a check drawn on a U.S. bank, savings and loan, or credit union
in U.S. funds for the full amount of the shares to be purchased. After you open
an account, you may purchase additional shares by sending a check TOGETHER WITH
A NOTE STATING the name(s) on the account and the account number, to the above
address. You should make all checks payable to "THE ARBITRAGE FUNDS."
NOTE: The custodian, Firstar Bank, N.A., will charge a $25.00 fee
against your account, in addition to any loss sustained by the Fund, for any
payment check returned to the custodian for insufficient funds.
WHEN ORDER IS PROCESSED
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GOOD ORDER: When making a purchase request, make sure your request is in good
order. "Good order" means your purchase request includes:
o the NAME of the Fund
o the DOLLAR amount of shares to be purchased
o a completed purchase application or investment stub
o check payable to THE ARBITRAGE FUNDS
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All shares will be purchased at the net asset value per share next
determined after the Fund receives your application or request in good order.
All requests received in good order by the Fund before 4:00. (Eastern time) will
be executed on that same day. Requests received after 4:00 p.m. will be
processed on the next business day.
PURCHASE THROUGH BROKERS
You may use your broker or dealer to purchase shares of the Fund if he
or she has an agreement with the Fund's distributor. Please note that brokers
may charge additional fees for their services.
PURCHASE BY WIRE
If you wish to wire money to invest in the Fund, please call the Fund
at ___________ to notify the Fund that a wire transfer is coming. You may use
the following instructions:
Firstar Bank, N.A.
Milwaukee, WI 53202
ABA #: 075000022
Credit: Firstar Mutual Fund Services, LLC
Account #: 112-952-137
Further Credit: The Arbitrage Fund
(your name/title on the account)
(account #)
AUTOMATIC INVESTMENT PLAN
You may participate in the Fund's Automatic Investment Plan, an
investment plan that automatically debits money from your bank account and
invests it in the Fund through the use of electronic funds transfers or
automatic bank drafts. After making an initial investment of at least $2,000,
you may elect to make subsequent investments by transfers of a minimum of $100
on specified days of each month into your established Fund account. Please
contact the Fund at ____________ for more information about the Fund's Automatic
Investment Plan.
RETIREMENT PLANS
You may purchase shares of the Fund for your individual retirement
plans. Please call the Fund at ____________ for the most current listing and
appropriate disclosure documentation on how to open a retirement account.
REDEMPTIONS
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WRITTEN REDEMPTION REQUESTS
You will be entitled to redeem all or any portion of the shares
credited to their accounts by submitting a written request for redemption to:
REGULAR MAIL EXPRESS/OVERNIGHT MAIL
The Arbitrage Fund The Arbitrage Fund
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 East Michigan Street
Milwaukee, Wisconsin 53201-0701 Milwaukee, Wisconsin 53202
REDEEMING BY TELEPHONE
You may redeem shares having a value of less than $25,000 by telephone.
The proceeds will be sent by mail to the address designated on your account or
wired directly to your existing account in any commercial bank or brokerage firm
in the United States as designated on your application. To redeem by telephone,
call ______________. The redemption proceeds normally will be sent by mail or by
wire within three business days after receipt of your telephone instructions.
IRA accounts are not redeemable by telephone.
The telephone redemption privilege is automatically available to all
new accounts. If you do not want the telephone redemption privilege, you must
indicate this in the appropriate area on your account application or you must
write to the Fund and instruct it to remove this privilege from your account.
The Fund reserves the right to suspend the telephone redemption
privileges with respect to your account if the name(s) or the address on the
account has been changed within the previous 30 days. Neither the Fund, Firstar
Mutual Fund Services, LLC, nor their respective affiliates will be liable for
complying with telephone instructions they reasonably believe to be genuine or
for any loss, damage, cost or expenses in acting on such telephone instructions
and you will be required to bear the risk of any such loss. The Fund or Firstar
Bank, or both, will employ reasonable procedures to determine that telephone
instructions are genuine. If the Fund and/or Firstar Mutual Fund Services, LLC,
do not employ these procedures, they may be liable to you for losses due to
unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
WIRE REDEMPTIONS
If you request your redemption by wire transfer, you will be required
to pay a $12.00 wire transfer fee to Firstar Bank to cover costs associated with
the transfer. In addition, your bank may impose a charge for receiving wires.
SYSTEMATIC WITHDRAWAL PLAN
If your individual accounts, IRA or other qualified plan account have a
current account value of at least $10,000, you may adopt a Systematic Withdrawal
Plan to provide for monthly, quarterly or other periodic checks for any
designated amount of $500 or more. Firstar Bank will charge you an annual fee of
$15.00 per plan to participate. If you wish to open a Systematic Withdrawal
Plan, please indicate on your application or contact the Fund at ___________.
WHEN REDEMPTIONS ARE SENT
Once the Fund receives your redemption request in "good order" as
described below, you will issued a check based on the next determined net asset
value following your redemption request. If you purchase shares using a check
and soon after request a redemption, the Fund will honor the redemption request,
but will not mail the proceeds until your purchase check has cleared (usually
within 12 days).
GOOD ORDER
Your redemption request will be processed if it is in "good order." To
be in good order, the following conditions must be satisfied:
o The request should be in writing, indicating the number of shares or dollar
amount to be redeemed;
o The request must identify your account number;
o The request should be signed by you and any other person listed on the
account, exactly as the shares are registered; and
o If you request the redemption proceeds to be sent to an address
other than that of record, or if the proceeds of a requested
redemption exceed $25,000, the signature(s) on the request must be
guaranteed by an eligible signature guarantor.
WHEN YOU NEED SIGNATURE GUARANTEES
If you wish to change the bank or brokerage account that you have
designated on your account, you may do so at any time by writing to the Fund
with your signature guaranteed. A signature guarantee assures that a signature
is genuine and protects you from unauthorized account transfers. You will need
your signature guaranteed if:
o you request a redemption to be made payable to a person not on record with the
Fund; or
o you request that a redemption be mailed to an address other than that
on record with the Fund.
Signatures may be guaranteed by any eligible guarantor institution
(including banks, brokers and dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations) or by completing a supplemental telephone redemption authorization
form. Contact the Fund to obtain this form. Further documentation will be
required to change the designated account if shares are held by a corporation,
fiduciary or other organization. A NOTARY PUBLIC CANNOT GUARANTEE SIGNATURES.
RETIREMENT PLANS
If you own an IRA or other retirement plan, you must indicate on your
redemption request whether the Fund should withhold federal income tax. Unless
you elect in your redemption request that you do not want to have federal tax
withheld, the redemption will be subject to withholding.
REDEEMING THROUGH BROKER
You may also redeem Fund shares through your own broker holding your
shares if the broker has made arrangements with the Fund permitting redemptions
by telephone or facsimile transmission. Brokers may charge a fee for this
service.
LOW BALANCES
If at any time your account balance falls below $1,000, the Fund may
notify you that, unless the account is brought up to at least $1,000, your
account could be closed. The Fund may, within 30 days, redeem all of your shares
and close your account by sending you a check to the address of record.
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
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The Fund intends to distribute substantially all of its net investment
income and net capital gain in December. Both distributions will be reinvested
in shares of the Fund unless you elect to receive cash. Dividends from net
investment income (including any excess of net short-term capital gain over net
long-term capital loss) are taxable to investors as ordinary income, while
distributions of net capital gain (the excess of net long-term capital gain over
net short-term capital loss) are taxable as long-term capital gain, regardless
of your holding period for the shares. The Fund expects that, as a result of its
investment objectives and strategies, its distributions will consist primarily
of short-term capital gains, which are taxable as ordinary income. Certain
dividends or distributions declared in October, November or December will be
taxed to shareholders as if received in December if they are paid during the
following January. Each year the Fund will inform you of the amount and type of
your distributions. IRAs and other qualified retirement plans are exempt from
federal income taxation.
On the account application, you will be asked to certify that your
social security number or tax payer identification number is correct and that
you are not subject to backup withholding for failing to report income to the
IRS. If you are subject to backup withholding or you did not certify your
taxpayer identification number, the IRS requires the Fund to withhold 31% of any
dividend and redemption or exchange proceeds. The Fund reserves the right to
reject any application that does not include a certified social security or
taxpayer identification number. If you do not have a social security number, you
should indicate on the purchase form that your application to obtain a number is
pending. The Fund is required to withhold taxes if a number is not delivered to
the Fund within seven days.
This summary is not intended to be and should not be construed to be
legal or tax advice to any current holder of the Fund's shares. You should
consult your own tax advisors to determine the tax consequences of owning Fund
shares.
FINANCIAL HIGHLIGHTS
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Because the Fund has recently been formed, there are no financial
highlights to report.
THE ARBITRAGE FUND
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Adviser
WATER ISLAND CAPITAL, LLC
61 West Ninth Street
New York, NY 10011
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Distributor
QUASAR DISTRIBUTORS, LLC
615 East Michigan Street
Milwaukee, WI 53202
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Transfer Agent
FIRSTAR MUTUAL FUND SERVICES, LLC
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202
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Custodian
FIRSTAR BANK, N.A.
425 Walnut Street
Cincinnati, OH 45202
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Additional information about the Fund is included in the Statement of Additional
Information. The Statement of Additional Information is incorporated into this
prospectus by reference (i.e., legally made a part of this prospectus). The
Statement of Additional Information provides more details about the Fund's
policies and management. Additional information about the Fund's investments is
available in the Fund's annual and semiannual reports to shareholders. In the
Fund's annual report, you will find a discussion of the market conditions and
strategies that significantly affected the Fund's performance during its last
fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make shareholder inquires about the Fund,
please call 1-888-___-____. You may also write to:
THE ARBITRAGE FUNDS
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
You may review and obtain copies of Fund information at the SEC Public Reference
Room in Washington, D.C. Please call 1-202-942-8090 for information relating to
the operation of the Public Reference Room. Reports and other information about
the Fund are available on the EDGAR Database on the SEC's Internet site at
HTTP://WWW.SEC.GOV. Copies of the information may be obtained, after paying a
duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing the Public Reference Section, Securities and
Exchange Commission, Washington, D.C. 20549-0102.
Investment Company Act File # 811-_____
THE ARBITRAGE FUND
a Series of The Arbitrage Funds
A no-load, open-end, non-diversified investment company which
seeks capital growth by engaging in merger arbitrage.
STATEMENT OF ADDITIONAL INFORMATION
________________, 2000
This Statement of Additional Information is not a prospectus
and should be read in conjunction with the prospectus of The Arbitrage Fund, a
copy of which may be obtained without charge by contacting the Fund's Transfer
Agent, Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, Wisconsin
53201-0701 or 1-________________.
TABLE OF CONTENTS
THE TRUST......................................................................3
INVESTMENT RESTRICTIONS........................................................3
INVESTMENT OBJECTIVES AND POLICIES.............................................6
MANAGEMENT....................................................................14
INVESTMENT ADVISER............................................................15
THE DISTRIBUTOR...............................................................17
DISTRIBUTION PLAN.............................................................17
ALLOCATION OF PORTFOLIO BROKERAGE.............................................17
PORTFOLIO TURNOVER............................................................18
FUND ADMINISTRATION...........................................................19
FUND ACCOUNTING AND TRANSFER AGENT............................................19
CUSTODIAN.....................................................................19
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................19
TAX STATUS....................................................................22
PERFORMANCE INFORMATION.......................................................27
INDEPENDENT ACCOUNTANTS.......................................................28
COUNSEL.......................................................................28
FINANCIAL STATEMENTS..........................................................28
THE TRUST
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The Arbitrage Funds (the "Trust"), an open-end management investment
company, was organized as a Delaware business trust on December 22, 1999. The
Trust currently offers one series of shares to investors, The Arbitrage Fund.
The Fund is a non-diversified series and has its own investment objective and
policies. The Trust may start another series and offer shares of a new fund
under the Trust at any time.
Shares of the Fund have equal voting rights and liquidation rights, and
are voted in the aggregate and not by Fund except in matters where a separate
vote is required by the Investment Company Act of 1940 (the "1940 Act") or when
the matter affects only the interest of a particular Fund. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each full share owned and fractional votes for fractional shares owned. The
Trust does not normally hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the 1940 Act in order to
facilitate communications among shareholders.
Each share of the Fund represents an equal proportionate interest in
the assets and liabilities belonging to that Fund with each other share of that
Fund and is entitled to such dividends and distributions out of the income
belonging to the Fund as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
any Fund into a greater or lesser number of shares of that Fund so long as the
proportionate beneficial interests in the assets belonging to that Fund and the
rights of shares of any other Fund are in no way affected. In case of any
liquidation of a Fund, the holders of shares of the Fund being liquidated will
be entitled to receive as a class a distribution out of the assets, net of the
liabilities, belonging to that Fund. Expenses attributable to any Fund are borne
by that Fund. Any general expenses of the Trust not readily identifiable as
belonging to a particular Fund are allocated by or under the direction of the
Trustees in such manner as the Trustees allocate such expenses on the basis of
relative net assets or number of shareholders. No shareholder is liable to
further calls or to assessment by the Trust without his or her express consent.
The assets of the Fund received for the issue or sale of its shares,
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, shall constitute the underlying assets of the Fund. In the
event of the dissolution or liquidation of the Fund, the holders of shares of
the Fund are entitled to share pro rata in the net assets of the Fund available
for distribution to shareholders.
INVESTMENT RESTRICTIONS
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The following investment restrictions have been adopted by the Fund as
fundamental policies and may be changed only by the affirmative vote of a
majority of the outstanding shares of the Fund. As used in this Statement of
Additional Information and in the Fund's prospectus, the term "majority of the
outstanding shares of the Fund" means the vote of whichever is less:
(1) 67% or more of the Fund's shares present at a meeting, if the holders of
more than 50% of the outstanding shares of the Fund are present or represented
by proxy, or
(2) more than 50% of the Fund's outstanding shares.
These investment restrictions provide that:
(1) The Fund may not issue senior securities other than to evidence borrowings
or short sales as permitted.
(2) The Fund may not borrow money except that it may borrow:
(a) from banks to purchase or carry securities or other investments,
(b) from banks for temporary or emergency purposes, or
(c) by entering into reverse repurchase agreements,
if, immediately after any such borrowing, the value of the
Fund's assets, including all borrowings then outstanding less
its liabilities, is equal to at least 300% of the aggregate
amount of borrowings then outstanding (for the purpose of
determining the 300% asset coverage, the Fund's liabilities will
not include amounts borrowed). Any such borrowings may be
secured or unsecured. The Fund may issue securities (including
senior securities) appropriate to evidence the indebtedness,
including reverse repurchase agreements, which the Fund is
permitted to incur.
(3) The Fund may not underwrite or participate in the marketing of
securities issued by other persons except to the extent that the
Fund may be deemed to be an underwriter under federal securities
laws in connection with the disposition of portfolio securities.
(4) The Fund may not concentrate its investments in any industry, with the
exception of securities of companies engaged in mergers or other type of
corporate reorganization and securities issued or guaranteed by the U.S.
Government, its agencies, and instrumentalities. No more than 25% of the
value of the total assets of the Fund may be invested in the securities of
issuers having their principal business activities in the same industry.
Except during temporary defensive periods, not less than 65% of the Fund's
total assets will be invested in the securities of companies involved in
publicly announced mergers, takeovers, tender offers, leveraged buyouts,
spin-offs, liquidations and other corporate reorganizations.
(5) The Fund may not purchase or sell real estate or real estate
mortgage loans as such, but this restriction shall not prevent
the Fund from investing in readily marketable interests in real
estate investment trusts, readily marketable securities of
companies which invest in real estate, or obligations secured by
real estate or interests therein.
(6) The Fund may not purchase or sell commodities or commodity contracts.
(7) The Fund will not lend any of its assets, except that it may lend up to
1/3 of its portfolio securities.
(8) The Fund may not purchase securities on margin, except that the
Fund may obtain such short-term credits as may be necessary for
the clearance of purchases and sales of securities.
(9) The Fund may not pledge, mortgage or hypothecate its assets, except that to
secure borrowings.
(10) The Fund will not invest or knowingly purchase or otherwise
acquire securities more than 15% of the value of its net assets
in illiquid securities and restricted securities. Restricted
securities are those that are subject to legal or contractual
restrictions on resale. Illiquid securities are those securities
without readily available market quotations, including
repurchase agreements having a maturity of more than seven days.
(11) The Fund may not purchase warrants, valued at the lower of cost or market,
in excess of 5% of the net assets of the Fund (taken at current value); provided
that this shall not prevent the purchase, ownership, holding or sale of warrants
of which the grantor is the issuer of the underlying securities. Included within
that amount, but not to exceed 2% of the value of the Fund's net assets, may be
warrants that are not listed on the New York or American Stock Exchange.
Warrants acquired by the Fund at any time in units or attached to securities are
not subject to this restriction.
(12) The Fund may not invest in companies for the purpose of
exercising control or management. Furthermore, the Fund may not
purchase securities of any one issuer if as a result more than
10% of the voting securities of such issuer would be held by the
Fund.
(13) The Fund may not purchase or retain the securities of any
issuer, other than its own securities, if, to the knowledge of
the Fund's management, the Trustees and officers, or the
directors and employees of the Fund's investment adviser, who
individually own beneficially more than 1/2% of the outstanding
securities of such issuer, together own beneficially more than
5% of such outstanding securities.
Non-fundamental restrictions may be amended by a majority vote of the
Trustees of the Fund. Under the non-fundamental investment restrictions, the
Fund may not:
(14) The Fund may not make short sales of securities (unless by virtue of its
ownership of other securities at the time of such sale, it owns or has a
prospective right to receive, without the payment of additional compensation,
securities equivalent in kind and amount to the securities sold). The total
market value of all securities sold short may not exceed 50% of the value of
the net assets of the Fund, and the value of securities of any one issuer in
which the Fund is short may not exceed the lesser of 10% of the value of the
Fund's net assets or 10% of the securities of any class of any issuer.
(15) The Fund may not (a) sell covered call options the underlying
securities of which have an aggregate value (determined as of
the date the calls are sold) exceeding 50% of the value of the
net assets of the Fund; or (b) invest in put options to the
extent that the premiums on protective put options exceed 25% of
the value of its net assets; provided that the provisions of
this paragraph shall not prevent the purchase, ownership,
holding or sale of forward contracts with respect to foreign
securities or currencies.
(16) The Fund may not purchase securities of other investment companies, except
in accordance with the 1940 Act.
If a particular percentage restriction as set forth above is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from a change in values or assets will not constitute a violation of that
restriction.
INVESTMENT OBJECTIVES AND POLICIES
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A more detailed discussion of some of the investment strategies and
policies described in the Prospectus (see "Investment Objectives, Policies and
Risks") appears below:
MERGER ARBITRAGE
Although a variety of strategies may be employed depending upon the
nature of the reorganizations selected for investment, the most common merger
arbitrage activity involves purchasing the shares of an announced acquisition
target at a discount from the expected value of such shares upon completion of
the acquisition. The size of the discount, or spread, and whether the potential
reward justifies the potential risk, are functions of numerous factors affecting
the riskiness and timing of the acquisition. Such factors include the status of
the negotiations between the two companies (for example, spreads typically
narrow as the parties advance from an agreement in principle to a definitive
agreement), the complexity of the transaction, the number of regulatory
approvals required, the likelihood of government intervention on antitrust or
other grounds, the type of consideration to be received and the possibility of
competing offers for the target company.
Because the expected gain on an individual arbitrage investment is
normally considerably smaller than the possible loss should the transaction be
unexpectedly terminated, Fund assets will not be committed unless the proposed
acquisition or other reorganization plan appears to the Adviser to have a
substantial probability of success. The expected timing of each transaction is
also extremely important since the length of time that the Fund's capital must
be committed to any given reorganization will affect the rate of return realized
by the Fund, and delays can substantially reduce such returns. See "Portfolio
Turnover."
Trading to seek short-term capital appreciation can be expected to
cause the Fund's portfolio turnover rate to be substantially higher than that of
the average equity-oriented investment company and, as a result, may involve
increased brokerage commission costs which will be borne directly by the Fund
and ultimately by its investors. See "Allocation of Portfolio Brokerage" and
"Portfolio Turnover." Certain investments of the Fund may, under certain
circumstances, be subject to rapid and sizable losses, and there are additional
risks associated with the Fund's overall investment strategy, which may be
considered speculative.
SPECIAL RISKS OF OVER-THE-COUNTER OPTIONS TRANSACTIONS
As part of its merger arbitrage strategy, the Fund may engage in
transactions in options and futures contracts that are traded over-the-counter
("OTC transactions"). OTC transactions differ from exchange-traded transactions
in several respects. OTC transactions are transacted directly with dealers and
not with a clearing corporation. Without the availability of a clearing
corporation, OTC transaction pricing is normally done by reference to
information from market makers, which information is carefully monitored by the
Investment Adviser and verified in appropriate cases.
As the OTC transactions are transacted directly with dealers, there is
a risk of nonperformance by the dealer as a result of the insolvency of such
dealer or otherwise, in which event the Fund may experience a loss. An OTC
transaction may only be terminated voluntarily by entering into a closing
transaction with the dealer with whom the Fund originally dealt. Any such
cancellation, if agreed to, may require the Fund to pay a premium to that
dealer. In those cases in which the Fund has entered into a covered transaction
and cannot voluntarily terminate the transaction, the Fund will not be able to
sell the underlying security until the investment instrument expires or is
exercised or different cover is substituted. In such cases, the Fund may not be
able to sell an underlying security even though it might otherwise be
advantageous to do so.
It is the Fund's intention to enter into OTC transactions only with
dealers which agree to, and which are expected to be capable of, entering into
closing transactions with the Fund, although there is no assurance that a dealer
will voluntarily agree to terminate the transaction. There is also no assurance
that the Fund will be able to liquidate an OTC transaction at any time prior to
expiration. OTC transactions for which there is no adequate secondary market
will be considered illiquid.
ADDITIONAL INFORMATION ON INVESTMENT SECURITIES
The Fund may invest in the following types of securities including
those discussed in the Prospectus:
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from
one to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. The Fund will only invest in commercial paper
rated A-1 by Standard & Poor's Ratings Group ("Standard & Poor's") or Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or unrated paper of issuers who have
outstanding unsecured debt rated AA or better by Standard & Poor's or Aa or
better by Moody's. Certain notes may have floating or variable rates. Variable
and floating rate notes with a demand notice period exceeding seven days will be
subject to each Fund's policy with respect to illiquid investments unless, in
the judgment of the Investment Adviser, such note is liquid.
The rating of Prime-1 is the highest commercial paper rating assigned
by Moody's. Among the factors considered by Moody's in assigning ratings are the
following: valuation of the management of the issuer; economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
strength of the issuer's parent company and the relationships which exist with
the issuer; and recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations. These factors are all considered in determining
whether the commercial paper is rated Prime-1. Issuers of commercial paper rated
A (highest quality) by Standard & Poor's have the following characteristics:
liquidity ratios are adequate to meet cash requirements; long-term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed; the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances; typically, the issuer's industry is well established and the
issuer has a strong position within the industry; and the reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1.
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Fund may
invest consist of certificates of deposit, bankers' acceptances and time
deposits issued by national banks and state banks, trust companies and mutual
savings banks, or by banks or institutions the accounts of which are insured by
the Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation. Certificates of deposit are negotiable certificates
evidencing the indebtedness of a commercial bank to repay funds deposited with
it for a definite period of time (usually from 14 days to one year) at a stated
or variable interest rate. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft which has been drawn on it by
a customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. The Fund will not invest in time
deposits maturing in more than seven days if, as a result thereof, more than 15%
of the value of its net assets would be invested in such securities and other
illiquid securities.
REPURCHASE AGREEMENTS. Repurchase agreements are agreements by which a
person purchases a security and simultaneously commits to resell that security
to the seller (a member bank of the Federal Reserve System or recognized
securities dealer) at an agreed upon price on an agreed upon date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the seller to
repurchase the securities at the agreed upon price, which obligation is in
effect secured by the value of the underlying security. The Fund may enter into
repurchase agreements with respect to obligations in which the Fund is
authorized to invest.
WARRANTS. The Fund may invest a portion of its assets in warrants, but
only to the extent that such investments do not exceed 5% of the Fund's net
assets at the time of purchase. A warrant gives the holder a right to purchase
at any time during a specified period a predetermined number of shares of common
stock at a fixed price. Unlike convertible debt securities or preferred stock,
warrants do not pay a fixed coupon or dividend. Investments in warrants involve
certain risks, including the possible lack of a liquid market for resale of the
warrants, potential price fluctuations as a result of speculation or other
factors, and failure of the price of the underlying security to reach or have
reasonable prospects of reaching a level at which the warrant can be prudently
exercised (in which event the warrant may expire without being exercised,
resulting in a loss of the Fund's entire investment therein).
INITIAL PUBLIC OFFERINGS. The Fund may purchase shares in initial
public offerings (IPOs). Because IPO shares frequently are volatile in price,
the Fund may hold IPO shares for a very short period of time. This may increase
the turnover of the Fund's portfolio and may lead to increased expenses to the
Fund, such as commissions and transaction costs. By selling shares, the Fund may
realize taxable capital gains that it will subsequently distribute to
shareholders. Investing in IPOs have added risks because their shares are
frequently volatile in price. As a result, their performance can be more
volatile and they face greater risk of business failure, which could increase
the volatility of the Fund's portfolio.
FOREIGN SECURITIES. Subject to the Fund's investment policies and
quality standards, the Fund may invest in the securities of foreign issuers
listed on foreign securities exchanges or over-the-counter markets, or which are
represented by American Depository Receipts and listed on domestic securities
exchange or traded in the United States on over-the-counter markets.
Because the Fund may invest in foreign securities, an investment in the
Fund involves risks that are different in some respects from an investment in a
fund that invests only in securities of U.S. domestic issuers. Foreign
investments may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. There may be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
There may be less governmental supervision of securities markets, brokers and
issuers of securities. Securities of some foreign companies are less liquid or
more volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Settlement practices may include delays and may differ from those customary in
United States markets. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States. Finally, there are many
differences in government regulation and supervision of foreign securities
exchanges, brokers, listed companies and banks compared to the United States.
These differences could negatively impact foreign securities in which the Fund
invests.
NON-DIVERSIFICATION OF INVESTMENTS. The Fund is non-diversified under
the 1940 Act, which means that there is no restriction under the 1940 Act on how
much the Fund may invest in the securities of any one issuer. However, to
qualify for tax treatment as a regulated investment company under the Internal
Revenue Code ("Code"), the Fund intends to comply, as of the end of each taxable
quarter, with certain diversification requirements imposed by the Code. Pursuant
to these requirements, the Fund 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 Fund, with respect to 50% of
its total assets, will limit its 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. As a non-diversified investment
company, the Fund may be subject to greater risks than diversified companies
because of the possible fluctuation in the values of securities of fewer
issuers.
WRITING COVERED CALL OPTIONS. The Fund may write covered call options
on equity securities or futures contracts to earn premium income, to assure a
definite price for a security that the Fund has considered selling, or to close
out options previously purchased. A call option gives the holder (buyer) the
right to purchase a security or futures contract at a specified price (the
exercise price) at any time until a certain date (the expiration date). A call
option is "covered" if the Fund owns the underlying security subject to the call
option at all times during the option period. A covered call writer is required
to deposit in escrow the value of underlying security in accordance with the
rules of the exchanges on which the option is traded and the appropriate
clearing agency.
The writing of covered call options is a conservative investment
technique that the Investment Adviser believes involves relatively little risk.
However, there is no assurance that a closing transaction can be effected at a
favorable price. During the option period, the covered call writer has, in
return for the premium received, given up the opportunity for capital
appreciation above the exercise price should the market price of the underlying
security increase, but has retained the risk of loss should the price of the
underlying security decline.
WRITING COVERED PUT OPTIONS. The Fund may write covered put options on
equity securities and futures contracts to assure a definite price for a
security if they are considering acquiring the security at a lower price than
the current market price or to close out options previously purchased. A put
option gives the holder of the option the right to sell, and the writer has the
obligation to buy, the underlying security at the exercise price at any time
during the option period. The operation of put options in other respects is
substantially identical to that of call options. When the Fund writes a covered
put option, it maintains in a segregated escrow account the value of underlying
security in accordance with the rules of the exchanges on which the option is
traded and the appropriate clearing agency.
The risks involved in writing put options include the risk that a
closing transaction cannot be effected at a favorable price and the possibility
that the price of the underlying security may fall below the exercise price, in
which case a Fund may be required to purchase the underlying security at a
higher price than the market price of the security at the time the option is
exercised.
OPTIONS TRANSACTIONS GENERALLY. The Fund may write both covered and
uncovered options. Option transactions in which the Fund may engage involve the
specific risks described above as well as the following risks:
o the writer of an option may be assigned an exercise at any time during the
option period;
o disruptions in the markets for underlying instruments could
result in losses for options investors;
o imperfect or no correlation between
the option and the securities being hedged;
o the insolvency of a broker could present risks for the broker's customers;
and
o market imposed restrictions may prohibit the exercise of certain options.
In addition, the option activities of the Fund may affect its portfolio
turnover rate and the amount of brokerage commissions paid by the Fund. The
success of the Fund in using the option strategies described above depends,
among other things, on the Investment Adviser's ability to predict the direction
and volatility of price movements in the options, futures contracts and
securities markets and the Investment Adviser's ability to select the proper
time, type and duration of the options.
By writing options, the Fund forgoes the opportunity to profit from an
increase in the market price of the underlying security or stock index above the
exercise price except insofar as the premium represents such a profit. The Fund
may also seek to earn additional income through receipt of premiums by writing
covered put options. The risk involved in writing such options is that there
could be a decrease in the market value of the underlying security or stock
index. If this occurred, the option could be exercised and the underlying
security would then be sold to the Fund at a higher price than its then current
market value.
The Fund may purchase put and call options to attempt to provide
protection against adverse price effects from anticipated changes in prevailing
prices of securities or stock indices. The purchase of a put option generally
protects the value of portfolio holdings in a falling market, while the purchase
of a call option generally protects cash reserves from a failure to participate
in a rising market. In purchasing a call option, the Fund would be in a position
to realize a gain if, during the option period, the price of the security or
stock index increased by an amount greater than the premium paid. The Fund would
realize a loss if the price of the security or stock index decreased or remained
the same or did not increase during the period by more than the amount of the
premium. If a put or call option purchased by the Fund were permitted to expire
without being sold or exercised, its premium would represent a realized loss to
the Fund.
When writing put options the Fund will be required to segregate cash
and/or liquid securities to meet its obligations. When writing call options the
Fund will be required to own the underlying financial instrument or segregate
with its Custodian cash and/or liquid securities to meet its obligations under
written calls. By so doing, the Fund's ability to meet current obligations, to
honor redemptions or to achieve its investment objective may be impaired.
The imperfect correlation in price movement between an option and the
underlying financial instrument and/or the costs of implementing such an option
may limit the effectiveness of the strategy. The Fund's ability to establish and
close out options positions will be subject to the existence of a liquid
secondary market. Although the Fund generally will purchase or sell only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If an option purchased by the Fund
expires unexercised, the Fund will lose the premium it paid. In addition, the
Fund could suffer a loss if the premium paid by the Fund in a closing
transaction exceeds the premium income it received. When the Fund writes a call
option, its ability to participate in the capital appreciation of the underlying
obligation is limited.
It is the present intention of the Adviser not to commit greater than
25% of the Fund's net assets to option strategies.
BORROWING. The Fund may borrow from banks to increase its portfolio
holdings of securities. Such borrowings may be on a secured or unsecured basis
at fixed or variable rates of interest. The Investment Company Act of 1940
requires the Fund to maintain continuous asset coverage of not less than 300%
with respect to all borrowings. This allows the Fund to borrow for such purposes
an amount (when taken together with any borrowings for temporary or emergency
purposes as described below) equal to as much as 50% of the value of its net
assets (not including such borrowings). If such asset coverage should decline to
less than 300% due to market fluctuations or other reasons, the Fund may be
required to dispose of some of its portfolio holdings within three days in order
to reduce the Fund's debt and restore the 300% asset coverage, even though it
may be disadvantageous from an investment standpoint to dispose of assets at
that time.
The use of borrowing by the Fund involves special risk considerations
that may not be associated with other funds having similar policies. Since
substantially all of the Fund's assets fluctuate in value, whereas the interest
obligation resulting from a borrowing will be fixed by the terms of the Fund's
agreement with their lender, the asset value per share of the Fund will tend to
increase more when its portfolio securities increase in value and decrease more
when its portfolio securities decrease in value than would otherwise be the case
if the Fund did not borrow funds. In addition, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions, the
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales. The interest which the Fund must pay on borrowed money, together
with any additional fees to maintain a line of credit or any minimum average
balances required to be maintained, are additional costs which will reduce or
eliminate any net investment income and may also offset any potential capital
gains. Unless the appreciation and income, if any, on assets acquired with
borrowed funds exceed the costs of borrowing, the use of leverage will diminish
the investment performance of the Fund compared with what it would have been
without leverage.
LOANS OF PORTFOLIO SECURITIES. The Fund may make short-term loans of
its portfolio securities to banks, brokers and dealers. Lending portfolio
securities exposes a Fund to the risk that the borrower may fail to return the
loaned securities or may not be able to provide additional collateral or that
the Fund may experience delays in recovery of the loaned securities or loss of
rights in the collateral if the borrower fails financially. To minimize these
risks, the borrower must agree to maintain collateral marked to market daily, in
the form of cash and/or U.S. Government obligations, with the Fund's Custodian
in an amount at least equal to the market value of the loaned securities. The
Fund will limit the amount of its loans of its portfolio securities to no more
than 33 1/3% of its total assets.
Under applicable regulatory requirements (which are subject to change),
the loan collateral must, on each business day, at least equal the value of the
loaned securities. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank must be satisfactory to the
Fund. The Fund receives amounts equal to the dividends or interest on loaned
securities and also receives one or more of:
(a) negotiated loan fees,
(b) interest on securities used as collateral, or
(c) interest on short-term debt securities purchased with such collateral;
Either type of interest may be shared with the borrower.
The Fund may also pay fees to placing brokers as well as custodian and
administrative fees in connection with loans. Fees may only be paid to a placing
broker provided that the Trustees determine that the fee paid to the placing
broker is reasonable and based solely upon services rendered, that the Trustees
separately consider the propriety of any fee shared by the placing broker with
the borrower, and that the fees are not used to compensate the Adviser or any
affiliated person of the Trust or an affiliated person of the Adviser or other
affiliated person. The terms of the Fund's loans must meet applicable tests
under the Internal Revenue Code and permit the Fund to reacquire loaned
securities on five days' notice or in time to vote on any important matter.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933 (the "Securities
Act"), securities which are otherwise not readily marketable and securities such
as repurchase agreements having a maturity of longer than seven days. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption requirements. A mutual fund might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. The Board of Trustees may determine that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid. The Fund will not invest more than 15% of the
value of its net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice, non negotiable
fixed time deposits with maturates over seven days, over-the-counter options and
certain restricted securities not determined by the Trustee to be liquid.
SHORT SALES: The Fund may employ various hedging techniques, such as
short selling in an effort to reduce the risks associated with certain of its
investments. For example, when the terms of a proposed acquisition call for the
exchange of common stock and/or other securities, the common stock of the
company to be acquired may be purchased and, at approximately the same time, the
amount of the acquiring company's common stock and/or other securities to be
received may be sold short. The Investment Adviser will make any such short sale
with the intention of later closing out (or covering) the short position with
the securities of the acquiring company received once the acquisition was
consummated. The purpose of the short sale is to protect against a decline in
the market value of the acquiring company's securities prior to the
acquisition's completion. However, should the acquisition be called off or
otherwise not completed, the Fund may realize losses on both its long position
in the target company's shares and its short position in the acquirer's
securities. At all times when the Fund does not own securities which are sold
short, the Fund will maintain long securities available for collateral
consisting of cash, cash equivalents and liquid securities equal in value on a
daily marked-to-market basis to the securities sold short.
EQUITY SWAP AGREEMENTS: The Fund may also enter into equity swap
agreements for the purpose of attempting to obtain a desired return or exposure
to certain equity securities or equity indices in an expedited manner or at a
lower cost to the Fund than if the Fund had invested directly in such
securities.
Swap agreements are two party contracts entered into primarily by
institutional investors for periods ranging from a few weeks to more than one
year. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are generally calculated with respect to a "notional
amount," I.E., the return on, or increase in value of a particular dollar amount
invested in a "basket" of particular securities or securities representing a
particular index.
Forms of swap agreements include:
(1) equity or index caps, under which, in return for a premium, one
party agrees to make payment to the other to the extent that the
return on securities exceeds a specified rate, or "cap";
(2) equity or index floors, under which, in return for a premium, one
party agrees to make payments to the other to the extent that the
return on securities fall below a specified level, or "floor"; and
(3) equity or index collars, under which a party sells a cap and
purchases a floor or vice versa in an attempt to protect itself
against movements exceeding given minimum or maximum levels.
Parties may also enter into bilateral swap agreements, which obligate
one party to pay the amount of any net appreciation in a basket or index of
securities while the counterparty is obligated to pay the amount of any net
depreciation.
The "notional amount" of the swap agreement is only a fictive basis on
which to calculate the obligations that the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by the Fund would
calculate the obligations of the parties to the agreement on a "net basis."
Consequently, the Fund's current obligations (or rights) under a swap agreement
will generally be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). The Fund's current obligations under a swap
agreement will be accrued daily (offset against amounts owed to the Fund) and
any accrued but unpaid net amounts owed to a swap counterparty will be covered
by the maintenance of a segregated account consisting of liquid assets. The Fund
will not enter into a swap agreement with any single party if the net amount
owed or to be received under existing contracts with that party would exceed 10%
of the Fund's net assets.
Whether the Fund's use of swap agreements will be successful in
furthering its investment objective will depend on the Investment Adviser's
ability to predict correctly whether certain types of investments are likely to
produce greater returns than other investments. Moreover, the Fund bears the
risk of loss of the amount expected to be received under a swap agreement in the
event of the default or bankruptcy of a swap agreement counterparty. The
Investment Adviser will cause the Fund to enter into swap agreements only with
counterparties that would be eligible for consideration as repurchase agreement
counterparties under the Fund's repurchase agreement guidelines. Certain
restrictions imposed on the Fund by the Internal Revenue Code may limit the
Fund's ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect the
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.
MANAGEMENT
- --------------------------------------------------------------------------------
The business of the Trust is managed under the direction of the Board
of Trustees in accordance with the Declaration of Trust of the Trust, which
Declaration of Trust has been filed with the Securities and Exchange Commission
and is available upon request. Pursuant to the Declaration of Trust, the
Trustees shall elect officers including a president, secretary and treasurer.
The Board of Trustees retains the power to conduct, operate and carry on the
business of the Trust and has the power to incur and pay any expenses which, in
the opinion of the Board of Trustees, are necessary or incidental to carry out
any of the Trust's purposes. The Trustees, officers, employees and agents of the
Trust, when acting in such capacities, shall not be subject to any personal
liability except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or her duties. Following is a list of
the Trustees and executive officers of the Trust and their principal occupation
over the last five years.
<TABLE>
<CAPTION>
- -------------------------------- -------- ---------------------- -----------------------------------------------------
PRINCIPAL OCCUPATION
NAME AND ADDRESS AGE POSITION DURING THE PAST FIVE YEARS
- -------------------------------- -------- ---------------------- -----------------------------------------------------
<S> <C> <C> <C>
John S. Orrico, CFA* 39 President and Trustee General Partner, Water Island Capital, LLC, the
Fund's Advisor, from January 1, 2000 to present.
Previously, Portfolio Manager & Advisor to private
trusts and entities at Lindemann Capital Partners,
L.P., a financial management firm, from 1/99 -
12/99; Portfolio Manager to private trusts and
entities at Gruss & Co., a financial management
firm, from 1994 - 1998.
- -------------------------------- -------- ---------------------- -----------------------------------------------------
</TABLE>
*John S. Orrico, as an affiliated person of Water Island Capital, LLC, the
Fund's investment adviser, is an "interested person" of the Trust within the
meaning of Section 2(a)(19) of the 1940 Act.
COMPENSATION
For their service as Trustees, the independent Trustees will receive a fee
of $500 per meeting attended, as well as reimbursement for expenses incurred in
connection with attendance at such meetings. The interested Trustees of the
Trust receive no compensation for their service as Trustees. The table below
details the estimated amount of compensation the Trustees may receive from the
Trust for the next fiscal year. Presently, none of the executive officers
receive compensation from the Trust. The aggregate compensation is provided for
the Trust.
<TABLE>
<CAPTION>
- ---------------------------- ----------------- ----------------------- ---------------------- ------------------------
NAME AND POSITION ESTIMATED PENSION OR RETIREMENT ESTIMATED ANNUAL ESTIMATED TOTAL
AGGREGATE BENEFITS ACCRUED AS BENEFITS UPON COMPENSATION FROM
COMPENSATION PART OF TRUST EXPENSES RETIREMENT TRUST AND FUND COMPLEX
FROM TRUST PAID TO TRUSTEES
- ---------------------------- ----------------- ----------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
John S. Orrico* None None None None
$ None None $
$ None None $
- ---------------------------- ----------------- ----------------------- ---------------------- ------------------------
</TABLE>
*This trustee is deemed to be an interested person as defined in the 1940 Act.
MANAGEMENT OWNERSHIP
As of [date 30 days prior to effectiveness] for organizational purposes only,
the Trustees own 100% of the outstanding shares of the Fund.
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADVISORY CONTRACT
Water Island Capital, LLC (the "Investment Adviser"), is registered as
an investment adviser with the Securities and Exchange Commission under the
Investment Advisers Act of 1940. John S. Orrico is the President of the
Investment Adviser and the only portfolio manager of the Fund. Mr. Orrico is the
sole shareholder of the Investment Adviser and there are no other affiliates to
the Fund.
Under the terms of the Investment Advisory Contract (the "Advisory
Contract") between the Trust and the Investment Adviser, the Investment Adviser
(1) manages the investment operations of the Fund and the composition
of its portfolio, including the purchase, retention and
disposition of securities in accordance with the Fund's investment
objective,
(2) provides all statistical, economic and financial information
reasonably required by the Fund and reasonably available to the
Investment Adviser,
(3) provides the Custodian of the Fund's securities on each business day with a
list of trades for that day,
and
(4) provides persons satisfactory to the Trust's Board of Trustees to act as
officers and employees of the Trust.
The Advisory Contract provides that the Fund pay all of the Fund's
expenses, including, without limitation,
(1) the costs incurred in connection with registration and
maintenance of its registration under the Securities Act of
1933, as amended, the Investment Company Act of 1940, as
amended, and state securities laws and regulations,
(2) preparation of and printing and mailing reports, notices and
prospectuses to current shareholders,
(3) transfer taxes on the sales of the Fund's shares and
on the sales of portfolio securities,
(4) brokerage commissions,
(5) custodial and shareholder transfer charges,
(6) legal, auditing and accounting expenses,
(7) expenses of servicing shareholder accounts,
(8) insurance expenses for fidelity and other coverage,
(9) fees and expenses of Trustees who are not "interested persons" within
the meaning of the Investment Company Act of 1940,
(10) expenses of Trustee and shareholder meetings and
(11) any expenses of distributing the Fund's shares which may be
payable pursuant to a Plan of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940.
The Fund is also liable for such nonrecurring expenses as may arise,
including litigation to which the Fund may be a party. The Fund has an
obligation to indemnify each of its officers and Trustees with respect to such
litigation but not against any liability to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The Investment Adviser receives an advisory fee, payable monthly, for
the performance of its services at an annual rate of 1.5% of the average daily
net assets of the Fund. The fee will be accrued daily for the purpose of
determining the offering and redemption price of the Fund's shares.
The Advisory Contract will continue in effect from year to year
provided such continuance is approved at least annually by (a) a vote of the
majority of the Fund's Trustees who are not parties thereto or "interested
persons" (as defined in the Investment Company Act of 1940) of the Fund or the
Adviser, cast in person at a meeting specifically called for the purpose of
voting on such approval and by (b) the majority vote of either all of the Fund's
Trustees or the vote of a majority of the outstanding shares of the Fund. The
Advisory Contract may be terminated without penalty on 60 days' written notice
by a vote of a majority of the Fund's Trustees or by the Adviser, or by holders
of a majority of the Fund's outstanding shares. The Advisory Contract shall
terminate automatically in the event of its assignment.]
The Fund, the Investment Adviser and the Distributor each have adopted
codes of ethics under Rule 17j-1 under the 1940 Act, which prohibit personnel
subject to the codes to invest in securities that may be purchased or sold by
the Fund.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
Quasar Distributors, LLC (the "Distributor) 615 East Michigan Street,
Milwaukee, Wisconsin, 53202, serves as principal distributor for the Trust
pursuant to an Distributor Agreement. No affiliated persons of the Fund are
affiliated persons of the Distributor.
The Distributor Agreement provides that, unless sooner terminated, it
will continue in effect from year to year, subject to annual approval by (a) the
Board of Trustees or a vote of a majority of the outstanding shares, and (b) by
a majority of the Trustees who are not interested persons of the Trust or of the
Distributor by vote cast in person at a meeting called for the purpose of voting
on such approval.
The Distributor Agreement may be terminated by the Trust at any time,
without the payment of any penalty, by vote of a majority of the entire Board of
Trustees of the Trust or by vote of a majority of the outstanding shares of the
Fund on 60 days' written notice to the Distributor, or by the Distributor at any
time, without the payment of any penalty, on 60 days' written notice to the
Trust. The Distributor Agreement will automatically terminate in the event of
its assignment.
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
The Fund has adopted a plan of distribution dated ______ (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan,
the Fund may pay to Quasar Distributors, LLC, to any broker-dealer with whom
Quasar Distributors, LLC or the Fund has entered into a contract to distribute
Fund shares, or to any other qualified financial services firm, compensation for
distribution and/or shareholder-related services with respect to shares held or
purchased by their respective customers or in connection with the purchase of
shares attributable to their efforts. The amount of such compensation paid in
any one year shall not exceed 0.25% annually of the average daily net assets of
the Fund.
The Plan provides that the Trustees will review, at least quarterly, a
report of distribution expenses incurred under the Plan and the purposes for
which such expenses were incurred. The Plan will remain in effect from year to
year provided such continuance is approved at least annually by the vote of a
majority of the Fund's Trustees who are not "interested persons" (as defined in
the Investment Company Act of 1940) of the Fund or the Adviser and who have no
direct or indirect interest in the operation of the Plan or any related
agreement (the "Rule 12b-1 Trustees"), cast in person at a meeting called for
the purpose of voting on such approval, and additionally by a vote of either a
majority of the Fund's Trustees or a majority of the outstanding shares of the
Fund.
The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees or by vote of a majority of the Fund's outstanding shares.
The Plan may not be amended to increase materially the amount of distribution
expenses payable under the Plan without approval of the Fund's shareholders. In
addition, all material amendments to the Plan must be approved by the Trustees
in the manner described above.
ALLOCATION OF PORTFOLIO BROKERAGE
- --------------------------------------------------------------------------------
Subject to the supervision of the Trustees, decisions to buy and sell
securities for the Fund are made by the Adviser. The Adviser is authorized by
the Trustees to allocate the orders placed by it on behalf of the Fund to
brokers or dealers who may, but need not, provide research or statistical
material or other services to the Fund or the Adviser for the Fund's use. Such
allocation is to be in such amounts and proportions as the Adviser may
determine.
In selecting a broker or dealer to execute each particular transaction,
the Adviser will take the following into consideration:
o the best net price available;
o the reliability, integrity and financial condition of the broker or dealer;
o the size of and difficulty in executing the order; and
o the value of the expected contribution of the broker or dealer to the
investment performance of the Fund on a continuing basis.
Brokers or dealers executing a portfolio transaction on behalf of the
Fund may receive a commission in excess of the amount of commission another
broker or dealer would have charged for executing the transaction if the Adviser
determines in good faith that such commission is reasonable in relation to the
value of brokerage, research and other services provided to the Fund.
In allocating portfolio brokerage, the Adviser may select brokers or
dealers who also provide brokerage, research and other services to other
accounts over which the Adviser exercises investment discretion. Some of the
services received as the result of Fund transactions may primarily benefit
accounts other than the Fund, while services received as the result of portfolio
transactions effected on behalf of those other accounts may primarily benefit
the Fund. The Adviser is unable to quantify the amount of commissions set forth
below which were paid as a result of such services because a substantial number
of transactions were effected through brokers which provide such services but
which were selected principally because of their execution capabilities.
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
The Fund's portfolio turnover rate is calculated by dividing the lesser
of purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. The calculation excludes from both the numerator and the
denominator (1) securities with maturities at the time of acquisition of one
year or less and (2) short positions. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs, which
will be borne directly by the Fund. A 100% turnover rate would occur if all of
the Fund's portfolio securities were replaced once within a one-year period.
The Fund will invest portions of its assets to seek short-term capital
appreciation. The Fund's investment objective and corresponding investment
policies can be expected to cause the portfolio turnover rate to be
substantially higher than that of the average equity-oriented investment
company.
Merger arbitrage investments are characterized by a high turnover rate
because, in general, a relatively short period of time elapses between the
announcement of a reorganization and its completion or termination. The majority
of mergers and acquisitions are consummated in less than six months, while
tender offers are normally completed in less than two months. Liquidations and
certain other types of corporate reorganizations usually require more than six
months to complete. The Fund will generally benefit from the timely completion
of the proposed reorganizations in which it has invested, and a correspondingly
high portfolio turnover rate would be consistent with, although it would not
necessarily ensure, the achievement of the Fund's investment objective.
Short-term trading involves increased brokerage commissions, which expense is
ultimately borne by the shareholders.
FUND ADMINISTRATION
- --------------------------------------------------------------------------------
Firstar Mutual Fund Services, LLC ("Firstar") serves as Fund
Administrator pursuant to a Fund Administration Servicing Agreement with the
Company. As such, Firstar provides all necessary bookkeeping, shareholder
recordkeeping services and share transfer services to the Fund.
Under the Fund Administration Servicing Agreement, Firstar receives an
administration fee for the Fund, at an annual rate of __ basis points (___%) on
the first $200 million, __ basis points (____%) on the next $500 million and __
basis points (___%) on the balance of the daily average net assets of the Fund.
Fees are billed to the Fund on a monthly basis.
FUND ACCOUNTING AND TRANSFER AGENT
- --------------------------------------------------------------------------------
Firstar Mutual Fund Services, LLC, serves as Fund Accountant and
Transfer Agent to the Fund pursuant to a Fund Accounting Servicing Agreement and
a Transfer Agent Servicing Agreement. Under the Fund Accounting Servicing
Agreement, Firstar will provide portfolio accounting services, expense accrual
and payment services, fund valuation and financial reporting services, tax
accounting services and compliance control services. Firstar will receive a fund
accountant fee for the Fund, which will be billed on a monthly basis.
Under the Transfer Agent Servicing Agreement, Firstar will provide all
of the customary services of a transfer agent and dividend disbursing agent
including, but not limited to: (1) receiving and processing orders to purchase
or redeem shares; (2) mailing shareholder reports and prospectuses to current
shareholders; and (3) providing blue sky services to monitor the number of Fund
shares sold in each state. Firstar will receive a transfer agent fee, which will
be billed on a monthly basis.
CUSTODIAN
- --------------------------------------------------------------------------------
The Custodian for the Trust and the Fund is Firstar Bank, N.A., 425
Walnut Street, Cincinnati, Ohio 45202, an affiliate of Firstar Mutual Fund
Services, LLC. As Custodian, Firstar Bank, N.A. holds all of securities and
cash owned by the Fund.
PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
CALCULATION OF SHARE PRICE
The net asset value per share of the Fund will be determined on each
day when the New York Stock Exchange is open for business and will be computed
by taking the aggregate market value of all assets of the Fund less its
liabilities, and dividing by the total number of shares outstanding. Each
determination will be made
(1) by valuing portfolio securities, including open short positions,
which are traded on the New York Stock Exchange, American Stock
Exchange and on the NASDAQ National Market System at the last
reported sales price on that exchange;
(2) by valuing put and call options which are traded on the Chicago
Board Options Exchange or any other domestic exchange at the last
sale price on such exchange;
(3) by valuing listed securities and put and call options for which no
sale was reported on a particular day and securities traded on the
over-the-counter market at the mean between the last bid and asked
prices; and
(4) by valuing any securities or other assets for which market
quotations are not readily available at fair value in good faith
and under the supervision of the Trustees, although others may do
the actual calculation.
The Adviser reserves the right to value securities, including options,
at prices other than last-sale prices when such last-sale prices are believed
unrepresentative of fair market value as determined in good faith by the
Adviser.
The share price (net asset value) of the shares of the Fund is
determined as of the close of the regular session of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern Time), on each day the Trust is
open for business. The Trust is open for business on every day except Saturdays,
Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
In valuing the Fund's assets for the purpose of determining net asset
value, readily marketable portfolio securities listed on a national securities
exchange are valued at the last sale price on such exchange on the business day
as of which such value is being determined. If there has been no sale on such
exchange on such day, the security is valued at the closing bid price on such
day. If no bid price is quoted on such exchange on such day, then the security
is valued by such method as the Investment Adviser under the supervision of the
Board of Trustees determines in good faith to reflect its fair value. Readily
marketable securities traded only in the over-the-counter market are valued at
the last sale price, if available, otherwise at the most recent bid price. If no
bid price is quoted on such day, then the security is valued by such method as
the Investment Adviser under the supervision of the Board of Trustees determines
in good faith to reflect its fair value. All other assets of the Fund, including
restricted securities and securities that are not readily marketable, are valued
in such manner as the Investment Adviser under the supervision of the Board of
Trustees in good faith deems appropriate to reflect their fair value.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times that vary from
the closing of the New York Stock Exchange. In computing the net asset value,
the Fund values foreign securities at the latest closing price on the exchange
on which they are traded immediately prior to the closing of the New York Stock
Exchange. Some foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If these events materially affect the value of
portfolio securities, these securities may be valued at their fair value as
determined in good faith by the Fund's Board of Trustees.
PURCHASE OF SHARES
Orders for shares received by the Trust in good order prior to the
close of business on the New York Stock Exchange (the "Exchange") on each day
during such periods that the Exchange is open for trading are priced at net
asset value per share computed as of the close of the regular session of trading
on the Exchange. Orders received in good order after the close of the Exchange,
or on a day it is not open for trading, are priced at the close of such Exchange
on the next day on which it is open for trading at the next determined net asset
value per share.
No share certificates will be issued unless requested in writing.
REDEMPTION OF SHARES
The Trust will redeem all or any portion of a shareholder's shares of
the Fund when requested in accordance with the procedures set forth in the
"Redemptions" section of the Prospectus. Under the Investment Company Act of
1940, a shareholder's right to redeem shares and to receive payment therefore
may be suspended at times:
(a) when the New York Stock Exchange is closed, other than customary weekend
and holiday closings;
(b) when trading on that exchange is restricted for any reason;
(c) when 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,
provided that applicable rules and regulations of the Securities and
Exchange Commission (or any succeeding governmental authority)
will govern as to whether the conditions prescribed in (b) or (c) exist; or
(d) when the Securities and Exchange Commission by order permits a
suspension of the right to redemption or a postponement of the
date of payment on redemption.
In case of suspension of the right of redemption, payment of a
redemption request will be made based on the net asset value next determined
after the termination of the suspension.
Supporting documents in addition to those listed under "Redemptions" in
the Fund's prospectus will be required from executors, administrators, trustees,
or if redemption is requested by one other than the shareholder of record. Such
documents include, but are not restricted to, stock powers, trust instruments,
certificates of death, appointments as executor, certificates of corporate
authority and waiver of tax required in some states when settling estates.
REDEMPTION IN KIND
Payment of the net redemption proceeds may be made either in cash or in
portfolio securities (selected in the discretion of the Investment Adviser under
supervision of the Board of Trustees and taken at their value used in
determining the net asset value), or partly in cash and partly in portfolio
securities. However, payments will be made wholly in cash unless the Board of
Trustees believes that economic conditions exist which would make such a
practice detrimental to the best interests of the Fund. If payment for shares
redeemed is made wholly or partly in portfolio securities, brokerage costs may
be incurred by the investor in converting the securities to cash. The Trust has
filed an election with the Securities and Exchange Commission pursuant to which
the Fund will effect a redemption in portfolio securities only if the particular
shareholder of record is redeeming more than $250,000 or 1% of net assets,
whichever is less, during any 90-day period. The Trust expects, however, that
the amount of a redemption request would have to be significantly greater than
$250,000 or 1% of net assets before a redemption wholly or partly in portfolio
securities would be made.
TAX STATUS
- --------------------------------------------------------------------------------
The Fund has qualified and elected to be treated as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), and intends to continue to so qualify, which requires compliance with
certain requirements concerning the sources of its income, diversification of
its assets, and the amount and timing of its distributions to shareholders. Such
qualification does not involve supervision of management or investment practices
or policies by any government agency or bureau. By so qualifying, the Fund will
not be subject to federal income or excise tax on its net investment income or
net capital gain which are distributed to shareholders in accordance with the
applicable timing requirements. Net investment income and net capital gain of
the Fund will be computed in accordance with Section 852 of the Code.
The Fund intends to distribute all of its net investment income, any
excess of net short-term capital gains over net long-term capital losses, and
any excess of net long-term capital gains over net short-term capital losses in
accordance with the timing requirements imposed by the Code and therefore will
not be required to pay any federal income or excise taxes. Distributions of net
investment income and net capital gain will be made after June 30, the end of
each fiscal year, and no later than December 31 of each year. Both types of
distributions will be in shares of the Fund unless a shareholder elects to
receive cash.
The Fund is subject to a 4% nondeductible excise tax on certain
undistributed amounts of ordinary income and capital gain under a prescribed
formula contained in Section 4982 of the Code. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of the Fund's ordinary income for the calendar year and at least 98% of its
capital gain net income (i.e., the excess of its capital gains over capital
losses) realized during the one-year period ending October 31 during such year
plus 100% of any income that was neither distributed nor taxed to the Fund
during the preceding calendar year. Under ordinary circumstances, the Fund
expects to time its distributions so as to avoid liability for this tax.
Net investment income is made up of dividends and interest less
expenses. Net capital gain for a fiscal year is computed by taking into account
any capital loss carryforward of the Fund.
The following discussion of tax consequences is for the general
information of shareholders that are subject to tax. Shareholders that are IRAs
or other qualified retirement plans are exempt from income taxation under the
Code.
To the extent that the Fund retains any of its net long-term capital
gain for the year for reinvestment, requiring federal corporate income taxes to
be paid thereon by the Fund, the Fund will elect to treat the undistributed net
long-term capital gain as having been distributed to shareholders. As a result,
each shareholder will report for federal income tax purposes its proportionate
share of the undistributed net long-term capital gain, will be able to claim his
proportionate share of federal income taxes paid by the Fund on that amount as a
credit against his own federal income tax liability and will be able to claim a
refund to the extent that the credit exceeds such tax liability. In addition,
each shareholder of the Fund will be entitled to increase the adjusted tax basis
of his Fund shares by the difference between his pro rata share of such
undistributed gain and his deemed tax credit.
Distributions of taxable net investment income and the excess of net
short-term capital gain over net long-term capital loss are taxable to
shareholders as ordinary income.
Dividends from domestic corporations may comprise some portion of the
Fund's gross income. To the extent that such dividends constitute a portion of
the Fund's gross income, a portion of the income distributions received by
corporations from the Fund may be eligible for the 70% deduction for dividends
received. Taxable corporate shareholders may be informed of the portion of
dividends that so qualify. Receipt of qualifying dividends may result in the
reduction of a corporate shareholder's tax basis in its shares by the untaxed
portion of such dividends if they are treated as "extraordinary dividends" under
Section 1059 of the Code. The dividends-received deduction is reduced to the
extent the shares of the Fund with respect to which the dividends are received
are treated as debt-financed under federal income tax law and is eliminated if
the shares are deemed to have been held for less than 46 days (91 days for
preferred stock) during the 90-day (180 days for preferred stock) period
beginning on the date which is 45 days (90 days for preferred stock) before the
ex-dividend date (for this purpose, holding periods are reduced for periods
where the risk of loss with respect to shares is diminished). The same
restrictions apply to the Fund with respect to its ownership of the
dividend-paying stock. In addition, the deducted amount is included in the
calculation of the federal alternative minimum tax, if any, applicable to such
corporate shareholders.
Distributions of net capital gain ("capital gain dividends") are
taxable to shareholders as long-term capital gain, regardless of the length of
time the shares of the Fund have been held by such shareholders. Capital gain
dividends are not eligible for the dividends-received deduction. A non-corporate
shareholder's net capital gains will be taxed at a maximum rate of 20% for
property held more than 12 months.
A redemption of Fund shares by a shareholder will result in the
recognition of taxable gain or loss depending upon the difference between the
amount realized and his tax basis in his Fund shares. Such gain or loss is
treated as a capital gain or loss if the shares are held as capital assets. In
the case of a non-corporate shareholder, if such shares were held for more than
12 months at the time of disposition such gain will be long-term capital gain
and will be taxed at a maximum effective rate of 20%; and if such shares were
held for one year or less at the time of disposition, such gain will be
short-term capital gain and will be taxed at a maximum effective rate of 39.6%.
Capital gains of corporate shareholders will be long-term or short-term
depending upon whether the shareholder's holding period exceeds one year, and
are not subject to varying effective tax rates. However, any loss realized upon
the redemption of shares within six months from the date of their purchase will
be treated as a long-term capital loss to the extent of any amounts treated as
capital gain dividends during such six-month period. All or a portion of any
loss realized upon the redemption of shares may be disallowed to the extent
shares are purchased (including shares acquired by means of reinvested
dividends) within 30 days before or after such redemption.
All distributions will be included in the individual shareholder's
alternative minimum taxable income and in the income that may be subject to tax
under the alternative minimum tax for corporations.
Distributions of taxable net investment income and net capital gain
will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
All distributions of taxable net investment income and net capital
gain, whether received in shares or in cash, must be reported by each taxable
shareholder on his or her federal income tax return. Dividends or distributions
declared in October, November or December as of a record date in such a month,
if any, will be deemed to have been received by shareholders on December 31, if
paid during January of the following year. Redemptions of shares may result in
tax consequences (gain or loss) to the shareholder and are also subject to these
reporting requirements.
Assuming sufficient earned income, an individual may generally
contribute up to $2,000 per year to a regular IRA. A regular IRA contribution
may be deductible if (1) neither the individual nor his or her spouse is an
active participant in an employer's retirement plan ("Plan Participant"), or (2)
the individual (and his or her spouse, if applicable) has an adjusted gross
income ("AGI") below a certain level ("Threshold Level"). For 1999, the
Threshold Level is $51,000 for married individuals filing a joint return (with a
phase-out of the deduction for AGI between $51,000 and $61,000) and $31,000 for
a single individual (with a phase-out of the deduction for AGI between $31,000
and $41,000). The Threshold Levels are scheduled to continue to gradually
increase through the year 2007. There is a separate Threshold Level and
phase-out limit that applies to certain individuals who are not Plan
Participants but whose spouses are Plan Participants. These "non-working
spouses" can make deductible IRA contributions for a taxable year if their AGI
does not exceed $150,000 (with a phase-out of the deduction for AGI between
$150,000 and $160,000).
There are a number of additional forms of IRA that may be available,
including a Roth IRA and an Educational IRA. Shareholders should contact their
tax advisers for more information regarding their eligibility to make IRA
contributions and the advisability of them.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
If the Fund makes a "constructive sale" of an "appreciated financial
position," the Fund will recognize gain as if the position were sold at fair
market value on the date of such constructive sale. Constructive sales include
short sales of substantially identical property, offsetting notional principal
contracts with respect to substantially identical property and futures and
forward contracts to deliver substantially identical property. However,
transactions that otherwise would be treated as constructive sales are
disregarded if closed within 30 days after the close of the taxable year and the
Fund holds the position and does not hedge such position for 60 days thereafter.
In addition, to the extent provided in regulations (which have not yet been
promulgated), a constructive sale also occurs if a taxpayer enters into one or
more other transactions (or acquires one or more positions) that have
"substantially the same effect" as the transactions described above. Appreciated
financial positions include positions with respect to stock, debt, instruments
or partnership interests if gain would be recognized on a disposition at fair
market value. If the constructive sale rules apply, adjustments are made to the
basis and holding period of the affected financial position.
Equity options (including call and put options on stock) and
over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. The character of any gain
or loss recognized (i.e., long-term or short-term) generally will depend, in the
case of a lapse or sale of the option, on the Fund's holding period for the
option, and in the case of an exercise of the option, on the Fund's holding
period for the underlying security. The purchase of a put option may constitute
a short sale for federal income tax purposes, causing an adjustment in the
holding period of the underlying security or a substantially identical security
in the Fund's portfolio. If the Fund writes a put or call option, no gain is
recognized upon its receipt of a premium. If the option lapses or is closed out,
any gain or loss is treated as short-term capital gain or loss. If a call option
is exercised, the character of the gain or loss depends on the holding period of
the underlying security. The exercise of a put option written by the Fund is not
a taxable transaction for the Fund.
Any listed non-equity options written or purchased by the Fund
(including options on debt securities) will be governed by Section 1256 of the
Code. Absent a tax election to the contrary, gain or loss attributable to the
lapse, exercise or closing out of any such position will be treated as 60%
long-term and 40% short-term capital gain or loss, and on the last trading day
of the Fund's fiscal year, all outstanding Section 1256 positions will be marked
to market (i.e., treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of the gain or
loss from the disposition of non-U.S. dollar denominated securities (including
debt instruments, certain financial forward, futures and option contracts, and
certain preferred stock) may be treated as ordinary income or loss under Section
988 of the Internal Revenue Code. In addition, all or a portion of the gain
realized from the disposition of market discount bonds will be treated as
ordinary income under Section 1276 of the Internal Revenue Code. Generally, a
market discount bond is defined as any bond bought by the Fund after its
original issuance at a price below its face or accreted value. Finally, all or a
portion of the gain realized from engaging in "conversion transactions" may be
treated as ordinary income under Section 1258 of the Internal Revenue Code.
"Conversion transactions" are defined to include certain forward, futures,
option and straddle transactions, transactions marketed or sold to produce
capital gains, or transactions described in Treasury regulations to be issued in
the future.
Offsetting positions held by the Fund involving certain financial
forward, futures or options contracts (including certain foreign currency
forward contracts or options) may constitute "straddles." "Straddles" are
defined to include "offsetting positions" in actively traded personal property.
The tax treatment of "straddles" is governed by Sections 1092 and 1258 of the
Internal Revenue Code, which, in certain circumstances, override or modify the
provisions of Sections 1256 and 988. If the Fund were treated as entering into
"straddles" by reason of its engaging in certain forward contracts or options
transactions, such "straddles" would be characterized as "mixed straddles" if
the forward contracts or options transactions comprising a part of such
"straddles" were governed by Section 1256. The Fund may make one or more
elections with respect to "mixed straddles." Depending on which election is
made, if any, the results to the Fund may differ. If no election is made to the
extent the "straddle" rules apply to positions established by the Fund, losses
realized by the Fund will be deferred to the extent of unrealized gain in the
offsetting position. Moreover, as a result of the "straddle" rules, short-term
capital loss on "straddle" positions may be re-characterized as long-term
capital loss, and long-term capital gains may be treated as short-term capital
gains.
Under the Code, the Fund will be required to report to the Internal
Revenue Service all distributions of taxable income and capital gains as well as
gross proceeds from the redemption or exchange of Fund shares, except in the
case of certain exempt shareholders. Under the backup withholding provisions of
Section 3406 of the Code, distributions of taxable net investment income and net
capital gain and proceeds from the redemption or exchange of the shares of a
regulated investment company may be subject to withholding of federal income tax
at the rate of 31% in the case of non-exempt shareholders who fail to furnish
the investment company with their taxpayer identification numbers and with
required certifications regarding their status under the federal income tax law,
or if the Fund is notified by the IRS or a broker that withholding is required
due to an incorrect TIN or a previous failure to report taxable interest or
dividends. If the withholding provisions are applicable, any such distributions
and proceeds, whether taken in cash or reinvested in additional shares, will be
reduced by the amounts required to be withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
A brief explanation of the form and character of the distribution
accompany each distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The Fund is organized as a Delaware business trust and generally will
not be liable for any income or franchise tax in the State of Delaware. If the
Fund qualifies as a regulated investment company for federal income tax purposes
and pays no federal income tax, it generally will also not be liable for New
York State income taxes, other than a nominal corporation franchise tax (as
adjusted by the applicable New York State surtaxes).
The foregoing discussion is a general summary of certain of the
material U.S. federal income tax consequences to U.S. persons (as defined below)
of owning and disposing of shares in the Fund. This summary is based on the
provisions of the Code, final, temporary and proposed U.S. Treasury Regulations
promulgated thereunder, and administrative and judicial interpretations thereof,
all as in effect on the date hereof, and all of which are subject to change,
possibly with retroactive effect.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons; i.e., U.S. citizens and
residents and U.S. domestic corporations, partnerships, estates the income
of which is includible in its gross income for U.S. federal income tax purposes
without regard to its source, or trusts if either: (1) a U.S. court is able to
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all the substantial decisions of
the trust or (2) the trust was in existence on August 20, 1996 and, in general,
would have been treated as a U.S. person under rules applicable prior to such
time, provided the trust elects to continue such treatment thereafter. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30%
(or at a lower rate under an applicable income tax treaty) on amounts
constituting ordinary income received by him or her.
This summary does not deal with all aspects of U.S. federal income
taxation that may be relevant to particular shareholders in light of their
particular circumstances. Accordingly, shareholders should consult their tax
advisers about the application of the provisions of tax law described in this
statement of additional information in light of their particular tax situations.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
TOTAL RETURN
Average annual total return quotations that may be used in the Fund's
advertising and promotional materials are calculated according to the following
formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period.
Under the foregoing formula, the time periods used in any advertising
will be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication. Average
annual total return, or "T" in the above formula, is computed by finding the
average annual compounded rates of return over the period that would equate the
initial amount invested to the ending redeemable value. Average annual total
return assumes the reinvestment of all dividends and distributions.
The calculation assumes an initial $1,000 payment and assumes all
dividends and distributions by the Fund are reinvested at the price stated in
the Prospectus on the reinvestment dates during the period, and includes all
recurring fees that are charged to all shareholder accounts.
The Fund may also calculate total return on a cumulative basis that
reflects the cumulative percentage change in value over the measuring period.
The formula for calculating cumulative total return can be expressed as follows:
Cumulative Total Return = [ (ERV) - 1 ]
----
P
OTHER INFORMATION
The Fund's performance data quoted in any advertising and other
promotional materials represents past performance and is not intended to predict
or indicate future results. The return and principal value of an investment in
the Fund will fluctuate, and an investor's redemption proceeds may be more or
less than the original investment amount.
COMPARISON OF FUND PERFORMANCE
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., Morningstar, Inc. or other independent services which
monitor the performance of investment companies, and may be quoted in
advertising in terms of its ranking in each applicable universe. In addition,
the Fund may use performance data reported in financial and industry
publications, including Barron's, Business Week, Forbes, Fortune, Investor's
Daily, IBC/Donoghue's Money Fund Report, Money Magazine, The Wall Street Journal
and USA Today.
The Fund may from time to time use the following unmanaged index for
performance comparison purposes:
S&P 500 Index -- the S&P 500 is an index of 500 stocks
designed to mirror the overall equity market's industry weighting. Most, but not
all, large capitalization stocks are in the Index. There are also some small
capitalization names in the Index. Standard & Poor's Corporation maintain the
Index. It is market capitalization weighted. There are always 500 issuers in the
S&P 500. Standard & Poor's makes changes as needed.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Fund has selected , ______________, Milwaukee, Wisconsin 53202, as
its independent accountants.
COUNSEL
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Because the Fund has recently been formed, there are no financial
highlights to report.
THE ARBITRAGE FUNDS
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) DECLARATION OF TRUST
(i) Certificate of Trust -- Filed herewith
(ii) Agreement and Declaration of Trust -- Filed herewith
(b) BYLAWS - Filed herewith
(c) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS -- Incorporated by
reference to the Agreements and Declaration of Trust and Bylaws
(d) ADVISORY AGREEMENT-- To be filed by amendment
(e) UNDERWRITING AGREEMENT-- To be filed by amendment.
(f) BONUS OR PROFIT SHARING CONTRACTS - Not applicable
(g) CUSTODY AGREEMENT-- To be filed by amendment.
(h) OTHER MATERIAL CONTRACTS
(i) Administration Agreement-- To be filed by amendment.
(ii) Transfer Agent Servicing Agreement-- To be filed by amendment.
(iii) Fund Accounting Services Agreement-- To be filed by amendment.
(i) OPINION AND CONSENT OF COUNSEL-- To be filed by amendment.
(j) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS -- To be filed by amendment.
(k) OMITTED FINANCIAL STATEMENTS - Not applicable
(l) AGREEMENT RELATING TO INITIAL CAPITAL -- To be filed by amendment.
(m) RULE 12B-1 PLAN - To be filed by amendment.
(n) RULE 18F-3 PLAN - Not applicable
(o) RESERVED
(p) CODE OF ETHICS - To be filed by amendment
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is directly or indirectly controlled by or under common
control with the Registrant.
ITEM 25. INDEMNIFICATION.
Reference is made to Article V of the Registrant's Agreement and
Declaration of Trust.
Pursuant to Rule 484 under the Securities Act of 1933, as amended, the
Registrant furnishes the following undertaking: "Insofar as indemnification for
liability arising under the Securities Act of 1933 (the "Act") may be permitted
to trustees, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue."
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
(a) Inapplicable
(b) Inapplicable
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Quasar Distributors, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin, 53202, the Distributor for shares of the Registrant,
will also act as principal underwriter for other open-end
investment companies not yet under registration as of the date of
filing.
(b) To the best of Registrant's knowledge, the directors and executive
officers of T.O. Richardson Securities, Inc. are as follows:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES WITH QUASAR POSITIONS AND OFFICES WITH
BUSINESS ADDRESS DISTRIBUTORS, LLC REGISTRANT
- --------------------------------------------- ---------------------------------------- ------------------------------
<S> <C> <C>
James R. Schoenike President, Board Member None
- --------------------------------------------- ---------------------------------------- ------------------------------
Donna J. Berth Treasurer None
- --------------------------------------------- ---------------------------------------- ------------------------------
James J. Barresi Secretary None
- --------------------------------------------- ---------------------------------------- ------------------------------
Joe Redwine Board Member None
- --------------------------------------------- ---------------------------------------- ------------------------------
Bob Kern Board Member None
- --------------------------------------------- ---------------------------------------- ------------------------------
Paul Rock Board Member None
- --------------------------------------------- ---------------------------------------- ------------------------------
Jennie Carlson Board Member None
- --------------------------------------------- ---------------------------------------- ------------------------------
</TABLE>
The address of each of the foregoing is 615 East Michigan Street, Milwaukee,
Wisconsin, 53202.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The books and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 are maintained at the following locations:
- ------------------------------------------ -------------------------------------
Records Relating to: Are located at:
- ------------------------------------------ -------------------------------------
Registrant's fund accountant, Firstar Mutual Fund Services, LLC
administrator and transfer agent 615 East Michigan Street
Milwaukee, WI 53202
- ------------------------------------------ -------------------------------------
Registrant's Custodian Firstar Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
- ------------------------------------------ -------------------------------------
Registrant's investment adviser Water Island Capital, LLC
61 West Ninth Street
New York, NY 10011
- ------------------------------------------ -------------------------------------
ITEM 29. MANAGEMENT SERVICES NOT DISCUSSED IN PARTS A AND B.
Inapplicable
ITEM 30. UNDERTAKINGS.
The Registrant hereby undertakes to furnish each person to whom a
Prospectus for one or more of the series of the Registrant is delivered with a
copy of the relevant latest annual report to shareholders, upon request and
without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed below on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and the State of New York on
the 15th day of February, 2000.
THE ARBITRAGE FUNDS
BY: /S/ JOHN ORRICO
--------------------
John Orrico
Pursuant to the requirements of the Securities Act of 1933, Registration
Statement has been signed below by the following persons in the capacities and
on February 15, 2000.
SIGNATURE TITLE
/S/ JOHN ORRICO President, Trustee
John Orrico
CERTIFICATE OF TRUST
OF
THE ARBITRAGE FUNDS
A Delaware Business Trust
THIS Certificate of Trust of The Arbitrage Funds (the "Trust"), dated
as of this 17th day of December, 1999, is being duly executed and filed, in
order to form a business trust pursuant to the Delaware Business Trust Act (the
"Act"), Del. Code Ann.tit. 12, Sections 3801-3819.
1. NAME. The name of the business trust formed hereby is "The Arbitrage Funds."
2. REGISTERED OFFICE AND REGISTERED AGENT. The Trust will become, prior to the
issuance of shares of beneficial interest, a registered investment company under
the Investment Company Act of 1940, as amended. Therefore, in accordance with
section 3807(b) of the Act, the Trust has and shall maintain in the State of
Delaware a registered office and a registered agent for service of process.
(A) REGISTERED OFFICE. The registered office of the Trust in Delaware is
The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801.
(B) REGISTERED AGENT. The registered agent for service of process
on the Trust in Delaware is The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801.
3. LIMITATION OF LIABILITY. Pursuant to section 3804(a) of the Act, the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to a particular series of the Trust, established pursuant
to the terms of the Agreement and Declaration of Trust, shall be enforceable
against the assets of such series only and not against the assets of the Trust
generally.
IN WITNESS WHEREOF, the Trustee named below does hereby execute this
Certificate of Trust as of the date first-above written.
/S/ JOHN S. ORRICO
------------------
John S. Orrico
DECLARATION OF TRUST
OF
THE ARBITRAGE FUNDS
A Delaware Business Trust
December 22, 1999
DECLARATION OF TRUST
OF
THE ARBITRAGE FUNDS
TABLE OF CONTENTS
PAGE
ARTICLE I THE TRUST............................................................1
1.1 NAME.........................................................1
1.2 TRUST PURPOSE................................................1
1.3 DEFINITIONS..................................................2
ARTICLE II TRUSTEES............................................................3
2.1 NUMBER AND QUALIFICATION.....................................3
2.2 TERM AND ELECTION............................................4
2.3 RESIGNATION AND REMOVAL......................................4
2.4 VACANCIES....................................................4
2.5 MEETINGS.....................................................5
2.6 OFFICERS; CHAIRPERSON OF THE BOARD...........................6
2.7 BY-LAWS......................................................6
ARTICLE III POWERS OF TRUSTEES.................................................6
3.1 GENERAL......................................................6
3.2 INVESTMENTS..................................................6
3.3 LEGAL TITLE..................................................7
3.4 SALE OF INTERESTS............................................7
3.5 BORROW MONEY.................................................7
3.6 DELEGATION; COMMITTEE........................................7
3.7 COLLECTION AND PAYMENT.......................................8
3.8 EXPENSES.....................................................8
3.9 MISCELLANEOUS POWERS.........................................8
3.10 FURTHER POWERS...............................................8
ARTICLE IV INVESTMENT ADVISORY, ADMINISTRATIVE, AND PLACEMENT AGENT
SERVICES.......................................................................9
4.1 INVESTMENT ADVISORY AND OTHER SERVICES.......................9
4.2 PARTIES TO CONTRACT..........................................9
ARTICLE V LIMITATIONS OF LIABILITY............................................10
5.1 NO PERSONAL LIABILITY OF TRUSTEES, OFFICERS, EMPLOYEES
OR AGENTS...................................................10
5.2 INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS......................................................10
5.3 LIABILITY OF HOLDERS; INDEMNIFICATION.......................11
5.4 NO BOND REQUIRED OF TRUSTEES................................11
5.5 NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS
ETC.........................................................11
5.6 RELIANCE ON EXPERTS, ETC....................................11
5.7 ASSENT TO DECLARATION.......................................12
ARTICLE VI INTERESTS IN THE TRUST.............................................12
6.1 GENERAL CHARACTERISTICS.....................................12
6.2 ESTABLISHMENT OF SERIES OF INTERESTS........................12
6.3 ESTABLISHMENT OF CLASSES....................................13
6.4 ASSETS OF SERIES............................................13
6.5 LIABILITIES OF SERIES.......................................14
6.6 DIVIDENDS AND DISTRIBUTIONS.................................14
6.7 VOTING RIGHTS...............................................15
6.8 RECORD DATES................................................15
6.9 TRANSFER....................................................15
6.10 EQUALITY....................................................15
6.11 FRACTIONS...................................................16
6.12 CLASS DIFFERENCES...........................................16
6.13 CONVERSION OF INTERESTS.....................................16
6.14 INVESTMENTS IN THE TRUST....................................16
6.15 TRUSTEES AND OFFICERS AS HOLDERS............................16
6.16 NO PREEMPTIVE RIGHTS; DERIVATIVE SUITS......................16
6.17 NO APPRAISAL RIGHTS.........................................17
6.18 STATUS OF INTERESTS AND LIMITATION OF PERSONAL
LIABILITY...................................................17
ARTICLE VII PURCHASES AND REDEMPTIONS.........................................17
7.1 PURCHASES...................................................17
7.2 REDEMPTION BY HOLDER........................................17
7.3 REDEMPTION BY TRUST.........................................18
7.4 NET ASSET VALUE.............................................18
ARTICLE VIII HOLDERS..........................................................19
8.1 RIGHTS OF HOLDERS...........................................19
8.2 REGISTER OF INTERESTS.......................................19
8.3 NOTICES.....................................................19
8.4 MEETINGS OF HOLDERS.........................................19
8.5 NOTICE OF MEETINGS..........................................20
8.6 RECORD DATE.................................................20
8.7 PROXIES, ETC................................................20
8.8 REPORTS.....................................................21
8.9 INSPECTION OF RECORDS.......................................21
8.10 VOTING POWERS...............................................21
8.11 HOLDER ACTION BY WRITTEN CONSENT............................21
8.12 HOLDER COMMUNICATIONS.......................................21
ARTICLE IX DURATION; TERMINATION OF TRUST;AMENDMENT; MERGERS; ETC.............22
9.1 DURATION....................................................22
9.2 TERMINATION OF TRUST........................................22
9.3 AMENDMENT PROCEDURE.........................................23
9.4 MERGER, CONSOLIDATION AND SALE OF ASSETS....................24
9.5 INCORPORATION...............................................24
ARTICLE X MISCELLANEOUS.......................................................24
10.1 CERTIFICATE OF DESIGNATION; AGENT FOR SERVICE OF
PROCESS.....................................................24
10.2 GOVERNING LAW...............................................25
10.3 COUNTERPARTS................................................25
10.4 RELIANCE BY THIRD PARTIES...................................25
10.5 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS..............25
10.6 TRUST ONLY..................................................26
10.7 WITHHOLDING.................................................26
10.8 HEADINGS AND CONSTRUCTION...................................26
DECLARATION OF TRUST
OF
THE ARBITRAGE FUNDS
This DECLARATION OF TRUST OF THE ARBITRAGE FUNDS is made
on the 22nd day of December, 1999 by the party signatory hereto, as Trustee.
WHEREAS, the Trustee desires to form a business trust
under the law of Delaware for the investment and reinvestment of its assets;
and
WHEREAS, it is proposed that the Trust assets be composed of
cash, securities and other assets contributed to the Trust by the Holders of
Interests in the Trust entitled to ownership rights in the Trust;
NOW, THEREFORE, the Trustee hereby declares that the Trustees
will hold in trust all cash, securities and other assets which they may from
time to time acquire in any manner as Trustees hereunder, and manage and dispose
of the same for the benefit of the Holders of Interests in the Trust, and
subject to the following terms and conditions.
ARTICLE I
THE TRUST
1.1 NAME. The name of the Trust created hereby (the "Trust")
shall be "THE ARBITRAGE FUNDS," and so far as may be practicable the Trustees
shall conduct the Trust's activities, execute all documents and sue or be sued
under that name, which name (and the word "Trust" wherever hereinafter used)
shall not refer to the Trustees in their individual capacities or to the
officers, agents, employees or Holders of Interest in the Trust. However, should
the Trustees determine that the use of the name of the Trust is not advisable,
they may select such other name for the Trust as they deem proper and the Trust
may hold its property and conduct its activities under such other name. Any name
change shall become effective upon the execution by a majority of the then
Trustees of an instrument setting forth the new name and the filing of a
certificate of amendment pursuant to Section 3810(b) of the DBTA. Any such
instrument shall not require the approval of the Holders of Interests in the
Trust, but shall have the status of an amendment to this Declaration.
1.2 TRUST PURPOSE. The purpose of the Trust is to conduct,
operate and carry on the business of an open-end management investment company
registered under the 1940 Act. In furtherance of the foregoing, it shall be the
purpose of the Trust to do everything necessary, suitable, convenient or proper
for the conduct, promotion and attainment of any businesses and purposes which
at any time may be incidental or may appear conducive or expedient for the
accomplishment of the business of an open-end management investment company
registered under the 1940 Act and which may be engaged in or carried on by a
trust organized under the DBTA, and in connection therewith, the Trust shall
have and may exercise all of the powers conferred by the laws of the State of
Delaware upon a Delaware business trust.
1.3 DEFINITIONS. As used in this Declaration, the following
terms shall have the following meanings:
(a) "1940 Act" shall mean the Investment
Company Act of 1940, as amended from time to time, and the rules and regulations
thereunder, as adopted or amended from time to time.
(b) "Affiliated Person," "Assignment" and
"Interested Person" shall have the meanings given such terms in the 1940 Act.
(c) "Administrator" shall mean any party
furnishing services to the Trust pursuant to any administrative services
contract described in Section 4.1.
(d) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time.
(e) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time, and the rules and regulations thereunder,
as adopted or amended from time to time.
(f) "Commission" shall mean the Securities and
Exchange Commission.
(g) "Declaration" shall mean this Declaration of
Trust, as amended from time to time. References in this Declaration to
"Declaration," "hereof," "herein" and "hereunder" shall be deemed to refer to
the Declaration rather than the article or section in which such words appear.
This Declaration shall, together with the By-Laws, constitute the governing
instrument of the Trust under the DBTA.
(h) "DBTA" shall mean the Delaware Business
Trust Act, Delaware Code Annotated Title 12, Sections 3801, ET SEQ., as
amended from time to time.
(i) "Fiscal Year" shall mean an annual period as
determined by the Trustees unless otherwise provided by the Code or applicable
regulations.
(j) "Holders" shall mean as of any particular
time any or all holders of record of Interests in the Trust or in Trust
Property, as the case may be, at such time.
(k) "Interest" shall mean a Holder's units of
interest into which the beneficial interest in the Trust and each series and
class of the Trust shall be divided from time to time.
(l) "Investment Adviser" shall mean any party
furnishing services to the Trust pursuant to any investment advisory contract
described in Section 4.1 hereof.
(m) "Majority Interests Vote" shall mean the
vote, at a meeting of the Holders of Interests, of the lesser of (i) 67% or
more of the Interests present or represented at such meeting, provided the
Holders of more than 50% of the Interests are present or represented by proxy
or (ii) more than 50% of the Interests.
(n) "Person" shall mean and include an
individual, corporation, partnership, trust, association, joint venture and
other entity, whether or not a legal entity, and a government and agencies and
political subdivisions thereof.
(o) "Registration Statement" as of any
particular time shall mean the Registration Statement of the Trust which is
effective at such time under the 1940 Act.
(p) "Trust Property" shall mean as of any
particular time any and all property, real or personal, tangible or intangible,
which at such time is owned or held by or for the account of the Trust or the
Trustees or any series of the Trust established in accordance with Section 6.2.
(q) "Trustees" shall mean such persons who
are indemnified as trustees of the Trust on the signature page of this
Declaration, so long as they shall continue in office in accordance with the
terms of this Declaration of Trust, and all other persons who at the time in
question have been duly elected or appointed as trustees in accordance with the
provisions of this Declaration of Trust and are then in office, in their
capacity as trustees hereunder.
ARTICLE II
TRUSTEES
2.1 NUMBER AND QUALIFICATION. The number of Trustees shall
initially be one and shall thereafter be fixed from time to time by written
instrument signed by a majority of the Trustees so fixed, then in office,
provided, however, that the number of Trustees shall in no event be less than
one. A Trustee shall be an individual at least 21 years of age who is not under
a legal disability.
(a) Any vacancy created by an increase in
Trustees shall be filled by the appointment or election of an individual
having the qualifications described in this Article as provided in Section 2.4.
Any such appointment shall not become effective, however, until the individual
appointed or elected shall have accepted in writing such appointment or
election and agreed in writing to be bound by the terms of the Declaration. No
reduction in the number of Trustees shall have the effect of removing any
Trustee from office.
(b) Whenever a vacancy in the number of Trustees
shall occur, until such vacancy
is filled as provided in Section 2.4 hereof, 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.
2.2 TERM AND ELECTION. Each Trustee named herein, or elected
or appointed prior to the first meeting of the Holders, shall (except in the
event of resignations or removals or vacancies pursuant to Section 2.3 or 2.4
hereof) hold office until his or her successor has been elected at such meeting
and has qualified to serve as Trustee. Beginning with the Trustees elected at
the first meeting of Holders, each Trustee shall hold office during the lifetime
of this Trust and until its termination as hereinafter provided unless such
Trustee resigns or is removed as provided in Section 2.3 below or his term
expires pursuant to Section 2.4 hereof.
2.3 RESIGNATION AND REMOVAL. Any Trustee may resign (without
need for prior or subsequent accounting) by an instrument in writing signed by
him or her and delivered or mailed to the Chairperson, if any, the President or
the Secretary and such resignation shall be effective upon such delivery, or at
a later date according to the terms of the instrument.
(a) Any of the Trustees may be removed with or
without cause by the affirmative vote of the Holders of two-thirds (2/3) of
the Interests or (provided the aggregate number of Trustees, after such removal
and after giving effect to any appointment made to fill the vacancy created by
such removal, shall not be less than the number required by Section 2.1 hereof)
with cause, by the action of two-thirds (2/3) of the remaining Trustees, or
without cause, by the action of eighty percent (80%) of the remaining Trustees.
Removal with cause shall include, but not be limited to, the removal of a
Trustee due to physical or mental incapacity.
(b) Upon the resignation or removal of a
Trustee, or his or her otherwise ceasing to be a Trustee, he or she shall
execute and deliver such documents as the remaining Trustees shall require for
the purpose of conveying to the Trust or the remaining Trustees any Trust
Property held in the name of the resigning or removed Trustee. Upon the death of
any Trustee or upon removal or resignation due to any Trustee's incapacity to
serve as trustee, his or her legal representative shall execute and deliver on
his or her behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence.
2.4 VACANCIES. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the earliest to occur of the
following: the Trustee's death, resignation, adjudicated incompetence or other
incapacity to perform the duties of the office, or the removal of the Trustee. A
vacancy shall also occur in the event of an increase in the number of Trustees
as provided in Section 2.1. No such vacancy shall operate to annul this
Declaration or to revoke any existing trust created pursuant to the terms of
this Declaration. In the case of a vacancy, the Holders of a plurality of the
Interests entitled to vote, acting at any meeting of the Holders held in
accordance with Article VIII hereof, or, to the extent permitted by the 1940
Act, a majority vote of the Trustees continuing in office acting by written
instrument or instruments, may fill such vacancy, and any Trustee so elected by
the Trustees or the Holders shall hold office as provided in this Declaration.
There shall be no cumulative voting by the Holders in the election of Trustees.
2.5 MEETINGS. Meetings of the Trustees shall be held from time
to time within or without the State of Delaware upon the call of the
Chairperson, if any, the President, the Chief Operating Officer, the Secretary,
an Assistant Secretary or any two Trustees.
(a) Regular meetings of the Trustees may be
held without call or notice at a time and place fixed by the By-Laws or by
resolution of the Trustees. Notice of any other meeting shall be given not later
than 72 hours preceding the meeting by United States mail or by electronic
transmission to each Trustee at his or her business address as set forth in the
records of the Trust or otherwise given personally not less than 24 hours before
the meeting but may be waived in writing by any Trustee either before or after
such meeting. The attendance of a Trustee at a meeting shall constitute a waiver
of notice of such meeting except where a Trustee attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting has not been lawfully called or convened.
(b) A quorum for all meetings of the Trustees
shall be one-third of the total number of Trustees, but (except at such time
as there is only one Trustee) no less than two Trustees. Unless provided
otherwise in this Declaration, any action of the Trustees may be taken at a
meeting by vote of a majority of the Trustees present (a quorum being present)
or without a meeting by written consent of a majority of the Trustees, which
written consent shall be filed with the minutes of proceedings of the Trustees
or any such committee. If there be less than a quorum present at any meeting of
the Trustees, a majority of those present may adjourn the meeting until a quorum
shall have been obtained.
(c) Any committee of the Trustees, including an
executive committee, if any, may act with or without a meeting. A quorum for
all meetings of any such committee shall be two or more of the members thereof,
unless the Board shall provide otherwise. Unless provided otherwise in this
Declaration, any action of any such committee may be taken at a meeting by vote
of a majority of the members present (a quorum being present) or without a
meeting by written consent of a majority of the members, which written consent
shall be filed with the minutes of proceedings of the Trustees or any such
committee.
(d) With respect to actions of the Trustees
and any committee of the Trustees, Trustees who are Interested Persons of the
Trust or are otherwise interested in any action to be taken may be counted for
quorum purposes under this Section 2.5 and shall be entitled to vote to the
extent permitted by the 1940 Act.
(e) All or any one or more Trustees may
participate in a meeting of the Trustees or any committee thereof by means of
a conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to such communications system shall constitute presence in
person at such meeting, unless the 1940 Act specifically requires the Trustees
to act "in person," in which case such term shall be construed consistent with
Commission or staff releases or interpretations.
2.6 OFFICERS; CHAIRPERSON OF THE BOARD. The Trustees shall,
from time to time, elect officers of the Trust, including a President, a
Secretary and a Treasurer. The Trustees shall elect or appoint, from time to
time, a Trustee to act as Chairperson of the Board who shall preside at all
meetings of the Trustees and carry out such other duties as the Trustees shall
designate. The Trustees may elect or appoint or authorize the President to
appoint such other officers or agents with such powers as the Trustees may deem
to be advisable. The President, Secretary and Treasurer may, but need not, be a
Trustee. The Chairperson of the Board and such officers of the Trust shall serve
in such capacity for such time and with such authority as the Trustees may, in
their discretion, so designate or as provided for in the By-Laws.
2.7 BY-LAWS. The Trustees may adopt and, from time to time,
amend or repeal the By-Laws for the conduct of the business of the Trust not
inconsistent with this Declaration, and such By-Laws are hereby incorporated in
this Declaration by reference thereto.
ARTICLE III
POWERS OF TRUSTEES
3.1 GENERAL. The Trustees shall have exclusive and absolute
control over management of the business and affairs of the Trust, but with such
powers of delegation as may be permitted by this Declaration and the DBTA. The
Trustees may perform such acts as in their sole discretion are proper for
conducting the business and affairs of the Trust. The enumeration of any
specific power herein shall not be construed as limiting the aforesaid power.
Such powers of the Trustee may be exercised without order of, or recourse to,
any court.
3.2 INVESTMENTS. The Trustees shall have power to:
(a) conduct, operate and carry on the business
of an investment company; and
(b) subscribe for, invest in, reinvest in,
purchase or otherwise acquire, hold, pledge, sell, assign, transfer, exchange,
distribute or otherwise deal in or dispose of United States and foreign
currencies and related instruments including forward contracts, and securities,
including common and preferred stock, warrants, bonds, debentures, time notes
and all other evidences of indebtedness, negotiable or non-negotiable
instruments, obligations, certificates of deposit or indebtedness, commercial
paper, repurchase agreements, reverse repurchase agreements, convertible
securities, forward contracts, options, futures contracts, and other securities,
including, without limitation, those issued, guaranteed or sponsored by any
state, territory or possession of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, or by the
United States Government, any foreign government, or any agency, instrumentality
or political subdivision of the United States Government or any foreign
government, or international instrumentalities, or by any bank, savings
institution, corporation or other business entity organized under the laws of
the United States or under foreign laws; 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, firms, associations, or corporations to exercise any of
said rights, powers and privileges in respect of any of said instruments; and
the Trustees shall be deemed to have the foregoing powers with respect to any
additional securities in which the Trustees may determine to invest.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
3.3 LEGAL TITLE. Legal title to all the Trust Property shall
be vested in the Trust as a separate legal entity under the DBTA, except that
the Trustees shall have the 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 any
other Person on behalf of the Trust on such terms as the Trustees may determine.
In the event that title to any part of the Trust Property is
vested in one or more Trustees, 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 his or her due election and qualification. 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. To the extent permitted by law, such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
3.4 SALE OF INTERESTS. Subject to the more detailed provisions
set forth in Article VII, the Trustees shall have the power to permit persons to
purchase Interests and to add or reduce, in whole or in part, their Interest in
the Trust.
3.5 BORROW MONEY. The Trustees shall have power to borrow
money or otherwise obtain credit and to secure the same by mortgaging, pledging
or otherwise subjecting as security the assets of the Trust, including the
lending of portfolio securities, and to endorse, guarantee or undertake the
performance of any obligation, contract or engagement of any other person, firm,
association or corporation.
3.6 DELEGATION; COMMITTEE. The Trustees shall have the power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments, either in the name of the Trust or the
names of the Trustees or otherwise, as the Trustees may deem expedient.
3.7 COLLECTION AND PAYMENT. The Trustees shall have the power
to collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
3.8 EXPENSES. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
The Trustees may pay themselves such compensation for special services,
including legal and brokerage services, as they in good faith may deem
reasonable (subject to any limitations in the 1940 Act), and reimbursement for
expenses reasonably incurred by themselves on behalf of the Trust. There shall
be no retirement compensation plan for the Trustees; provided, however, that the
Trustees may adopt a deferred compensation plan consistent with industry and
regulatory standards.
3.9 MISCELLANEOUS POWERS. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) purchase,
and pay for out of Trust Property, insurance policies (including, but not
limited to, fidelity bonding and errors and omission policies) insuring the
Investment Adviser, Administrator, distributor, Holders, Trustees, officers,
employees, agents, or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not the Trust would
have the power to indemnify such Person against liability; (d) establish
pension, profit-sharing and other retirement, incentive and benefit plans for
any officers, employees and agents of the Trust; (e) to the extent permitted by
law, indemnify any Person with whom the Trust has dealings, including the
Investment Adviser, Administrator, distributor, Holders, Trustees, officers,
employees, agents or independent contractors of the Trust, to such extent as the
Trustees shall determine; (f) guarantee indebtedness or contractual obligations
of others; (g) determine and change the Fiscal Year of the Trust and the method
by which its accounts shall be kept; and (h) adopt a seal for the Trust, but the
absence of such seal shall not impair the validity of any instrument executed on
behalf of the Trust.
3.10 FURTHER POWERS. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and all of its
branches and maintain offices, whether within or without the State of Delaware,
in any and all states of the United States of America, in the District of
Columbia, in any foreign countries, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or instrumentalities
of the United States of America and of foreign countries, and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive
and shall be binding upon the Trust and the Holders, past, present and future.
In construing the provisions of this Declaration, the presumption shall be in
favor of a grant of power to the Trustees. The Trustees shall not be required to
obtain any court order to deal with Trust Property.
ARTICLE IV
Investment Advisory, Administrative,
AND PLACEMENT AGENT SERVICES
4.1 INVESTMENT ADVISORY AND OTHER SERVICES. The Trustees may
in their discretion, from time to time, enter into contracts or agreements for
investment advisory services, administrative services (including transfer and
dividend disbursing agency services), distribution services, fiduciary
(including custodian) services, placement agent services, Holder servicing and
distribution services, or other services, whereby the other party to such
contract or agreement shall undertake to furnish the Trustees such services as
the Trustees shall, from time to time, consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any other provisions of this Declaration to the contrary, the
Trustees may authorize any Investment Adviser (subject to such general or
specific instructions as the Trustees may, from time to time, adopt) to effect
purchases, sales, loans or exchanges of Trust Property on behalf of the Trustees
or may authorize any officer, employee or Trustee to effect such purchases,
sales, loans or exchanges pursuant to recommendations of any such Investment
Adviser (all without further action by the Trustees). Any such purchases, sales,
loans or exchanges shall be binding upon the Trust.
4.2 PARTIES TO CONTRACT. Any contract or agreement of the
character described in Section 4.1 of this Article IV or in the By-Laws of the
Trust may be entered into with any Person, although one or more of the Trustees
or officers of the Trust or any Holder may be an officer, director, trustee,
shareholder, or member of such other party to the contract or agreement, and no
such contract or agreement shall be invalidated or rendered voidable by reason
of the existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of such contract or agreement or held
accountable for any profit realized directly or indirectly therefrom, provided
that the contract or agreement when entered into was reasonable and fair and not
inconsistent with the provisions of this Article IV or the By-Laws. Any Trustee
or officer of the Trust or any Holder may be the other party to contracts or
agreements entered into pursuant to Section 4.1 hereof or the By-Laws of the
Trust, and any Trustee or officer of the Trust or any Holder may be financially
interested or otherwise affiliated with Persons who are parties to any or all of
the contracts or agreements mentioned in this Section 4.2.
ARTICLE V
LIMITATIONS OF LIABILITY
5.1 NO PERSONAL LIABILITY OF TRUSTEES, OFFICERS, EMPLOYEES OR
AGENTS. No Trustee, officer, employee or agent of the Trust when acting in such
capacity shall be subject to any personal liability whatsoever, in his or her
individual capacity, to any Person, other than the Trust or its Holders, in
connection with Trust Property or the affairs of the Trust; and all such Persons
shall look solely to the Trust Property for satisfaction of claims of any nature
against a Trustee, officer, employee or agent of the Trust arising in connection
with the affairs of the Trust. No Trustee, officer, employee or agent of the
Trust shall be liable to the Trust, Holders of Interests therein, or to any
Trustee, officer, employee, or agent thereof for any action or failure to act
(including, without limitation, the failure to compel in any way any former or
acting Trustee to redress any breach of trust), except for his or her own bad
faith, willful misfeasance, gross negligence or reckless disregard of his or her
duties.
5.2 INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS. The Trust shall indemnify each of its Trustees, officers, employees, and
agents (including Persons who serve at its request as directors, officers or
trustees of another organization in which it has any interest, as a shareholder,
creditor or otherwise) against all liabilities and expenses (including amounts
paid in satisfaction of judgments, in compromise, as fines and penalties, and as
counsel fees) reasonably incurred by him or her in connection with the defense
or disposition of any action, suit or other proceeding, whether civil or
criminal, in which he or she may be involved or with which he or she may be
threatened, while in office or thereafter, by reason of his or her being or
having been such a Trustee, officer, employee or agent, except with respect to
any matter as to which he or she shall have been adjudicated to have acted in
bad faith, willful misfeasance, gross negligence or reckless disregard of his or
her duties; provided, however, that as to any matter disposed of by a compromise
payment by such Person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless there has been a determination that such Person did not engage
in willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office by the court or other body
approving the settlement or other disposition or by a reasonable determination,
based upon review of readily available facts (as opposed to a full trial-type
inquiry), that he or she did not engage in such conduct or by a reasonable
determination, based upon a review of the facts, that such Person was not liable
by reason of such conduct, by (a) the vote of a majority of a quorum of Trustees
who are neither "interested persons" of the Trust as defined in Section 2(a)(19)
of the 1940 Act nor parties to the proceeding, or (b) a written opinion from
independent legal counsel approved by the Trustees. The rights accruing to any
Person under these provisions shall not exclude any other right to which he or
she may be lawfully entitled; provided that no Person may satisfy any right of
indemnity or reimbursement granted herein or in Section 5.1 or to which he or
she may be otherwise entitled except out of the Trust Property. The Trustees may
make advance payments in connection with indemnification under this Section 5.2,
provided that the indemnified Person shall have given a written undertaking to
reimburse the Trust in the event it is subsequently determined that he or she is
not entitled to such indemnification.
5.3 LIABILITY OF HOLDERS; INDEMNIFICATION. The Trust shall
indemnify and hold each Holder harmless from and against any claim or liability
to which such Holder may become subject solely by reason of his or her being or
having been a Holder and not because of such Holder's acts or omissions or for
some other reason, and shall reimburse such Holder for all legal and other
expenses reasonably incurred by him or her in connection with any such claim or
liability (upon proper and timely request by the Holder); provided, however,
that no Holder shall be entitled to indemnification by any series established in
accordance with Section 8.8 unless such Holder is a Holder of Interests of such
series. The rights accruing to a Holder under this Section 5.3 shall not exclude
any other right to which such Holder may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust to indemnify or
reimburse a Holder in any appropriate situation even though not specifically
provided herein.
5.4 NO BOND REQUIRED OF TRUSTEES. No Trustee shall, as such,
be obligated to give any bond or surety or other security for the performance of
any of his or her duties hereunder.
5.5 NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS,
ETC. No purchaser, lender, or other Person dealing with the Trustees or any
officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trustees
or by said officer, employee or agent or be liable for the application of money
or property paid, loaned, or delivered to or on the order of the Trustees or of
said officer, employee or agent. Every obligation, contract, instrument,
certificate or other interest or undertaking of the Trust, and every other act
or thing whatsoever executed in connection with the Trust, shall be conclusively
relied upon as having been executed or done by the executors thereof only in
their capacities as Trustees, officers, employees or agents of the Trust. Every
written obligation, contract, instrument, certificate or other interest or
undertaking of the Trust made by the Trustees or by any officer, employee or
agent of the Trust, in his or her capacity as such, shall contain an appropriate
recital to the effect that the Trustee, officer, employee or agent of the Trust
shall not personally be bound by or liable thereunder, nor shall resort be had
to their private property or the private property of the Holders for the
satisfaction of any obligation or claim thereunder, and appropriate references
shall be made therein to the Declaration, and may contain any further recital
which they may deem appropriate, but the omission of such recital shall not
operate to impose personal liability on any of the Trustees, officers, employees
or agents of the Trust. The Trustees may maintain insurance for the protection
of the Trust Property, Holders, Trustees, officers, employees and agents in such
amount as the Trustees shall deem advisable.
5.6 RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust shall, in the performance of his or her duties, be fully
and completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or other
records of the Trust, upon an opinion of counsel, or upon reports made to the
Trust by any of its officers or employees or by any Investment Adviser,
Administrator, accountant, appraiser or other experts or consultants selected
with reasonable care by the Trustees, officers or employees of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
5.7 ASSENT TO DECLARATION. Every Holder, by virtue of having
become a Holder in accordance with the terms of this Declaration, shall be held
to have expressly assented and agreed to the terms hereof and to have become a
party hereto.
ARTICLE VI
INTERESTS IN THE TRUST
6.1 GENERAL CHARACTERISTICS. (a) The Trustees shall have the
power and authority, without Holder approval, to issue Interests in one or more
series from time to time as they deem necessary or desirable. Each series shall
be separate from all other series in respect to the assets and liabilities
allocated to that series and shall represent a separate investment portfolio of
the Trust. The Trustees shall have exclusive power, without Holder approval, to
establish and designate such separate and distinct series, as set forth in
Section 6.2, and to fix and determine the relative rights and preferences as
between the Interests of the separate series as to right of redemption, special
and relative rights as to dividends and other distributions and on liquidation,
conversion rights, and conditions under which the series shall have separate
voting rights or no voting rights.
(b) The Trustees may, without Holder approval,
divide Interests of any series into two or more classes, Interests of each such
class having such preferences and special or relative rights and privileges
(including conversion rights, if any) as the Trustees may determine as provided
in Section 6.3. The fact that a series shall have been initially established and
designated without any specific establishment or designation of classes, shall
not limit the authority of the Trustees to divide a series and establish and
designate separate classes thereof.
(c) The number of Interests authorized shall
be unlimited, and the Interests so authorized may be represented in part by
fractional Interests. From time to time, the Trustees may divide or combine the
Interests of any series or class into a greater or lesser number without thereby
changing the proportionate beneficial interests in the series or class. The
Trustees may issue Interests of any series or class thereof for such
consideration and on such terms as they may determine (or for no consideration
if pursuant to an Interest dividend or split-up), all without action or approval
of the Holders. All Interests when so issued on the terms determined by the
Trustees shall be fully paid and non-assessable. The Trustees may classify or
reclassify any unissued Interests or any Interests previously issued and
reacquired of any series or class thereof into one or more series or classes
thereof that may be established and designated from time to time. The Trustees
may hold as treasury Interests, reissue for such consideration and on such terms
as they may determine, or cancel, at their discretion from time to time, any
Interests of any series or class thereof reacquired by the Trust.
6.2 ESTABLISHMENT OF SERIES OF INTERESTS. (a)
Without limiting the authority of the Trustees set forth in Section 6.2(b)
to establish and designate any further series, the Trustees hereby establish
and designate one series, as follows: The Arbitrage Fund
The provisions of this Article VI shall be applicable to the
above designated series and any further series that may from time to time be
established and designated by the Trustees as provided in Section 6.2(b).
(b) The establishment and designation of any
series of Interests other than the one set forth above shall be effective upon
the execution, by a majority of the Trustees, of an instrument setting forth
such establishment and designation and the relative rights and preferences of
such series, or as otherwise provided in such instrument. At any time that there
are no Interests outstanding of any particular series previously established and
designated, the Trustees may by an instrument executed by a majority of their
number abolish that series and the establishment and designation thereof. Each
instrument referred to in this paragraph shall have the status of an amendment
of this Declaration.
(c) Section 9.2 of this Declaration of Trust shall
apply also with respect to each such series as if such series were a separate
trust.
6.3 ESTABLISHMENT OF CLASSES. (a) The division of any series
into two or more classes and the establishment and designation of such classes
shall be effective upon the execution by a majority of the Trustees of an
instrument setting forth such division, and the establishment, designation, and
relative rights and preferences of such classes, or as otherwise provided in
such instrument. The relative rights and preferences of the classes of any
series may differ in such respects as the Trustees may determine to be
appropriate, provided that such differences are set forth in the aforementioned
instrument. At any time that there are no Interests outstanding of any
particular class previously established and designated, the Trustees may by an
instrument executed by a majority of their number abolish that class and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration.
(b) Section 9.2 of this Declaration of Trust
shall apply also with respect to each such class as if such class were a
separate trust.
6.4 ASSETS OF SERIES. All consideration received by the Trust
for the issue or sale of Interests of a particular series together with all
Trust Property in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be,
shall irrevocably belong to that series for all purposes, subject only to the
rights of creditors of such series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. Separate and distinct records shall be maintained for each series and the
assets associated with a series shall be held and accounted for separately from
the other assets of the Trust, or any other series. In the event that there is
any Trust Property, or any income, earnings, profits, and proceeds thereof,
funds, or payments which are not readily identifiable as belonging to any
particular series, the Trustees shall allocate them among any one or more of the
series established and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and equitable. Each such
allocation by the Trustees shall be conclusive and binding upon the Holders of
all Interests for all purposes.
6.5 LIABILITIES OF SERIES. (a) The Trust Property belonging to
each particular series shall be charged with the liabilities of the Trust in
respect to that series and all expenses, costs, charges and reserves
attributable to that series, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as belonging
to any particular series shall be allocated and charged by the Trustees to and
among any one or more of the series established and designated from time to time
in such manner and on such basis as the Trustees in their sole discretion deem
fair and equitable. Each allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon the Holders of all
Interests for all purposes. The Trustees shall have full discretion, to the
extent not inconsistent with the 1940 Act, to determine which items shall be
treated as income and which items as capital, and each such determination and
allocation shall be conclusive and binding upon the Holders.
(b) Without limitation of the foregoing
provisions of this Section, but subject to the right of the Trustees in their
discretion to allocate general liabilities, expenses, costs, charges or reserves
as herein provided, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular series shall
be enforceable against the assets of such series only, and not against the
assets of any other series. Notice of this limitation on interseries liabilities
shall be set forth in the certificate of trust of the Trust (whether originally
or by amendment) as filed or to be filed in the Office of the Secretary of State
of the State of Delaware pursuant to the DBTA, and upon the giving of such
notice in the certificate of trust, the statutory provisions of Section 3804 of
the DBTA relating to limitations on interseries liabilities (and the statutory
effect under Section 3804 of setting forth such notice in the certificate of
trust) shall become applicable to the Trust and each series. Every note, bond,
contract or other undertaking issued by or on behalf of a particular series
shall include a recitation limiting the obligation represented thereby to that
series and its assets.
6.6 DIVIDENDS AND DISTRIBUTIONS. (a) Dividends and
distributions on Interests of a particular series or any class thereof may be
paid with such frequency as the Trustees may determine, which may be daily or
otherwise, pursuant to a standing resolution or a resolution adopted only once
or with such frequency as the Trustees may determine, to the Holders of
Interests in that series or class, from such of the income and capital gains,
accrued or realized, from the Trust Property belonging to that series, or in the
case of a class, belonging to that series and allocable to that class, as the
Trustees may determine, after providing for actual and accrued liabilities
belonging to that series. All dividends and distributions on Interests in a
particular series or class thereof shall be distributed pro rata to the Holders
of Interests in that series or class in proportion to the total outstanding
Interests in that series or class held by such Holders at the date and time of
record established for the payment of such dividends or distribution, except to
the extent otherwise required or permitted by the preferences and special or
relative rights and privileges of any series or class. Such dividends and
distributions may be made in cash or Interests of that series or class or a
combination thereof as determined by the Trustees or pursuant to any program
that the Trustees may have in effect at the time for the election by each Holder
of the mode of the paying of such dividend or distribution to that Holder. Any
such dividend or distribution paid in Interests will be paid at the net asset
value thereof as determined in accordance with Section 7.4.
(b) The Interests in a series or a class of the
Trust shall represent beneficial interests in the Trust Property belonging to
such series or in the case of a class, belonging to such series and allocable to
such class. Each Holder of Interests in a series or a class shall be entitled to
receive its pro rata share of distributions of income and capital gains made
with respect to such series or such class. Upon reduction or withdrawal of its
Interests or indemnification for liabilities incurred by reason of being or
having been a Holder of Interests in a series or a class, such Holder shall be
paid solely out of the funds and property of such series or in the case of a
class, the funds and property of such series and allocable to such class of the
Trust. Upon liquidation or termination of a series or class of the Trust,
Holders of Interests in such series or class shall be entitled to receive a pro
rata share of the Trust Property belonging to such series or in the case of a
class, belonging to such series and allocable to such class.
6.7 VOTING RIGHTS. Notwithstanding any other provision hereof,
on each matter submitted to a vote of the Holders, each Holder shall be entitled
to one vote for each whole Interest standing in his name on the books of the
Trust, and each fractional Interest shall be entitled to a proportionate
fractional vote, irrespective of the series thereof or class thereof, and all
Interests of all series and classes thereof shall vote together as a single
class; provided, however, that (a) as to any matter with respect to which a
separate vote of one or more series or classes thereof is permitted or required
by the 1940 Act or the provisions of the instrument establishing and designating
the series or class, such requirements as to a separate vote by such series or
class thereof shall apply in lieu of all Interests of all series and classes
thereof voting together; and (b) as to any matter which affects only the
interests of one or more particular series or classes thereof, only the Holders
of the one or more affected series or classes shall be entitled to vote, and
each such series or class shall vote as a separate series or class.
6.8 RECORD DATES. The Trustees may from time to time close the
transfer books or establish record dates and times for the purposes of
determining the Holders entitled to be treated as such, to the extent provided
or referred to in Section 8.6.
6.9 TRANSFER. All Interests of each particular series or class
thereof shall be transferable, but transfers of Interests of a particular series
or class thereof will be recorded on the Interest transfer records of the Trust
applicable to that series or class only at such times as Holders shall have the
right to require the Trust to redeem Interests of that series or class and at
such other times as may be permitted by the Trustees.
6.10 EQUALITY. Except as provided herein or in the instrument
designating and establishing any class or series, all Interests of each
particular series or class thereof shall represent an equal proportionate
interest in the assets belonging to that series, or in the case of a class,
belonging to that series and allocable to that class, subject to the liabilities
belonging to that series, and each Interest of any particular series or class
shall be equal to each other Interest of that series or class; but the
provisions of this sentence shall not restrict any distinctions permissible
under Section 6.6 that may exist with respect to dividends and distributions on
Interests of the same series or class. The Trustees may from time to time divide
or combine the Interests of any particular series or class into a greater or
lesser number of Interests of that series or class without thereby changing the
proportionate beneficial interest in the assets belonging to that series or
class or in any way affecting the rights or Interests of any other series or
class.
6.11 FRACTIONS. Any fractional Interest of any series or
class, if any such fractional Interest is outstanding, shall carry
proportionately all the rights and obligations of a whole Interest of that
series or class, including rights and obligations with respect to voting,
receipt of dividends and distributions, redemption of Interests, and liquidation
of the Trust.
6.12 CLASS DIFFERENCES. Subject to Section 6.3, the relative
rights and preferences of the classes of any series may differ in such other
respects as the Trustees may determine to be appropriate in their sole
discretion, provided that such differences are set forth in the instrument
establishing and designating such classes and executed by a majority of the
Trustees.
6.13 CONVERSION OF INTERESTS. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to provide
that Holders of Interests of any series shall have the right to convert said
Interests into one or more other series in accordance with such requirements and
procedures as may be established by the Trustees. The Trustees shall also have
the authority to provide that Holders of Interests of any class of a particular
series shall have the right to convert said Interests into one or more other
classes of that particular series or any other series in accordance with such
requirements and procedures as may be established by the Trustees.
6.14 INVESTMENTS IN THE TRUST. The Trustees may accept
investments in the Trust from such persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as they
from time to time authorize. The Trustees may authorize any distributor,
principal underwriter, custodian, transfer agent or other person to accept
orders for the purchase of Interests that conform to such authorized terms and
to reject any purchase orders for Interests whether or not conforming to such
authorized terms.
6.15 TRUSTEES AND OFFICERS AS HOLDERS. Any Trustee, officer or
other agent of the Trust, and any organization in which any such person is
interested, may acquire, own, hold and dispose of Interests of the Trust to the
same extent as if such person were not a Trustee, officer or other agent of the
Trust; and the Trust may issue and sell or cause to be issued and sold and may
purchase Interests from any such person or any such organization subject only to
the general limitations, restrictions or other provisions applicable to the sale
or purchase of Interests generally.
6.16 NO PREEMPTIVE RIGHTS; DERIVATIVE SUITS. Holders shall
have no preemptive or other right to subscribe to any additional Interests or
other securities issued by the Trust. No action may be brought by a Holder on
behalf of the Trust unless Holders owning no less than 10% of the then
outstanding Interests, or series or class thereof, join in the bringing of such
action. A Holder of Interests in a particular series or a particular class of
the Trust shall not be entitled to participate in a derivative or class action
lawsuit on behalf of any other series or any other class or on behalf of the
Holders of Interests in any other series or any other class of the Trust.
6.17 NO APPRAISAL RIGHTS. Holders shall have no right to
demand payment for their Interests or to any other rights of dissenting Holders
in the event the Trust participates in any transaction which would give rise to
appraisal or dissenters' rights by a stockholder of a corporation organized
under the General Corporation Law of Delaware, or otherwise.
6.18 STATUS OF INTERESTS AND LIMITATION OF PERSONAL LIABILITY.
Interests shall be deemed to be personal property giving only the rights
provided in this Amended and Restated Declaration of Trust. Every Holder by
virtue of acquiring Interests shall be held to have expressly assented and
agreed to the terms hereof and to be bound hereby. The death, incapacity,
dissolution, termination or bankruptcy of a Holder during the continuance of the
Trust shall not operate to dissolve or terminate the Trust or any series thereof
nor entitle the representative of such Holder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but shall
entitle the representative of such Holder only to the rights of such Holder
under this Trust. Ownership of Interests shall not entitle the Holder 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 Interests constitute the Holders 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 Holder, nor except as specifically provided herein
to call upon any Holder for the payment of any sum of money or assessment
whatsoever other than such as the Holder may at any time personally agree to
pay.
ARTICLE VII
PURCHASES AND REDEMPTIONS
7.1 PURCHASES. The Trustees, in their discretion, may, from
time to time, without a vote of the Holders, permit the purchase of Interests by
such party or parties (or increase in the Interests of a Holder), for such type
of consideration, including, without limitation, cash or property, at such time
or times (including, without limitation, each business day), and on such terms
as the Trustees may deem best, and may in such manner acquire other assets
(including, without limitation, the acquisition of assets subject to, and in
connection with the assumption of, liabilities) and businesses.
7.2 REDEMPTION BY HOLDER. Each Holder of Interests of the
Trust or any series or class thereof shall have the right at such times as may
be permitted by the Trust to require the Trust to redeem all or any part of his
or her Interests of the Trust, or series or class thereof, at a redemption price
equal to the net asset value per Interest of the Trust or series or class
thereof, next determined in accordance with Section 7.4 hereof after the
Interests are properly tendered for redemption, subject to any contingent
deferred sales charge or redemption charge in effect at the time of redemption.
Payment of the redemption price shall be in cash; provided, however, that if the
Trustees determine, which determination shall be conclusive, that conditions
exist which make payment wholly in cash unwise or undesirable, the Trust may,
subject to the requirements of the 1940 Act, make payment wholly or partly in
securities or other assets belonging to the Trust or series or class thereof of
which the Interests being redeemed are part of the value of such securities or
assets used in such determination of the net asset value.
Notwithstanding the foregoing, the Trust may postpone payment
of the redemption price and may suspend the right of the Holders of Interests of
the Trust, or series or class thereof, to require the Trust to redeem Interests
of the Trust, or of any series or class thereof, during any period or at any
time when and to the extent permissible under the 1940 Act.
7.3 REDEMPTION BY TRUST. Each Interest of the Trust, or series
or class thereof that has been established and designated is subject to
redemption by the Trust at the redemption price which would be applicable if
such Interest was then being redeemed by the Holder pursuant to Section 7.2
hereof: (a) at any time, if the Trustees determine in their sole discretion and
by majority vote that it is in the best interest of the Trust, or any series or
class thereof, to so redeem, or (b) upon such other conditions as may from time
to time be determined by the Trustees and set forth in the then current
Prospectus of the Trust with respect to maintenance of Holder accounts of a
minimum amount. Upon such redemption the Holders of the Interests so redeemed
shall have no further right with respect thereto other than to receive payment
of such redemption price.
7.4 NET ASSET VALUE. The net asset value per Interest of any
series shall be (a) in the case of a series whose Interests are not divided into
classes, the quotient obtained by dividing the value of the net assets of that
series (being the value of the assets belonging to that series less the
liabilities belonging to that series) by the total number of Interests of that
series outstanding, and (b) in the case of a class of Interests of a series
whose Interests are divided into classes, the quotient obtained by dividing the
value of the net assets of that series allocable to such class (being the value
of the assets belonging to that series allocable to such class less the
liabilities belonging to such class) by the total number of Interests of such
class outstanding; all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time.
The Trustees may determine to maintain the net asset value per
Interest of any series or any class at a designated constant dollar amount and
in connection therewith may adopt procedures consistent with the 1940 Act for
continuing declarations of income attributable to that series or that class as
dividends payable in additional Interests of that series at the designated
constant dollar amount and for the handling of any losses attributable to that
series or that class. Such procedures may provide that in the event of any loss
each Holder shall be deemed to have contributed to the capital of the Trust
attributable to that series his or her pro rata portion of the total number of
Interests required to be canceled in order to permit the net asset value per
Interest of that series or class to be maintained, after reflecting such loss,
at the designated constant dollar amount. Each Holder of the Trust shall be
deemed to have agreed, by his or her investment in any series or class with
respect to which the Trustees shall have adopted any such procedure, to make the
contribution referred to in the preceding sentence in the event of any such
loss.
ARTICLE VIII
HOLDERS
8.1 RIGHTS OF HOLDERS. The right to conduct any business
hereinbefore described is vested exclusively in the Trustees, and the Holders
shall have no rights under this Declaration or with respect to the Trust
Property other than the beneficial interest conferred by their Interests and the
voting rights accorded to them under this Declaration.
8.2 REGISTER OF INTERESTS. A register shall be kept by the
Trust under the direction of the Trustees which shall contain the names and
addresses of the Holders and the number of Interests held by each Holder. Each
such register shall be conclusive as to the identity of the Holders of the Trust
and the Persons who shall be entitled to payments of distributions or otherwise
to exercise or enjoy the rights of Holders. No Holder shall be entitled to
receive payment of any distribution, nor to have notice given to it as herein
provided, until it has given its address to such officer or agent of the
Trustees as shall keep the said register for entry thereon. No certificates
certifying the ownership of interests need be issued except as the Trustees may
otherwise determine from time to time.
8.3 NOTICES. Any and all notices to which any Holder hereunder
may be entitled and any and all communications shall be deemed duly served or
given if presented personally to a Holder, left at his or her residence or usual
place of business, or sent via United States mail or by electronic transmission
to a Holder at his or her address as it is registered with the Trust, as
provided in Section 8.2. If mailed, such notice shall be deemed to be given when
deposited in the United States mail addressed to the Holder at his or her
address as it is registered with the Trust, as provided in Section 8.2, with
postage thereon prepaid.
8.4 MEETINGS OF HOLDERS. Meetings of the Holders may be called
at any time by a majority of the Trustees and shall be called by any Trustee
upon written request of Holders holding, in the aggregate, not less than 10% of
the Interests (or series or class thereof), such request specifying the purpose
or purposes for which such meeting is to be called. Any such meeting shall be
held within or without the State of Delaware on such day and at such time as the
Trustees shall designate. Holders of one-third of the Interests in the Trust,
present in person or by proxy, shall constitute a quorum for the transaction of
any business, except as may otherwise be required by the 1940 Act or other
applicable law or by this Declaration or the By-Laws of the Trust. If a quorum
is present at a meeting, an affirmative vote by the Holders present, in person
or by proxy, holding more than 50% of the total Interests (or series or class
thereof) of the Holders present, either in person or by proxy, at such meeting
constitutes the action of the Holders, unless the 1940 Act, other applicable
law, this Declaration or the By-Laws of the Trust require a greater number of
affirmative votes. Notwithstanding the foregoing, the affirmative vote by the
Holders present, in person or by proxy, holding less than 50% of the Interests
(or class or series thereof) of the Holders present, in person or by proxy, at
such meeting shall be sufficient for adjournments. Any meeting of Holders,
whether or not a quorum is present, may be adjourned for any lawful purpose
provided that no meeting shall be adjourned for more than six months beyond the
originally scheduled meeting date. Any adjourned session or sessions may be
held, within a reasonable time after the date set for the original meeting
without the necessity of further notice.
8.5 NOTICE OF MEETINGS. Written or printed notice of all
meetings of the Holders, stating the time, place and purposes of the meeting,
shall be given as provided in Section 8.3. At any such meeting, any business
properly before the meeting may be considered, whether or not stated in the
notice of the meeting. Any adjourned meeting held as provided in Section 8.4
shall not require the giving of additional notice.
8.6 RECORD DATE. For the purpose of determining the Holders
who are entitled to notice of any meeting, to vote at any meeting, to
participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time fix a date, not more than 90 calendar days prior
to the date of any meeting of the Holders or payment of distributions or other
action, as the case may be, as a record date for the determination of the
persons to be treated as Holders of record for such purposes, and any Holder who
was a Holder at the date and time so fixed shall be entitled to vote at such
meeting or to be treated as a Holder of record for purposes of such other
action, even though he or she has since that date and time disposed of his or
her Interests, and no Holder becoming such after that date and time shall be so
entitled to vote at such meeting or to be treated as a Holder of record for
purposes of such other action. If the Trustees shall divide the Interests into
two or more series in accordance with Section 6.2 herein, nothing in this
Section shall be construed as precluding the Trustees from setting different
record dates for different series and if the Trustees shall divide any series
into two or more classes in accordance with Section 6.3 herein, nothing in this
Section 8.6 shall be construed as precluding the Trustees from setting different
record dates for different classes.
8.7 PROXIES, ETC. At any meeting of Holders, any Holder
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
(a) Pursuant to a resolution of a majority
of the Trustees, proxies may be solicited in the name of one or more Trustees
or one or more of the officers of the Trust. Only Holders of record shall be
entitled to vote. Each Holder shall be entitled to a vote proportionate to its
Interest in the Trust.
(b) When Interests are held jointly by several
persons, any one of them may vote at any meeting in person or by proxy in
respect to such Interest, 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 to such Interest.
(c) A proxy purporting to be executed by or on
behalf of a Holder 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 is a minor or a person of unsound mind, and subject to
guardianship or to the legal control of any other person regarding the charge or
management of his or her Interest, 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.
8.8 REPORTS. The Trustees shall cause to be prepared, at least
annually, a report of operations containing a balance sheet and statement of
income and undistributed income of the Trust prepared in conformity with
generally accepted accounting principles and an opinion of an independent public
accountant on such financial statements. The Trustees shall, in addition,
furnish to the Holders at least semi-annually an interim report containing an
unaudited balance sheet as of the end of such period and an unaudited statement
of income and surplus for the period from the beginning of the current Fiscal
Year to the end of such period.
8.9 INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Holders during normal business hours and for any purpose
not harmful to the Trust.
8.10 VOTING POWERS. (a) The Holders shall have power to vote
only (i) for the election of Trustees as contemplated by Section 2.2 hereof,
(ii) with respect to any investment advisory contract as contemplated by Section
4.1 hereof, (iii) with respect to termination of the Trust as provided in
Section 9.2 hereof, (iv) with respect to amendments to the Declaration of Trust
as provided in Section 9.3 hereof, (v) with respect to any merger, consolidation
or sale of assets as provided in Section 9.4 hereof, (vi) with respect to
incorporation of the Trust to the extent and as provided in Section 9.5 hereof,
and (vii) with respect to such additional matters relating to the Trust as may
be required by the 1940 Act, DBTA, or any other applicable law, the Declaration,
the By-Laws or any registration of the Trust with the Commission (or any
successor agency) or any state, or as and when the Trustees may consider
necessary or desirable.
(b) Each Holder shall be entitled to vote
based on the ratio his or her Interest bears to the Interests of all Holders
entitled to vote. Until Interests are issued, the Trustees may exercise all
rights of Holders and may take any action required by law, the Declaration or
the By-Laws to be taken by Holders. The By-Laws may include further provisions
for Holders' votes and meetings and related matters not inconsistent with this
Declaration.
8.11 HOLDER ACTION BY WRITTEN CONSENT. Any action which may be
taken by the Holders may be taken without notice and without a meeting if
Holders holding more than 50% of the total Interests entitled to vote (or such
larger proportion thereof as shall be required by any express provision of this
Declaration) shall consent to the action in writing and the written consents
shall be filed with the records of the meetings of Holders. Such consents shall
be treated for all purposes as votes taken at a meeting of the Holders.
8.12 HOLDER COMMUNICATIONS. (a) Whenever ten or more Holders
who have been such for at least six months preceding the date of application,
and who hold in the aggregate at least 1% of the total Interests, shall apply to
the Trustees in writing, stating that they wish to communicate with other
Holders with a view to obtaining signatures for a request for a meeting of
Holders and accompanied by a form of communication and request which they wish
to transmit, the Trustees shall within five business days after receipt of such
application either (i) afford to such applicants access to a list of the names
and addresses of all Holders as recorded on the books of the Trust; or (ii)
inform such applicants as to the approximate number of Holders, and the
approximate cost of transmitting to them the proposed communication and form of
request.
(b) If the Trustees elect to follow the course
specified in clause (ii) above, the Trustees, upon the written request of such
applicants, accompanied by a tender of the material to be transmitted and of the
reasonable expenses of transmission, shall, with reasonable promptness,
transmit, by United States mail or by electronic transmission, such material to
all Holders at their addresses as recorded on the books, unless within five
business days after such tender the Trustees shall transmit, by United States
mail or by electronic transmission, to such applicants and file with the
Commission, together with a copy of the material to be transmitted, a written
statement signed by at least a majority of the Trustees to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion. The Trustees shall thereafter comply with any order entered by
the Commission and the requirements of the 1940 Act and the Securities Exchange
Act of 1934.
ARTICLE IX
Duration; Termination of Trust;
AMENDMENT; MERGERS; ETC.
9.1 DURATION. Subject to possible termination in accordance
with the provisions of Section 9.2, the Trust created hereby shall continue
perpetually pursuant to Section 3808 of DBTA.
9.2 TERMINATION OF TRUST. (a) The Trust may be terminated (i)
by the affirmative vote of the Holders of not less than two-thirds of the
Interests in the Trust at any meeting of the Holders, or (ii) by an instrument
in writing, without a meeting, signed by a majority of the Trustees and
consented to by the Holders of not less than two-thirds of such Interests, or
(iii) by the Trustees by written notice to the Holders. Upon any such
termination,
(i) The Trust shall carry on no business
except for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up
the affairs of the Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust shall have been wound
up, including the power to fulfill or discharge the contracts of the Trust,
collect its assets, sell, convey, assign, exchange, or otherwise dispose of all
or any part of the remaining Trust Property to one or more Persons at
public or private sale for consideration which may consist in whole or
in part of cash, securities or other property of any kind, discharge or
pay its liabilities, and do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange, or
other disposition of all or substantially all of the Trust Property
shall require approval of the principal terms of the transaction and
the nature and amount of the consideration by the Holders with a
Majority Interests Vote.
(iii) After paying or adequately providing
for the payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements, as they deem necessary for their
protection, the Trustees may distribute the remaining Trust Property, in cash
or in kind or partly each, among the Holders according to their respective
rights.
(b) Upon termination of the Trust and
distribution to the Holders as herein provided, a majority of the Trustees
shall execute and lodge among the records of the Trust an instrument in writing
setting forth the fact of such termination and file a certificate of
cancellation in accordance with Section 3810 of the DBTA. Upon termination of
the Trust, the Trustees shall thereon be discharged from all further liabilities
and duties hereunder, and the rights and interests of all Holders shall
thereupon cease.
9.3 AMENDMENT PROCEDURE.
(a) All rights granted to the Holders under
this Declaration of Trust are granted subject to the reservation of the right
of the Trustees to amend this Declaration of Trust as herein provided, except
as set forth herein to the contrary. Subject to the foregoing, the provisions
of this Declaration of Trust (whether or not related to the rights of Holders)
may be amended at any time, so long as such amendment is not in contravention
of applicable law, including the 1940 Act, by an instrument in writing signed
by a majority of the Trustees (or by an officer of the Trust pursuant to the
vote of a majority of such Trustees). Any such amendment shall be effective as
provided in the instrument containing the terms of such amendment or, if there
is no provision therein with respect to effectiveness, upon the execution of
such instrument and of a certificate (which may be a part of such instrument)
executed by a Trustee or officer of the Trust to the effect that such amendment
has been duly adopted.
(b) No amendment may be made, under Section 9.
(a) above, which would change any rights with respect to any Interest in the
Trust by reducing the amount payable thereon upon liquidation of the Trust, by
repealing the limitations on personal liability of any Holder or Trustee, or by
diminishing or eliminating any voting rights pertaining thereto, except with a
Majority Interests Vote.
(c) A certification signed by a majority of the
Trustees setting forth an amendment and reciting that it was duly adopted by the
Holders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, and executed by a majority of the Trustees, shall be conclusive
evidence of such amendment when lodged among the records of the Trust.
(d) Notwithstanding any other provision hereof,
until such time as Interests are first sold, this Declaration may be terminated
or amended in any respect by the affirmative vote of a majority of the Trustees
or by an instrument signed by a majority of the Trustees.
9.4 MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of its
property, including its good will, upon such terms and conditions and for such
consideration when and as authorized by no less than a majority of the Trustees
and by a Majority Interests Vote of the Trust or by an instrument or instruments
in writing without a meeting, consented to by the Holders of not less than 50%
of the total Interests of the Trust or such series, as the case may be, and any
such merger, consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the statutes of the
State of Delaware. In accordance with Section 3815(f) of DBTA, an agreement of
merger or consolidation may effect any amendment to the Declaration or By-Laws
or effect the adoption of a new declaration of trust or by-laws of the Trust if
the Trust is the surviving or resulting business trust. A certificate of merger
or consolidation of the Trust shall be signed by a majority of the Trustees.
9.5 INCORPORATION. Upon a Majority Interests Vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust, partnership,
association or other organization to take over all of the Trust Property or to
carry on any business in which the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer the Trust Property to any such
corporation, trust, association or organization in exchange for the equity
interests thereof or otherwise, and to lend money to, subscribe for the equity
interests of, and enter into any contracts with any such corporation, trust,
partnership, association or organization, or any corporation, partnership,
trust, association or organization in which the Trust holds or is about to
acquire equity interests. The Trustees may also cause a merger or consolidation
between the Trust or any successor thereto and any such corporation, trust,
partnership, association or other organization if and to the extent permitted by
law, as provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of the Holders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organizations or entities.
ARTICLE X
MISCELLANEOUS
10.1 CERTIFICATE OF DESIGNATION; AGENT FOR SERVICE OF PROCESS.
The Trust shall file, in accordance with Section 3812 of DBTA, in the office of
the Secretary of State of Delaware, a certificate of trust, in the form and with
such information required by Section 3810 of DBTA and executed in the manner
specified in Section 3811 of DBTA. In the event the Trust does not have at least
one Trustee qualified under Section 3807(a) of DBTA, then the Trust shall comply
with Section 3807(b) of DBTA by having and maintaining a registered office in
Delaware and by designating a registered agent for service of process on the
Trust, which agent shall have the same business office as the Trust's registered
office. The failure to file any such certificate, to maintain a registered
office, to designate a registered agent for service of process, or to include
such other information shall not affect the validity of the establishment of the
Trust, the Declaration, the By-Laws or any action taken by the Trustees, the
Trust officers or any other Person with respect to the Trust except insofar as a
provision of the DBTA would have governed, in which case the Delaware common law
governs.
10.2 GOVERNING LAW. This Declaration is executed by all of the
Trustees and delivered with reference to DBTA and the laws of the State of
Delaware, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to DBTA and
the laws of the State of Delaware (unless and to the extent otherwise provided
for and/or preempted by the 1940 Act or other applicable federal securities
laws); provided, however, that there shall not be applicable to the Trust, the
Trustees or this Declaration (a) the provisions of Section 3540 of Title 12 of
the Delaware Code, or (b) any provisions of the laws (statutory or common) of
the State of Delaware (other than the DBTA) pertaining to trusts which are
inconsistent with the rights, duties, powers, limitations or liabilities of the
Trustees set forth or referenced in this Declaration.
10.3 COUNTERPARTS. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
10.4 RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust or of any recording office
in which this Declaration may be recorded, appears to be a Trustee hereunder,
certifying to (a) the number or identity of Trustees or Holders, (b) the due
authorization of the execution of any instrument or writing, (c) the form of any
vote passed at a meeting of Trustees or Holders, (d) the fact that the number of
Trustees or Holders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-Laws
adopted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any person dealing with the Trustees and their successors.
10.5 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the DBTA, or with other applicable laws and
regulations, the conflicting provisions shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall
be held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration in any jurisdiction.
10.6 TRUST ONLY. It is the intention of the Trustees to create
only a business trust under DBTA with the relationship of trustee and
beneficiary between the Trustees and each Holder from time to time. 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 Delaware business trust except to the extent
such trust is deemed to constitute a corporation under the Code and applicable
state tax laws. Nothing in this Declaration of Trust shall be construed to make
the Holders, either by themselves or with the Trustees, partners or members of a
joint stock association.
10.7 WITHHOLDING. Should any Holder be subject to withholding
pursuant to the Code or any other provision of law, the Trust shall withhold all
amounts otherwise distributable to such Holder as shall be required by law and
any amounts so withheld shall be deemed to have been distributed to such Holder
under this Declaration of Trust. If any sums are withheld pursuant to this
provision, the Trust shall remit the sums so withheld to and file the required
forms with the Internal Revenue Service, or other applicable government agency.
10.8 HEADINGS AND CONSTRUCTION. 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.
IN WITNESS WHEREOF, the undersigned have caused these presents
to be executed as of the day and year first above written.
/s/ John Orrico
---------------
Trustee
THE ARBITRAGE FUNDS
BY-LAWS
These By-Laws are made as of the 22nd day of December, 1999
and adopted pursuant to Section 2.7 of the Declaration of Trust establishing THE
ARBITRAGE FUNDS dated December 22, 1999, as from time to time amended
(hereinafter called the "Declaration"). All words and terms capitalized in these
By-Laws shall have the meaning or meanings set forth for such words or terms in
the Declaration.
ARTICLE I
MEETINGS OF HOLDERS
Section 1.1 ANNUAL MEETING. An annual meeting of the Holders
of Interests in the Trust, which may be held on such date and at such hour as
may from time to time be designated by the Board of Trustees and stated in the
notice of such meeting, is not required to be held unless certain actions must
be taken by the Holders as set forth in Section 8.10 of the Declaration, or
except when the Trustees consider it necessary or desirable.
Section 1.2 CHAIRPERSON. The Chairperson, President or, in his
or her absence, the Chief Operating Officer shall act as chairperson at all
meetings of the Holders and, in the absence of both of them, the Trustee or
Trustees present at the meeting may elect a temporary chairperson for the
meeting, who may be one of themselves or an officer of the Trust.
Section 1.3 PROXIES: VOTING. Holders may vote either in person
or by duly executed proxy and each Holder shall be entitled to a vote
proportionate to his or her Interest in the Trust, all as provided in Article
VIII of the Declaration. No proxy shall be valid after eleven (11) months from
the date of its execution, unless a longer period is expressly stated in such
proxy.
Section 1.4 FIXING RECORD DATES. For the purpose of
determining the Holders who are entitled to notice of or to vote or to act at a
meeting, including any adjournment thereof, or who are entitled to participate
in any distributions, or for any other proper purpose, the Trustees may from
time to time fix a record date in the manner provided in Section 8.6 of the
Declaration. If the Trustees do not, prior to any meeting of the Holders, so fix
a record date, then the date of mailing notice of the meeting shall be the
record date.
Section 1.5 INSPECTORS OF ELECTION. In advance of any meeting
of the Holders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairperson, if any, of any meeting of the Holders may, and on
the request of any Holder or his or her proxy shall, appoint Inspectors of
Election of the meeting. The number of Inspectors shall be either one or three.
If appointed at the meeting on the request of one or more Holders or proxies, a
Majority Interests vote shall determine whether one or three Inspectors are to
be appointed, but failure to allow such determination by the Holders shall not
affect the validity of the appointment of Inspectors of Election. In case any
person appointed as Inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment made by the Trustees in advance of the
convening of the meeting or at the meeting by the person acting as chairperson.
The Inspectors of Election shall determine the Interests owned by Holders, the
Interests represented at the meeting, the existence of a quorum, the
authenticity, validity and effect of proxies, shall receive votes, ballots or
consents, shall hear and determine all challenges and questions in any way
arising in connection with the right to vote, shall count and tabulate all votes
or consents, determine the results, and do such other acts as may be proper to
conduct the election or vote with fairness to all Holders. If there are three
Inspectors of Election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all. On request
of the chairperson, if any, of the meeting, or of any Holder or his or her
proxy, the Inspectors of Election shall make a report in writing of any
challenge or question or matter determined by them and shall execute a
certificate of any facts found by them.
1.6 PLACE OF MEETINGS. All meetings of Holders shall be held
at the principal office of the Trust or at such other place within the United
States as shall be designated by the Trustees or the President of the Trust.
ARTICLE II
TRUSTEES
Section 2.1 ANNUAL AND REGULAR MEETINGS. The Trustees shall
hold an Annual Meeting of the Trustees for the election of officers and the
transaction of other business which may come before such meeting. Regular
meetings of the Trustees may be held without call or notice at such place or
places and times as the Trustees may by resolution provide from time to time.
Section 2.2 SPECIAL MEETINGS. Special Meetings of the Trustees
shall be held upon the call of the Chairperson, if any, the President, the
Secretary, or any two Trustees, at such time, on such day and at such place, as
shall be designated in the notice of the meeting.
Section 2.3 NOTICE. Notice of a meeting shall be given by mail
(which term shall include overnight mail) or by telegram (which term shall
include a cablegram or telefacsimile) or delivered personally (which term shall
include notice by telephone). If notice is given by mail, it shall be mailed not
later than 72 hours preceding the meeting and if given by telegram or
personally, such notice shall be delivered not later than 24 hours preceding the
meeting. Notice of a meeting of Trustees may be waived before or after any
meeting by signed written waiver. Neither the business to be transacted at, nor
the purpose of, any meeting of the Board of Trustees need the notice or waiver
of notice of such meeting, and no notice need be given of action proposed to be
taken by written consent. The attendance of a Trustee at a meeting shall
constitute a waiver of notice of such meeting except where a Trustee attends a
meeting for the express purpose of objecting, at the commencement of such
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
Section 2.4 CHAIRPERSON: RECORDS. The Trustees shall appoint a
Chairperson of the Board from among their number. Such Chairperson of the Board
shall act as chairperson at all meetings of the Trustees; in his or her absence
the President shall act as chairperson; and, in the absence of all of them, the
Trustees present shall elect one of their number to act as temporary
chairperson. The results of all actions taken at a meeting of the Trustees, or
by written consent of the Trustees, shall be recorded by the Secretary.
Section 2.5 AUDIT COMMITTEE. The Board of Trustees may, by the
affirmative vote of a majority of the entire Board, appoint from its members an
Audit Committee composed of two or more Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust, as the Board may from time
to time determine. The Audit Committee shall (a) recommend independent public
accountants for selection by the Board, (b) review the scope of audit,
accounting and financial internal controls and the quality and adequacy of the
Trust's accounting staff with the independent public accountants and such other
persons as may be deemed appropriate, (c) review with the accounting staff and
the independent public accountants the compliance of transactions of the Trust
with its investment adviser, administrator or any other service provider with
the financial terms of applicable contracts or agreements, (d) review reports of
the independent public accountants and comment to the Board when warranted, and
(e) report to the Board at least once each year and at such other times as the
committee deems desirable.
Section 2.6 NOMINATING COMMITTEE OF TRUSTEES. The Board of
Trustees may, by the affirmative vote of a majority of the entire Board, appoint
from its members a Trustee Nominating Committee composed of two or more
Trustees. The Trustee Nominating Committee shall recommend to the Board a slate
of persons to be nominated for election as Trustees by the Holders at a meeting
of the Holders and a person to be elected to fill any vacancy occurring for any
reason in the Board. Notwithstanding anything in this Section to the contrary,
if the Trust has in effect a plan pursuant to Rule 12b-1 under the 1940 Act, the
selection and nomination of those Trustees who are not "interested persons" (as
defined in the 1940 Act) shall be committed to the discretion of such
non-interested Trustees.
Section 2.7 EXECUTIVE COMMITTEE. The Board of Trustees may
appoint from its members an Executive Committee composed of those Trustees as
the Board may from time to time determine, of which committee the Chairperson of
the Board shall be a member. In the intervals between meetings of the Board, the
Executive Committee shall have the power of the Board to (a) determine the value
of securities and assets owned by the Trust, (b) elect or appoint officers of
the Trust to serve until the next meeting of the Board, and (c) take such action
as may be necessary to manage the business of the Trust. All action by the
Executive Committee shall be recorded and reported to the Board at its meeting
next succeeding such action.
Section 2.8 OTHER COMMITTEES. The Board of Trustees may
appoint from among its members other committees composed of two or more of its
Trustees which shall have such powers as may be delegated or authorized by the
resolution appointing them.
Section 2.9 COMMITTEE PROCEDURES. The Board of Trustees may at
any time change the members of any committee, fill vacancies or discharge any
committee. In the absence of any member of any committee, the member or members
thereof present at any meeting, whether or not they constitute a quorum, may
unanimously appoint to act in the place of such absent member a member of the
Board. Each committee may fix its own rules of procedure and may meet as and
when provided by those rules. Copies of the minutes of all meetings of
committees other than the Nominating Committee and the Executive Committee shall
be distributed to the Board unless the Board shall otherwise provide.
ARTICLE III
OFFICERS
Section 3.1 OFFICERS OF THE TRUST; COMPENSATION. The officers
of the Trust shall consist of a President, a Secretary, a Treasurer and such
other officers or assistant officers, including Vice Presidents, as may be
elected by the Trustees. Any two or more of the offices may be held by the same
person. The Trustees may designate a Vice President as an Executive Vice
President and may designate the order in which the other Vice Presidents may
act. No officer of the Trust need be a Trustee. The Board of Trustees may
determine what, if any, compensation shall be paid to officers of the Trust.
Section 3.2 ELECTION AND TENURE. At the initial organization
meeting and thereafter at each annual meeting of the Trustees, the Trustees
shall elect the President, Secretary, Treasurer and such other officers as the
Trustees shall deem necessary or appropriate in order to carry out the business
of the Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and qualified.
The Trustees may fill any vacancy in office or add any additional officers at
any time.
Section 3.3 REMOVAL OF OFFICERS. Any officer may be removed at
any time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the President or Secretary, and such
resignation shall take effect immediately, or at a later date according to the
terms of such notice in writing.
Section 3.4 BONDS AND SURETY. Any officer may be required by
the Trustees to be bonded for the faithful performance of his or her duties in
such amount and with such sureties as the Trustees may determine.
Section 3.5 PRESIDENT AND VICE-PRESIDENTS. The President shall
be the chief executive officer of the Trust and, subject to the control of the
Trustees, shall have general supervision, direction and control of the business
of the Trust and of its employees and shall exercise such general powers of
management as are usually vested in the office of president of a corporation.
The President shall preside at all meetings of the Holders and, in the absence
of the Chairperson of the Board, the President shall preside at all meetings of
the Trustees. Subject to direction of the Trustees, the President shall have the
power, in the name and on behalf of the Trust, to execute any and all loan
documents, contracts, agreements, deeds, mortgages, and other instruments in
writing, and to employ and discharge employees and agents of the Trust. Unless
otherwise directed by the Trustees, the President shall have full authority and
power, on behalf of all of the Trustees, to attend and to act and to vote, on
behalf of the Trust at any meetings of business organizations in which the Trust
holds an interest, or to confer such powers upon any other persons, by executing
any proxies duly authorizing such persons. The President shall have such further
authorities and duties as the Trustees shall from time to time determine. In the
absence or disability of the President, the Vice Presidents in order of their
rank or the Vice President designated by the Trustees, shall perform all of the
duties of President, and when so acting shall have all the powers of and be
subject to all of the restrictions upon the President. Subject to the direction
of the President, the Treasurer and each Vice President shall have the power in
the name and on behalf of the Trust to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing, and,
in addition, shall have such other duties and powers as shall be designated from
time to time by the Trustees, the Chairperson, or the President.
Section 3.6 SECRETARY. The Secretary shall keep the minutes of
all meetings of, and record all votes of, Holders, Trustees and any committee of
Trustees, provided that, in the absence or disability of the Secretary, the
Holders or Trustees or any committee or Trustees may appoint any other person to
keep the minutes of a meeting and record votes. The Secretary shall attest the
signature or signatures of the officer or officers executing any instrument on
behalf of the Trust. The Secretary shall also perform any other duties commonly
incident to such office in a Delaware business trust and shall have such other
authorities and duties as the Trustees shall from time to time determine.
Section 3.7 TREASURER. Except as otherwise directed by the
Trustees, the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision of the Trustees and of
the Chairperson and the President all powers and duties normally incident to his
office. He or she may endorse for deposit or collection all notes, checks and
other instruments payable to the Trust or to its order. He or she shall deposit
all funds of the Trust as may be ordered by the Trustees, the Chairperson or the
President. He or she shall keep accurate account of the books of the Trust's
transactions which shall be the property of the Trust and which, together with
all other property of the Trust in his or her possession, shall be subject at
all times to the inspection and control of the Trustees. Unless the Trustees
shall otherwise determine, the Treasurer shall be the principal accounting
officer of the Trust and shall also be the principal financial officer of the
Trust. He or she shall have such other duties and authorities as the Trustees
shall from time to time determine. Notwithstanding anything to the contrary
herein contained, the Trustees may authorize any adviser or administrator to
maintain bank accounts and deposit and disburse funds on behalf of the Trust.
Section 3.8 OTHER OFFICERS AND DUTIES. The Trustees may elect
such other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of the
Trust. Assistant officers shall act generally in the absence of the officer whom
they assist and shall assist that officer in the duties of his or her office.
Each officer, employee and agent of the Trust shall have such other duties and
authority as may be conferred upon him or her by the Trustees or delegated to
him or her by the President.
ARTICLE IV
CUSTODIAN
Section 4.1 APPOINTMENT AND DUTIES. The Trustees shall at all
times employ a custodian or custodians with authority as its agent, but subject
to such restrictions, limitations and other requirements, if any, as may be
contained in these By-Laws:
(1) to hold the securities owned by the Trust and deliver the same
upon written order;
(2) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books
and accounts of the Trust and furnish clerical and accounting services; and
(5) if authorized to do so by the Trustees, to compute the net income
and net assets of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. The Trustees may also authorize the custodian to employ one
or more subcustodians, from time to time, to perform such of the acts and
services of the custodian and upon such terms and conditions as may be agreed
upon between the custodian and such sub-custodian and approved by the Trustee.
Section 4.2 CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, any such other person or
entity with which the Trustees may authorize deposit in accordance with the 1940
Act.
ARTICLE V
MISCELLANEOUS
Section 5.1 DEPOSITORIES. In accordance with Article IV of
these By-Laws, the funds of the Trust shall be deposited in such depositories as
the Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including any adviser
or administrator), as the Trustees may from time to time authorize.
Section 5.2 SIGNATURES. All contracts and other instruments
shall be executed on behalf of the Trust by such officer, officers, agent or
agents, as provided in these By-Laws or as the Trustees may from time to time by
resolution or authorization provide.
Section 5.3 SEAL. The seal of the Trust shall, subject to
alteration by the Trustees, consist of a flat-faced circular die with the word
"Delaware", together with the name of the Trust and the year of its
organization, cut or engraved thereon; but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
Section 5.4 FISCAL YEAR. The fiscal year of the Trust shall be
established by the Board of Trustees and may be changed from time to time.
ARTICLE VI
INTERESTS
Section 6.1 INTERESTS. Except as otherwise provided by law,
the Trust shall be entitled to recognize the exclusive right of a person in
whose name Interests stand on the record of Holders as the owners of such
Interests for all purposes, including, without limitation, the rights to receive
distributions, and to vote as such owner, and the Trust shall not be bound to
recognize any owner, and the Trust shall not be bound to recognize any equitable
or legal claim to or interest in any such Interests on the part of any other
person.
Section 6.2 REGULATIONS. The Trustees may make such additional
rules and regulations, not inconsistent with these By-Laws, as they may deem
expedient concerning the sale and purchase of Interests of the Trust.
Section 6.3 DISTRIBUTION DISBURSING AGENTS AND THE LIKE. The
Trustees shall have the power to employ and compensate such distribution
disbursing agents, warrant agents and agents for the reinvestment of
distributions as they shall deem necessary or desirable. Any of such agents
shall have such power and authority as is delegated to any of them by the
Trustees.
ARTICLE VII
AMENDMENT OF BY-LAWS
Section 7.1 AMENDMENT AND REPEAL OF BY-LAWS. In accordance
with Section 2.7 of the Declaration, the Trustees shall have the power to alter,
amend or repeal the By-Laws or adopt new By-Laws at any time. The Trustees shall
in no event adopt By-Laws which are in conflict with the Declaration, DBTA, the
1940 Act or applicable federal securities laws.
Section 7.2 NO PERSONAL LIABILITY. The Declaration
establishing THE ARBITRAGE FUNDS provides that the name "THE ARBITRAGE FUNDS"
does not refer to the Trustees as individuals or personally; and no Trustee,
officer, employee or agent of, or Holder of Interest in, THE ARBITRAGE FUNDS
shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of THE ARBITRAGE FUNDS (except to the extent of a
Holder's Interest in the Trust).
