THE ARBITRAGE FUNDS
DISTRIBUTION PLAN
(12B-1 PLAN)
The following Distribution Plan (the "Plan") has been adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended (the "Act"), by The
Arbitrage Funds (the "Trust"), a Delaware trust, on behalf of the portfolios of
the Trust (the "Fund") and/or Shares ("Classes") of the Funds set forth in
exhibits hereto. The Plan has been approved by a majority of the Trust's Board
of Trustees, including a majority of the Trustees who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Plan or in any Rule 12b-1 Agreement (as defined below) (the
"Disinterested Trustees"), cast in person at a meeting called for the purpose of
voting on such plan.
In approving the Plan, the Board of Trustees determined that adoption of the
Plan would be prudent and in the best interests of the Fund and its
shareholders. Such approval by the Board of Trustees included a determination,
in the exercise of its reasonable business judgment and in light of its
fiduciary duties, that there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders.
The provisions of the Plan are as follows:
1. PAYMENTS BY THE FUND TO PROMOTE THE SALE OF FUND SHARES
(a) The Trust, on behalf of the Fund, will pay RAFFERTY CAPITAL MARKETS,
INC. (the "Distributor"), as a principal underwriter of the Fund's shares, a
distribution fee as set forth in the exhibits in connection with the promotion
and distribution of Fund shares and the provision of personal services to
shareholders, including, but not necessarily limited to, advertising,
compensation to underwriters, dealers and selling personnel, the printing and
mailing of prospectuses to other than current Fund shareholders, and the
printing and mailing of sales literature. The Distributor may pay all or a
portion of these fees to any registered securities dealer, financial institution
or any other person (the "Recipient") who renders assistance in distributing or
promoting the sale of shares, or who provides certain shareholder services,
pursuant to a written agreement (the "Rule 12b-1 Agreement"), a form of which is
attached hereto as Appendix A with respect to the Fund. Payment of these fees
shall be made monthly promptly following the close of the month.
(b) No Rule 12b-1 Agreement shall be entered into with respect to the Fund
and/or Class and no payments shall be made pursuant to any Rule 12b-1 Agreement,
unless such Rule 12b-1 Agreement is in writing and the form of which has first
been delivered to and approved by a vote of a majority of the Trust's Board of
Trustees, and of the Disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such Rule 12b-1 Agreement. The form of Rule 12b-1
Agreement relating to the Fund attached hereto as Appendix A has been approved
by the Trust's Board of Trustees as specified above.
(c) Any Rule 12b-1 Agreement shall describe the services to be performed by
the Recipient and shall specify the amount of, or the method for determining,
the compensation to the Recipient.
2. QUARTERLY REPORTS
The Distributor shall provide to the Board of Trustees, and the Trustees
shall review at least quarterly, a written report of all amounts expended
pursuant to the Plan. This report shall include the identity of the Recipient of
each payment and the purpose for which the amounts were expended
and such other information as the Board of Trustees may reasonably request.
3. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective immediately upon approval by the vote of a
majority of the Board of Trustees, and of the Disinterested Trustees, cast in
person at a meeting called for the purpose of voting on the approval of the
Plan. The Plan shall continue in effect for a period of one year from its
effective date unless terminated pursuant to its terms. Thereafter, the Plan
shall continue with respect to the Fund from year to year, provided that such
continuance is approved at least annually by a vote of a majority of the Board
of Trustees, and of the Disinterested Trustees, cast in person at a meeting
called for the purpose of voting on such continuance. The Plan, or any Rule
12b-1 Agreement, may be terminated with respect to the Fund at any time, without
penalty, on not more than sixty days' written notice by a majority vote of
shareholders of such Fund, or by vote of a majority of the Disinterested
Trustees.
4. SELECTION OF DISINTERESTED TRUSTEES
During the period in which the Plan is effective, the selection and
nomination of those Trustees who are Disinterested Trustees of the Trust shall
be committed to the discretion of the Disinterested Trustees.
5. AMENDMENTS
All material amendments of the Plan shall be in writing and shall be
approved by a vote of a majority of the Board of Trustees, and of the
Disinterested Trustees, cast in person at a meeting called for the purpose of
voting on such amendment. In addition, the Plan may not be amended to increase
materially the amount to be expended by the Fund hereunder without the approval
by a majority vote of shareholders of the Fund affected thereby.
6. RECORDKEEPING
The Trust shall preserve copies of the Plan, any Rule 12b-1 Agreement and
all reports made pursuant to Section 2 for a period of not less than six years
from the date of this Plan, any such Rule 12b-1 Agreement or such reports, as
the case may be, the first two years in an easily accessible place.
APPENDIX A
RULE 12B-1 AGREEMENT
RAFFERTY CAPITAL MARKETS, INC.
1311 MAMRONECK AVENUE
WHITE PLAINS, NY 10605
DEALER AGREEMENT
This Agreement made as of ______________________, 2000, between Rafferty
Capital Markets, Inc. ("RCM"), a Delaware limited liability company,
and __________________________________ ("DEALER"), a corporation organized
and existing under the laws of ______________________________.
WHEREAS, ________________ (the "Trust") is registered under the Investment
Company Act of 1940, as amended ("1940 Act"), as an open-end management
investment company and currently offers for public sale shares of common stock
or beneficial interest ("Shares") in the separate series of the Trust listed on
Schedule A (each, a "Fund");
WHEREAS, RCM serves as principal underwriter in connection with the
offering and sale of the Shares of each Fund pursuant to a Distribution
Agreement, and
WHEREAS, DEALER desires to serve as a selected dealer for the Shares of
the Funds.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained herein, RCM and DEALER agree as follows:
1. OFFERS AND SALES OF SHARES. The DEALER agrees to offer and sell Shares
only at the public offering price currently in effect, in accordance with the
terms of the then-current prospectus(es), including any supplements or
amendments thereto, of each Fund ("Prospectus"). The DEALER agrees to act only
as agent on behalf of its customers in such transactions and shall not have
authority to act as agent for the Funds, for RCM, or for any other dealer in any
respect. All purchase orders are subject to acceptance by RCM and the relevant
Fund and become effective only upon confirmation by RCM or an agent of the Fund.
In its sole discretion, either the Fund or RCM may reject any purchase order and
may, provided notice is given to the DEALER, suspend sales or withdraw the
offering of Shares entirely.
2. PROCEDURES FOR PURCHASES. The procedures relating to all orders and the
handling of them shall be made in accordance with the procedures set forth in
each Fund's Prospectus, and to the extent consistent with the Prospectus,
written instructions forwarded to DEALER by RCM from time to time.
3. SETTLEMENT AND DELIVERY FOR PURCHASES. Transactions shall be settled
by the DEALER by payment in Federal funds of the full purchase price to the
Fund's transfer agent in accordance with applicable procedures. Payment for
Shares shall be received by the Fund's transfer agent by the later of (a) the
end of the third business day following the Dealer's receipt of the customer's
order to purchase such Shares or (b) the end of one business day following the
Dealer's receipt of the customer's payment for such Shares, but in no event
later than the end of the sixth business day following the Dealer's receipt of
the customer's order. If such payment is not received within the time specified,
the sale may be canceled forthwith without any responsibility or liability on
RCM's part or on the part of the Funds.
4. PROCEDURES FOR REDEMPTION, REPURCHASE AND EXCHANGE. Redemption or
repurchases of Shares as well as exchange requests shall be made in accordance
with the procedures set forth in each Fund's Prospectus, and to the extent
consistent with the Prospectus, written instructions forwarded to DEALER by RCM
from time to time.
5. COMPENSATION.
(a) On each purchase of Shares by the DEALER from RCM, the total sales
charges and discount to dealer, if any, shall be as stated in each Fund's
Prospectus. Such sales charges and discounts to dealers are subject to
reductions under a variety of circumstances as described in each Fund's
Prospectus. To obtain these reductions, RCM must be notified when a sale takes
place that would qualify for the reduced charge. If any Shares sold to the
DEALER under the terms of this Agreement are redeemed by a Fund or tendered for
redemption or repurchased by a Fund or by RCM as agent within seven business
days after the date the DEALER purchased such Shares, the DEALER shall forfeit
its right to any discount or commission received by or allowed to the DEALER
from the original sale.
(b) From time to time during the term of this Agreement, RCM may make
payments to DEALER pursuant to one or more distribution plans adopted by certain
of the Funds pursuant to Rule 12b-1 under the 1940 Act ("Plan of Distribution")
in consideration, with respect to each such Fund, of DEALER'S furnishing
distribution services hereunder. The provisions and terms of a Fund's Plan of
Distribution are described in its Prospectus and statement of additional
information ("SAI"), and the DEALER agrees that RCM has made no representations
to the DEALER with respect to the Plan of Distribution in addition to or
conflicting with the description set forth therein. The DEALER agrees that (i)
DEALER has no right to receive payment of any amounts otherwise payable to it by
RCM under a Fund's Plan of Distribution until such time as RCM is in receipt of
such fee from the Fund and (ii) RCM'S liability to the DEALER for the payment of
any such fees is limited solely to the amount of the applicable Fund's fee sent
to RCM.
6. EXPENSES. The DEALER agrees that it will bear all expenses incurred in
connection with its performance of this Agreement.
7. DEALER REGISTRATION. The DEALER represents and warrants that it is
registered as a broker-dealer under the Securities Exchange Act of 1934 ( the
"1934 Act"), is qualified as a broker-dealer in all states or other
jurisdictions in which it sells Fund Shares, and, if it sells shares in
additional states or jurisdictions in the future, will become qualified to act
as a dealer in each such state or jurisdiction prior to selling any Fund shares.
The DEALER shall maintain any filings and licenses required by federal and state
laws to conduct the business contemplated under this Agreement. The DEALER
further represents and warrants that it is a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and that it agrees to
abide by the Conduct Rules of the NASD. The DEALER further represents and
warrants that it is a member of the Securities Investor Protection Corporation
in good standing.
8. COMPLIANCE WITH FEDERAL AND STATE LAWS.
(a) The DEALER will not sell any of the Shares except in compliance
with all applicable federal and state securities laws. In connection with sales
and offers to sell Shares, the DEALER will furnish or cause to be furnished to
each person to whom any such sale or offer is made, at or prior to the time of
offering or sale, a copy of the Prospectus and, if requested, the related SAI.
RCM shall be under no liability to the DEALER except for lack of good faith and
for obligations expressly assumed by RCM herein. Nothing herein contained,
however, shall be deemed to be a condition, stipulation or provision binding any
persons acquiring any security to waive compliance with, or to relieve the
parties hereto from any liability arising under, the federal securities laws.
(b) RCM shall, from time to time, inform the DEALER as to the states
and jurisdictions in which RCM believes the Shares have been qualified for sale
under, or are exempt from the requirements of, the respective securities laws of
such states and jurisdictions. The DEALER agrees that it will not knowingly
offer or sell Shares in any state or jurisdiction in which such Shares are not
qualified, unless any such offer or sale is made in a transaction that qualifies
for an exemption from registration.
(c) RCM assumes no responsibility in connection with the registration
of the DEALER under the laws of the various states or under federal law or the
DEALER'S qualification under any such law to offer or sell Shares.
9. UNAUTHORIZED REPRESENTATIONS. No person is authorized to make any
representations concerning Shares of the Funds except those contained in the
Prospectus, SAI and printed information issued by each Fund or by RCM as
information supplemental to each Prospectus. RCM shall, upon request, supply the
DEALER with reasonable quantities of Prospectuses and SAIs. The DEALER agrees
not to use other advertising or sales material relating to the Funds unless
approved by RCM in advance of such use. Neither party shall use the name of the
other party in any manner without the other party's written consent, except as
required by any applicable federal or state law, rule or regulation, and except
pursuant to any mutually agreed upon promotional programs.
10. CONFIRMATIONS. The DEALER agrees to send confirmations of orders to its
customers as required by Rule 10b-10 of the 1934 Act. In the event the customers
of DEALER place orders directly with the Fund or any of its agents,
confirmations will be sent to such customers, as required, by the Fund's
transfer agent.
11. RECORDS. The DEALER agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of Shares to its customers, and upon the reasonable request of RCM, or of the
Funds, to make these records available to RCM or the Fund's administrator as
reasonably requested. On orders placed directly with the Fund or its agents, the
Fund's transfer agent will maintain all records required by state and federal
laws and regulations relating to the offer and sale of Shares.
12. TAXPAYER IDENTIFICATION NUMBERS. The DEALER agrees to obtain any
taxpayer identification number certification from its customers required under
the Internal Revenue Code and any applicable Treasury regulations, and to
provide RCM or its designee with timely written notice of any failure to obtain
such taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
13. INDEMNIFICATION.
(a) The DEALER shall indemnify and hold harmless RCM, each Fund, the
transfer agent and administrator of the Funds, and their respective affiliates,
officers, directors, agents, employees and controlling persons from all direct
or indirect liabilities, losses or costs (including reasonable attorneys' fees)
arising from, related to or otherwise connected with any breach by the DEALER of
any provision of this Agreement.
(b) RCM shall indemnify and hold harmless the DEALER and its
affiliates, officers, directors, agents, employees and controlling persons from
and against any and all direct or indirect liabilities, losses or costs
(including reasonable attorneys' fees) arising from, related to or otherwise
connected with any breach by RCM of any provision of this Agreement.
(c) The Agreement of the parties in this Paragraph to indemnify each
other is conditioned upon the party entitled to indemnification (Indemnified
Party) notifying the other party (Indemnifying Party) promptly after the summons
or other first legal process for any claim as to which indemnity may be sought
is served on the Indemnified Party. The Indemnified Party shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting from it, provided that counsel for the Indemnifying Party who shall
conduct the defense of such claim or litigation shall be approved by the
Indemnified Party (which approval shall not unreasonably be withheld), and that
the Indemnified Party may participate in such defense at its expense. The
failure of the Indemnified Party to give notice as provided in this subparagraph
(c) shall not relieve the Indemnifying Party from any liability other than its
indemnity obligation under this Paragraph. No Indemnifying Party, in the defense
of any such claim or litigation, shall, without the consent of the Indemnified
Party, consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term the giving by the claimant or plaintiff to
the Indemnified Party of a release from all liability in respect to such claim
or litigation.
14. NO AGENCY CREATED. Nothing in this Agreement shall be deemed or
construed to make the DEALER an employee, agent, representative or partner of
any of the Funds or of RCM, and the DEALER is not authorized to act for RCM or
for any Fund or to make any representations on RCM's or the Funds' behalf. The
DEALER acknowledges that this Agreement is not exclusive and that RCM may enter
into similar arrangements with other broker-dealers.
15. TERM, TERMINATION, ASSIGNMENT AND AMENDMENT.
(a) This Agreement shall commence on the date first set forth above and
shall continue in effect with respect to a Fund for more than one year only so
long as such continuance is specifically approved at least annually in
conformity with the requirements of the 1940 Act.
(b) Either party to this Agreement may terminate this Agreement by
giving ten days' written notice to the other. This Agreement also may be
terminated with respect to a Fund at any time, without the payment of any
penalty, by vote of a majority of the members of the board of trustees of the
Trust who are not "interested persons" (within the meaning of the 1940 Act) and
have no direct or indirect financial interest in the operation of this Agreement
or by vote of a "majority of the outstanding voting securities" (within the
meaning of the 1940 Act) of the respective Fund on not more than sixty days'
written notice.
(c) This Agreement shall terminate automatically with respect to any
Fund if (i) the DEALER files a petition in bankruptcy, (ii) a trustee or
receiver is appointed for the DEALER or its assets under federal bankruptcy
laws, (iii) the DEALER'S registration as a broker-dealer with the Securities and
Exchange Commission is suspended or revoked, (iv) the DEALER'S NASD membership
is suspended or revoked, (v) an application for a protective decree under the
provisions of the Securities Investor Protection Act of 1970 is filed against
the DEALER, or (vi) the Distribution Agreement between RCM and a Fund is
terminated. This Agreement also shall terminate automatically in the event of
its "assignment," within the meaning of the 1940 Act.
(d) Termination of this Agreement by operation of this Paragraph 15
shall not affect any unpaid obligations under Paragraphs 3, 5 or 6 of this
Agreement or the liability, legal and indemnity obligations set forth under
Paragraphs 7, 8, 9 or 13 of this Agreement.
(e) This Agreement may not be amended by either party without the prior
written consent of the other party.
16. NOTICES. Except as otherwise specifically provided in this
Agreement, any notice required or permitted to be given by either party to the
other shall be in writing and shall be deemed to have been given on the date
delivered personally or by courier service or 3 days after sent by registered or
certified mail, postage prepaid, return receipt requested or on the date sent
and confirmed received by facsimile transmission to the other party's address
set forth below:
Notice to RCM shall be sent to:
Rafferty Capital Markets, Inc.
Attn: Thomas A. Mulrooney
1311 Mamaroneck Avenue
White Plains, NY 10605
notice to the DEALER shall be sent to:
_____________________________
_____________________________
_____________________________
17. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.
18. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws (without regard, however, to conflicts of law principles) of the State
of Wisconsin, provided that no provision shall be construed in a manner not
consistent with the 1940 Act or any rule or regulation thereunder.
19. CONFIDENTIALITY. RCM and the DEALER agree to preserve the
confidentiality of any and all materials and information furnished by either
party in connection with this Agreement. The provisions of this Paragraph shall
not apply to any information which is: (a) independently developed by the
receiving party, provided the receiving party can satisfactorily demonstrate
such independent development with appropriate documentation; (b) known to the
receiving party prior to disclosure by the disclosing party; (c) lawfully
disclosed to the receiving party by a third party not under a separate duty of
confidentiality with respect thereto to the disclosing party; or (d) otherwise
publicly available through no fault or breach by the receiving party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
RAFFERTY CAPITAL MARKETS, INC.
By: _________________________________
Type Name:___________________________
DEALER
By: _________________________________
Type Name:___________________________
