As filed with the Securities and Exchange Commission on February 9, 2000
Registration No. 33-_______/811-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
|X|
Pre-Effective Amendment No. ___ |_|
Post-Effective Amendment No. ___ |_|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
Amendment No. _____ |_|
(Check appropriate box or boxes.)
BRAZOS INSURANCE FUNDS
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(Exact Name of Registrant as Specified in Charter)
5949 Sherry Lane, Suite 1600
Dallas, Texas 75225
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(Address of Principal Executive Offices) (Zip Code)
with a copy of communications to:
Audrey C. Talley, Esquire
Drinker Biddle & Reath LLP
18th and Cherry Streets
Philadelphia, PA 19103-6996
Registrant's Telephone Number, including Area Code (214) 365-5200
Dan L. Hockenbrough, 5949 Sherry Lane, Suite 1600, Dallas, Texas 75225
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: UPON EFFECTIVE DATE OF THIS
REGISTRATION STATEMENT
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: Shares of Beneficial Interest
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BRAZOS INSURANCE FUNDS
PROSPECTUS
__________________ ____, 2000
BRAZOS SMALL CAP GROWTH PORTFOLIO
INVESTMENT OBJECTIVE
Small Capitalization Growth
Brazos Insurance Fund shares are offered only to insurance companies to fund
benefits under their variable annuity and variable life insurance contracts.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OF THIS PROSPECTUS. IT IS A CRIME FOR
ANYONE TO TELL YOU OTHERWISE.
Transfer Agent:
Firstar Mutual Fund Services, LLC
Telephone: __________________ Website: www.brazosfund.com
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TABLE OF CONTENTS
PAGE
BRAZOS SMALL CAP GROWTH PORTFOLIO...........................................1
RISK ELEMENTS...............................................................3
INFORMATION ABOUT THE ADVISER...............................................5
ADVISORS HISTORICAL PERFORMANCE.............................................6
PERFORMANCE OF SIMILARLY MANAGED MUTUAL FUND................................7
INFORMATION FOR FIRST TIME MUTUAL FUND INVESTORS............................8
VALUATION OF SHARES.........................................................8
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES............................9
PURCHASE OF SHARES..........................................................9
REDEMPTION OF SHARES.......................................................10
FOR MORE INFORMATION.......................................................11
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BRAZOS SMALL CAP GROWTH PORTFOLIO
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SUMMARY OF INVESTMENT OBJECTIVE
The investment objective of the Brazos Small Cap Growth Portfolio
("Small Cap" or the "Portfolio") is to provide maximum capital appreciation,
consistent with reasonable risk to principal.
INVESTMENT POLICIES AND STRATEGIES
The majority of equity securities (65%) in the Portfolio will have
market capitalizations of $1.8 billion or lower, or a capitalization of
companies represented in the Russell 2000 Index at the time of the Portfolio's
investment. This target will fluctuate with changes in market conditions and the
composition of the Russell 2000 Index.
The Portfolio seeks to achieve its objective by investing primarily in
small capitalization companies. The remaining securities acquired by the
Portfolio may have market capitalizations that exceed the target capitalization.
Small Cap generally seeks investment in securities of companies with above
average growth rates, average annual revenues below $1 billion, above average
return on equity, and low debt levels.
The types of equity securities that can be purchased include common
stocks and securities convertible into common stocks. Market conditions may lead
to higher levels (up to 100%) of temporary investments such as money market
instruments or U.S. Treasury Bills. Temporary investments are expected to be 5%
to 10% of each portfolio under normal circumstances.
The investment process involves consistent communications with senior
management, suppliers, competitors and customers in an attempt to understand the
dynamics within each company's business. Small Cap then selects companies with
strong growth in revenue, earnings and cash flow, predictable operating models,
seasoned management, and unique products or services. John McStay Investment
Counsel ("JMIC" or the "Adviser") believes that smaller companies have greater
potential to deliver above average growth rates that may not yet have been
recognized by investors.
To manage fluctuations in the value of the Portfolio's investments,
JMIC invests across 10-12 industry sectors with no industry sector representing
more than 25% of the value of the Portfolio. JMIC may sell securities when the
value of a security or a group of securities within a certain industry sector
violates diversification objectives. A high rate of portfolio turnover involves
greater transaction expenses and possible adverse tax consequences to the
Portfolio's shareholders, which may reduce performance.
The value of each security at the time of acquisition is not expected
to exceed 4% of the value of investments in the Portfolio. JMIC seeks to reduce
risk by limiting the Portfolio's holdings of a certain stock to an amount less
than or equal to the number of shares traded on the market by all traders during
the last 7 business days.
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RISK CONSIDERATIONS
INVESTMENT SUITABILITY
Small Cap may be appropriate for investors who:
o are seeking long-term capital growth
o do not need current income
o are willing to hold an investment over a long period of time
in anticipation of returns that equity securities can provide
and
o are able to tolerate fluctuations in principal value of their
investment.
Investment in the Portfolio involves investment risks, including the
risk that investors may lose money. The value of the Portfolio's investments
could be influenced by changes in the stock market as a whole, by changes in a
certain industry, or by changes in certain stocks. The performance results
presented from time to time, may reflect periods of above average performance
attributable to the Portfolio's investment in certain securities during the
initial public offering, the performance of a limited number of the securities
in the Portfolio, or other non-recurring factors. It is possible that the
performance may not be repeated in the future. The performance information
presented for the Portfolio will not reflect the impact of the variable annuity
or variable life insurance contract charges. If these charges were reflected,
total returns would be lower.
The Portfolio may, for temporary defensive purposes, invest a
percentage of its total assets, without limitation, in cash or various U.S.
dollar-denominated money market instruments. The value of money market
instruments tends to fall when current interest rates rise. Money market
instruments are generally less sensitive to interest rate changes than
longer-term securities. When the Portfolio's assets are invested in these
instruments, it may not be achieving its investment objective.
To the extent the Portfolio invests in small companies, it may be
exposed to greater risk than if it invested in larger, more established
companies. Small companies may have limited product lines, financial resources,
and management teams. Additionally, the trading volume of small company
securities may make them more difficult to sell. A more in-depth discussion of
the types of risks an equity fund could be subject to is on pages _____.
INVESTOR EXPENSES
The expenses you should expect to pay as an investor in the Portfolio
is shown below.
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ANNUAL FUND OPERATING EXPENSES(1)
(EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS)
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Management fees _____%
Other Expenses _____%
Total operating expenses2 _____%
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1 JMIC currently reimburses fund expenses and waives advisory fees to the
extent total operating expenses exceed _____% for Small Cap. This cap on
expenses is expected to continue until further notice. The Portfolio may at a
later date reimburse to the Adviser the advisory fees waived or limited and
other expenses, including organizational expenses, assumed and paid by JMIC.
2 The Portfolio has no sales, redemption, exchange, or account fees with the
exception of a $12.00 fee for each redemption made by wire. Additionally,
some institutions may charge a fee if you buy through them.
The example below shows what a shareholder could pay in expenses over
time and is intended to help you compare the cost of investing in the Portfolio
with the cost of investing in other mutual funds. It uses the same hypothetical
conditions other mutual funds use in their prospectuses: $10,000 initial
investment for the time periods indicated, 5% annual total return, expenses
(without fee waiver) remain unchanged. The figures shown would be the same
whether you sold your shares at the end of a period or kept them. The
Portfolio's actual return and expenses will be different.
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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SMALL CAP $______ $______ $______ $______
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RISK ELEMENTS
In seeking to achieve its investment objective, the Portfolio will rely
on different strategies to seek rewards and returns. The objective of the Small
Cap Growth Portfolio is to provide maximum capital appreciation, consistent with
reasonable risk to principal by investing primarily in small capitalization
companies.
This table identifies the main elements that make up the Portfolio's
overall risk and reward characteristics described under the Risk Considerations
section for the Portfolio. It also outlines the Portfolio's policies toward
various securities, including those that are designed to help the Portfolio
manage risk. The following policies are not fundamental and the Trustees may
change such policies without shareholder approval.
<TABLE>
<CAPTION>
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STRATEGIES TO SEEK REWARD POTENTIAL REWARDS POTENTIAL RISKS
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<S> <C> <C>
MARKET CONDITIONS
o Under normal circumstances
the portfolio plans to remain
fully invested. o Stocks and bonds have o The portfolio's share price
generally outperformed more and performance will
o The portfolio seeks to limit stable investments (such as fluctuate in response to
risk through diversification in short-term bonds and cash stock and bond market
a large number of stocks. equivalents) over the long movements.
term.
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MANAGEMENT CHOICES
o JMIC focuses on bottom-up o The portfolio could o The portfolio could
research, fundamental security outperform its benchmark due underperform its benchmark
analysis and valuation methods to its asset allocation and due to these same choices and
to enhance returns. securities choices. due to expenses.
</TABLE>
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<TABLE>
<CAPTION>
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STRATEGIES TO SEEK REWARD POTENTIAL REWARDS POTENTIAL RISKS
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<S> <C> <C>
SHORT-TERM TRADING
o The portfolio's turnover rate o The portfolio could realize o Increasing trading would
generally will not exceed 150%. gains in a short period of raise the portfolio's
time. brokerage and related costs.
o The portfolio generally avoids o The portfolio could protect o Increased short-term capital
short-term trading, except to against losses if a stock is gains distributions would
take advantage of attractive or overvalued and its value raise shareholders' income
unexpected opportunities or to later falls. tax liability.
meet demands generated by
shareholder activity.
SMALL CAP STOCKS
o JMIC focuses on companies with o Securities of companies with o The Portfolio could lose
potential for strong growth in small and micro money because of the
revenue, earnings and cash capitalizations may have potentially higher risks of
flow; strong management; greater potential than large small companies and price
leading products or services; cap companies to deliver volatility than investments
and potential for improvement. above-average growth rates in general equity markets.
that may not have yet been
recognized by investors.
o 35% of the Portfolio may be
invested in securities of
larger capitalization companies.
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</TABLE>
The following table indicates the maximum percentage under normal
conditions, that the Portfolio may make:
ADR's, EDR's and GDR's........
Asset-backed securities....... --
Bank obligations
Foreign currency transactions. --
Foreign securities............ 5%
Futures contracts............. 5%(a) 20%(b)
Illiquid securities........... 15%
Investment companies.......... 10%
Lending of securities......... 33 1/3%
Mortgage-backed securities.... --
Options transactions.......... 5%(a) 20%(b)
Repurchase agreements......... --
Reverse repurchase agreements. 33 1/3%
U.S. Government obligations... 100%
Warrants...................... 5%
When-issued securities........ 33 1/3%
TEMPORARY INVESTMENTS(c)
Cash.......................... 100%
Short-term obligations........ 100%
INVESTMENT RESTRICTIONS
Securities of any one issuer.. 5%
Outstanding voting securities
of any one issuer.......... 10%
Securities of issuers in any
one industry............... 25%
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Percentages are of total assets (except for Illiquid Securities which are shown
as a percentage of net assets).
(a) Portfolio may not purchase futures contracts or options where premiums and
margin deposits exceed 5% of total assets.
(b) Portfolio may not enter into futures contracts or options where its
obligations would exceed 20% of total assets.
(c) The Portfolio will invest up to 100% of its assets in temporary
investments only when market conditions so require.
INFORMATION ABOUT THE ADVISER
Brazos Insurance Funds (the "Trust") was created in January 2000. In
addition to offering investment adviser services to the Trust, JMIC, a limited
partnership, 5949 Sherry Lane, Suite 1600, Dallas, Texas, 75225, also offers
investment adviser services to Brazos Mutual Funds, which consists of the Brazos
Small Cap Growth, Brazos Micro Cap Growth, Brazos Mid Cap Growth, Brazos Real
Estate Securities and Brazos Multi Cap Growth Portfolios. JMIC is a majority
owned indirect subsidiary of American International Group, Inc. and minority
owned by the employees of JMIC. JMIC began managing large accounts for pension
plans, endowments, foundations and municipalities in 1983. The senior management
has worked together for approximately 20 years.
JMIC's mission is to capture excess returns while managing risk. JMIC
seeks to accomplish this objective by:
o investing in smaller companies
o investing in rapidly growing companies
o investing in companies with highly predictable revenue and
profit streams
o investing in companies positioned to accelerate profit
growth above general expectations
o constructing diversified portfolios to moderate risk
JMIC has employed a bottom-up process in researching companies. JMIC
visits virtually every company prior to investing. Bottom-up research often
includes interviews with senior management, as well as the companies'
competitors and suppliers. The list of potential investments is further filtered
by the use of traditional fundamental security analysis and valuation methods.
JMIC manages the Portfolio using a team approach. By using a team
approach, the Trust avoids the risk of changes in portfolio management style
that may be encountered when a lead manager approach is utilized. The team
approach creates portfolio management stability, which provides confidence that
the process is repeatable, and has been used for the last twenty-five years.
JMIC has had minimal (one) professional turnover during the last fifteen years
of management.
For its services to the Portfolio, JMIC is entitled to a fee,
calculated daily and payable monthly, at an annual rate of ___% of the
Portfolio's average daily net assets. JMIC also may voluntarily waive or
reimburse additional amounts, including organizational expenses, to increase the
investment return to the Portfolio's investors. JMIC may terminate all such
waivers and/or reimbursements at any time. Further, any waivers or
reimbursements made by JMIC with respect to the Portfolio are subject to
recoupment from the Portfolio within the following three years, provided that
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the Portfolio is able to effect such payment to JMIC and remain in compliance
with the foregoing expense limitations.
ADVISER'S HISTORICAL PERFORMANCE
Set forth below are performance data provided by the Adviser pertaining
to the composite of all separately managed accounts of the Adviser that are
managed with substantially similar (although not necessarily identical)
objectives, policies and strategies as those of the Portfolio. The investment
returns of the Portfolio may differ from those of the separately managed
accounts because such separately managed accounts may have fees and expenses
that differ from those of the Portfolio. Further, the separately managed
accounts are not subject to investment limitations, diversification requirements
and other restrictions imposed by the Investment Company Act of 1940 and
Internal Revenue Code; such conditions, if applicable, may have lowered the
returns for the separately managed accounts. The Adviser's separately managed
account performance results set forth below under "Institutional Equity Results"
are not intended to predict or suggest the return of the Portfolio, but rather
to provide the shareholder with information about the historical investment
performance of the Portfolio's Adviser. The Russell 2000 Index used in the
comparison below is an unmanaged index which assumes reinvestment of dividends
on securities in the index and is generally considered representative of
securities similar to those invested in by the Adviser for the purpose of the
composite performance numbers set forth below.
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ADVISER'S
INSTITUTIONAL
SMALL CAP RUSSELL
EQUITY ACCOUNTS 2000 INDEX
(AFTER (BEFORE
EXPENSES) EXPENSES)
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CALENDAR YEARS:
1987 25.6% -8.8%
1988 24.5% 24.9%
1989 31.9% 16.2%
1990 -4.0% -19.5%
1991 68.9% 46.1%
1992 8.7% 18.4%
1993 15.3% 18.9%
1994 -0.1% -1.8%
1995 30.1% 28.4%
1996 32.9% 16.5%
1997 23.4% 22.4%
1998 10.4% -2.5%
AVERAGE ANNUAL
TOTAL RETURNS
AS OF 12/31/98:
Cumulative 886.3% 284.2%
Annualized 21.0% 11.9%
3 Year 21.9% 11.6%
5 Year 18.7% 11.9%
10 Year 20.2% 12.9%
Five-Year Mean 19.3% 12.6%
Twelve-Year Mean 22.3% 13.3%
Value of $1 invested
During 12 years
(1/1/87 - 12/31/98) $9.86 $3.84
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1 The Adviser's Institutional Small Cap Equity Accounts represents the
composite of all separately managed accounts of the Adviser that are managed
with substantially similar (although not identical) objectives, policies and
strategies as those of the Small Cap Growth Portfolio. The separately managed
accounts are subject to different expenses and governmental regulations than
the Portfolio.
2 The annualized return of the Adviser's Institutional Small Cap Equity
Accounts is calculated from monthly data, allowing for compounding. The
formula used is in accordance with the methods set forth by the Association
for Investment Management Research ("AIMR"), The Bank Administration
Institute, and the Investment Counsel Association of America. Market value of
the account was the sum of the account's total assets, including cash, cash
equivalents, short term investments, and securities valued at current market
prices.
3 The cumulative return means that $1 invested in the Institutional Small Cap
Equity composite accounts on January 1, 1987 had grown to $9.86 by December
31, 1998.
4 The twelve-year arithmetic mean is the arithmetic average of the
Institutional Small Cap Equity composite accounts' annual returns listed.
5 The Russell 2000 Index is an unmanaged index which assumes reinvestment of
dividends on securities in the index and is generally considered
representative of securities similar to those invested in by the Adviser for
the purpose of the composite performance numbers set forth above. The Russell
2000 is composed of the 2000 smallest stocks in the Russell 3000, a market
value weighted index of the 3,000 largest U.S. publicly traded companies. The
comparative index is not adjusted to reflect expenses or other fees reflected
in the performance of a mutual fund as required by the SEC.
6 The Adviser's average annual management fee over the twelve-year period
(1987-1998) for the Institutional Small Cap Equity composite accounts was 1%
or 100 basis points. On January 1, 1987, the Adviser began managing the
separate accounts using objectives, policies and strategies substantially
similar to those of the Small Cap Growth Portfolio. During the period, fees
on the Adviser's individual accounts ranged from 1% to 1.5% (100 basis points
to 150 basis points). Net returns to investors vary depending on the
management fee.
7 Institutional Small Cap Equity composite accounts ("Composite") performance
data is AIMR compliant from 1/1/93 forward. Prior to that time, the only
difference in the calculation is that all portfolios were equally weighted
without regard to dollar value in determining Composite performance. The
Composite includes every account managed in JMIC's small capitalization
style, consistent with AIMR guidelines. This equal weighting method follows
the standards promulgated by the Investment Management Consultants'
Association which predates standards established by AIMR. In 1990, the
Composite results reflected portfolios ranging in number from 3 to 8 and in
size from $3 million to $30 million, with a median size of $13 million. In
1991, the Composite reflected portfolios ranging in number from 8 to 18 and
in size from $1 million to $46 million, with a median size of $15 million. In
1992, the Composite reflected portfolios ranging in number from 20 to 27 and
in size from $4 million to $50 million, with a median size of $17 million.
And, from 1987 through 1989, the Composite consisted of only one portfolio
which for many years served as the model for all accounts managed in this
style.
PERFORMANCE OF SIMILARLY MANAGED MUTUAL FUND
The Portfolio is recently organized and has only a short-term
performance record. The Portfolio, however, has substantially the same
investment objective, policies and strategies as the Brazos Small Cap Growth
Portfolio of Brazos Mutual Funds (the "Comparable Fund") that is sold directly
to the public and is advised by JMIC. While the Portfolio is managed in a manner
similar to that of the Comparable Fund, investors should be aware that the
Portfolio is not the same fund and will not have the same performance.
Investments made by the Portfolio at any given time may not be the same as those
made by the Comparable Fund. Different performance will result due to factors
such as differences in the cash flows into and out of the Portfolio, different
fees and expenses, and differences in portfolio size and positions. The
Comparable Fund has its own prospectus and information about the Comparable Fund
may be obtained by calling ________ at _________.
The historical performance of the Comparable Fund is presented below.
You should not consider the performance of the Comparable Fund as an indication
of the future performance of a Portfolio. The performance figures shown below
reflect the deduction of the historical fees and expenses paid by the Comparable
Fund, and not those to be paid by the Portfolio. The figures do not reflect the
deduction of any insurance fees or charges that are imposed by the insurance
company in connection with its sale of variable annuity or variable life
insurance contracts. You should refer to the separate account prospectuses
describing the variable annuity or variable life insurance contracts for
information pertaining to these insurance fees and charges. The insurance
separate account fees will have a detrimental effect on the performance of the
Portfolio. The results shown below reflect the reinvestment of dividends and
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distributions, and were calculated in the same manner that will be used by the
Portfolio to calculate its own performance.
The following table shows the average annual total return of the
Comparable Fund for the stated periods ending December 31, 1999.
One Year 3 Years
Brazos Small Cap Growth Portfolio ____% ____%
INFORMATION FOR FIRST TIME MUTUAL FUND INVESTORS
The Federal Deposit Insurance Corporation, the Federal Reserve Board or
any other agency does not federally insure Mutual Fund shares.
Investments in Mutual Fund shares involve risks, including possible
loss of principal.
VALUATION OF SHARES
The net asset value of the Portfolio is calculated by adding the value
of all securities and other assets, subtracting the liabilities and dividing the
result by the number of shares outstanding to be determined. The net asset value
is calculated once daily, as of the close of the New York Stock Exchange
("NYSE") on each day that the NYSE is open for business.
The Portfolio uses the last quoted trading price as the market value
for equity securities. For listed securities, the Portfolio uses the price
quoted by the exchange on which the security is primarily traded. Unlisted
securities and listed securities which have not been traded on the valuation
date or for which market quotations are not readily available are valued at the
average between the last price asked and the last price bid. For valuation
purposes, quotations of foreign securities in a foreign currency are converted
to U.S. Dollar equivalents based upon the latest available bid price of such
currencies against U.S. Dollars quoted by any major bank or by any broker.
Bonds and other fixed income securities are valued according to the
broadest and most representative market which will ordinarily be the
over-the-counter market. Net asset value includes interest on fixed income
securities, which is accrued daily. Bonds and other fixed income securities may
be valued on the basis of prices provided by a pricing service when such prices
are believed to reflect the fair value market value of such securities.
Securities purchased with remaining maturities of 60 days or less are valued at
amortized cost when the Board of Trustees (the "Trustees") determines that
amortized cost reflects fair value.
The value of other assets and securities for which no quotations are
readily available (including restricted securities) is determined in good faith
at fair value using methods determined by the Trustees.
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DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Portfolio will distribute annually to shareholders substantially
all of its net investment income and any net realized long-term capital gains.
The Portfolio's dividends and capital gains distributions will be reinvested
automatically in additional shares unless the Trust is notified in writing that
the shareholder elects to receive distributions in cash.
FEDERAL TAXES
The Portfolio intends to qualify as a regulated investment company for
federal income tax purposes by satisfying the requirements of Subchapter M of
the Internal Revenue Code of 1986, as amended, (the "Code"): The Portfolio
intends to comply with the diversification requirements of Section 817(h) of the
Code for variable annuity and variable life insurance contracts so that the
owners of these contracts should not be subject to federal tax on distributions
of dividends and income from the Portfolio to the insurance company separate
accounts. Contract owners should review the prospectus for their variable
annuity or variable life insurance contract for information regarding the tax
consequences to them of purchasing a contract.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on
distributions and redemptions. Shareholders should consult with their tax
advisers regarding the tax status of distributions in their state and locality.
PURCHASE OF SHARES
Purchases of shares may be made only by insurance companies for their
separate accounts at the direction of variable annuity and variable life
contract owners. Please refer to the prospectus for your contract or policy for
information on how to direct investments in the Portfolio and any fees that
apply.
Shares of the Portfolio may be purchased without sales commission, at
the net asset value per share next determined after an order is received by the
insurance company before the insurance company before the earlier of 4:00 p.m.
or the close of regular trading on the New York Stock Exchange (see "Valuation
of Shares"). The Fund reserves the right to reject your purchase order and to
suspend the offering of shares of the Fund. All purchases must be in U.S.
dollars.
A potential for certain conflicts may exist between the interests of
variable annuity contract owners and variable life insurance contract owners.
JMIC currently does not foresee any disadvantage to owners of variable annuity
contracts or variable life insurance contracts arising from the fact that shares
of the Portfolio might be held by such entities. The Trustees, however, will
monitor the Trust and the Portfolio in order to identify any material
irreconcilable conflicts of interest which may arise, and to determine what
action, if any should be taken in response of any such conflicts.
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OTHER PURCHASE INFORMATION
Investments received by 4 p.m. ET (the close of the NYSE) will be
invested at the price calculated after the NYSE closes that day. Orders received
after 4 p.m. ET will receive the price calculated on the next business day.
DISTRIBUTOR
___________________, [address], serves as Distributor for shares of the
Portfolio. ___________ will receive no compensation for distribution of shares
of the Portfolio, except for reimbursement by the Adviser of out-of-pocket
expenses.
REDEMPTION OF SHARES
Redemption of shares may be made only by insurance companies for their
separate accounts at the direction of variable annuity and variable life
insurance contract owners. Please refer to the prospectus for your contract or
policy for information on how to direct redemptions from the Portfolio and fees
that may apply.
Any redemption may be more or less than the purchase price of your
shares depending on the market value of the investment securities held by your
Portfolio.
OTHER REDEMPTION INFORMATION
Normally, the Portfolio will make a payment for all shares redeemed
under proper procedures within one business day of and no more than seven
business days after receipt of the request. The Trust may suspend the right of
redemption or postpone the date, as permitted by the SEC, including under
emergency circumstances and at times when the NYSE is closed.
If the Trustees determine that it would be detrimental to the best
interests of remaining shareholders of the Portfolio to make payment wholly or
partly in cash, the Portfolio may pay redemption proceeds in whole or in part by
a distribution in-kind of liquid securities held by the Portfolio in lieu of
cash in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of portfolio securities so received in payment of
redemptions.
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FOR MORE INFORMATION
You may obtain the following and other information
free of charge:
STATEMENT OF ADDITIONAL INFORMATION (SAI) DATED ___________ ___, 2000
PROVIDES ADDITIONAL DETAILS ABOUT THE PORTFOLIO'S
POLICIES AND MANAGEMENT.
Telephone:
--------------
Mail:
Brazos Insurance Funds
c/o Firstar Mutual Fund Services, LLC
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------------------------
Internet:
http://www.brazosfund.com
SEC:
Text only versions of Fund documents can be viewed online or
downloaded from: HTTP://WWW.SEC.GOV
You may review and obtain copies of Fund information at the SEC Public
Reference Room in Washington, D.C. (1-202-942-8090). Copies of the
information may be obtained for a fee by writing the Public Reference
Section, Washington, D.C.
20549-0102, or by electronic request to [email protected].
Investment Company Act of 1940 File No. _________
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BRAZOS INSURANCE FUNDS
BRAZOS SMALL CAP GROWTH PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
____________ ___, 2000
This Statement is not a Prospectus but should be read in conjunction with the
Prospectus of the Brazos Insurance Funds (the "Trust") Small Cap Growth
Portfolio dated ___________ __, 2000. To obtain the Prospectus, please call the
Trust at ________________.
TABLE OF CONTENTS
PAGE
ABOUT THE BRAZOS INSURANCE FUNDS...............................................2
INVESTMENT OBJECTIVES AND POLICIES.............................................2
INVESTMENT LIMITATIONS........................................................11
MANAGEMENT OF THE TRUST.......................................................12
INVESTMENT ADVISER AND OTHER SERVICES.........................................14
PORTFOLIO TRANSACTIONS........................................................16
DESCRIPTION OF SHARES AND VOTING RIGHTS.......................................17
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES..............................18
PERFORMANCE CALCULATIONS......................................................21
APPENDIX A...................................................................A-1
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ABOUT THE BRAZOS INSURANCE FUNDS
The Trust was organized as a Delaware business trust on _________ __, 2000. The
Trust's principal office is located at 5949 Sherry Lane, Suite 1600, Dallas,
Texas 75225; however, all investor correspondence should be directed to Brazos
Insurance Funds, c/o ____________________. The Trust is comprised of the BRAZOS
Small Cap Growth Portfolio (the "Portfolio"). Brazos Insurance Funds is a
diversified, open-end, management investment company.
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment policies of the Portfolio as
set forth in the Prospectus:
SHORT-TERM INVESTMENTS
Occasionally, the Portfolio may invest a portion of its assets in the following
money market instruments, consistent with its investment policies.
(1) Time deposits, certificates of deposit (including marketable
variable rate certificates of deposit) and bankers'
acceptances issued by a commercial bank or savings and loan
association.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time (not longer than seven days) at a stated interest
rate. Time deposits maturing from two business days through seven calendar days
will not exceed 10% of the total assets of the Portfolio under most
circumstances.
Certificates of deposit are negotiable short-term obligations issued by
commercial banks or savings and loan associations collateralized by funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower, usually in
connection with an international commercial transaction.
The Portfolio will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in other
currencies, (ii) in the case of U.S. banks, it is a member of the Federal
Deposit Insurance Corporation, and (iii) in the case of foreign branches of U.S.
banks, the security is, in the opinion of the Adviser, of an investment quality
comparable to other debt securities which may be purchased by the Portfolio;
(2) Commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2
by Moody's or, if not rated, issued by a corporation having an
outstanding unsecured debt issue rated A or better by Moody's
or by S&P;
(3) Short-term corporate obligations rated A or better by Moody's
or by S&P;
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(4) U.S. Government obligations including bills, notes, bonds and
other debt securities issued by the U.S. Treasury. These are
direct obligations of the U.S. Treasury, supported by the full
faith and credit pledge of the U.S. Government and differ
mainly in interest rates, maturities and dates of issue;
(5) U.S. Government agency securities issued or guaranteed by U.S.
Government sponsored instrumentalities and Federal agencies;
and
(6) Repurchase agreements collateralized by securities listed
above.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements collateralized by U.S.
Government securities. In addition, the Portfolio may invest in repurchase
agreements collateralized by certificates of deposit, and certain bankers'
acceptances and other securities outlined above under "Short-Term Investments."
In a repurchase agreement, a Portfolio buys a security and simultaneously
commits to sell that security back at an agreed upon price plus an agreed upon
market rate of interest. Under a repurchase agreement, the seller will be
required to maintain the value of the securities subject to the agreement at not
less than the repurchase price if such securities mature in one year or less, or
102% of the repurchase price if such securities mature in more than one year.
The use of repurchase agreements involves certain risks. While the Trust's
management acknowledges these risks, it is expected that they can be controlled
through stringent security selection criteria and careful monitoring procedures.
WHEN-ISSUED, FORWARD DELIVERY AND DELAYED SETTLEMENT SECURITIES
The Portfolio may purchase and sell securities on a "when-issued," "delayed
settlement" or "forward delivery" basis. "When-issued" or "forward delivery"
refers to securities whose terms and indenture are available, and for which a
market exists, but which are not available for immediate delivery. When-issued
and forward delivery transactions may be expected to occur a month or more
before delivery is due. Delayed settlement is a term used to describe settlement
of a securities transaction in the secondary market which will occur sometime in
the future. No payment or delivery is made by the Portfolio until it receives
payment or delivery from the other party to any of the above transactions. The
Portfolio will maintain a separate account of cash, U.S. Government securities,
other high grade debt obligations or other liquid securities at least equal to
the value of purchase commitments until payment is made. Such segregated
securities will either mature or, if necessary, be sold on or before the
settlement date. Typically, no income accrues on securities purchased on a
delayed delivery basis prior to the time delivery is made, although the
Portfolio may earn income on securities it has deposited in a segregated
account.
The Portfolio may engage in when-issued transactions to obtain what is
considered to be an advantageous price and yield at the time of the transaction.
When the Portfolio engages in when-issued or forward delivery transactions, it
does so to acquire securities consistent with its investment objective and
policies and not for the purpose of investment leverage.
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PORTFOLIO TURNOVER
It is expected that the annual portfolio turnover rate for the Portfolio will
not exceed 150%. In addition to Portfolio trading costs, higher rates (100% or
more) of portfolio turnover may result in the realization of capital gains, a
portion of which may be short-term gains. See "DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAXES" for information on taxation. The Portfolio will not
normally engage in short-term trading, but it reserves the right to do so.
INVESTMENT COMPANIES
The Portfolio reserves the right to invest up to 10% of its total assets,
calculated at the time of investment, in securities of other open-end or
closed-end investment companies. No more than 5% of the Portfolio's total assets
may be invested in securities of any one investment company nor may it acquire
more than 3% of the voting securities of any investment company. The Portfolio
will indirectly bear its proportionate share of any management fees paid by an
investment company in which it invests in addition to its advisory fee.
RESTRICTED SECURITIES
The Portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under the
supervision of the Trust's Board of Trustees, the Adviser determines the
liquidity of such investments by considering all relevant factors. Provided that
a dealer or institutional trading market in such securities exists, these
restricted securities are not treated as illiquid securities for purposes of the
Portfolio's investment limitations. The Portfolio will invest no more than 15%
of its net assets in illiquid securities. The prices realized from the sales of
these securities could be less than those originally paid by the Portfolio or
less than what would be considered the fair value of such securities.
FOREIGN INVESTMENTS
The Portfolio may invest in common stocks of companies listed on foreign stock
exchanges, and may also invest in stocks traded in the over-the-counter market.
Common stocks for this purpose also include securities having common stock
characteristics such as rights and warrants to purchase common stocks.
Additionally, the Portfolio may also invest in foreign equity securities in the
form of American Depository Receipts (ADRs) and other similar global
instruments. ADRs (sponsored or unsponsored) are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying foreign
securities. Most ADRs are traded on a U.S. stock exchange. Issuers of
unsponsored ADRs are not contractually obligated to disclose material
information in the U.S. and, therefore, there may not be a correlation between
such information and the market value of the unsponsored ADR.
Investing in foreign companies may involve additional risks and considerations
which are not typically associated with investing in U.S. companies. Since
stocks of foreign companies are normally denominated in foreign currencies, the
Portfolio may be affected favorably or unfavorably by changes in currency rates
and in exchange control regulations, and may incur costs in connection with
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conversions between various currencies. Some countries may withhold portions of
dividends and interest at the source. Under the Internal Revenue Code, foreign
exchange gains and losses are treated as ordinary gain or loss.
As non-U.S. companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to U.S. companies, comparable information may not be readily available about
certain foreign companies. Securities of some non-U.S. companies may be less
liquid and more volatile than securities of comparable U.S. companies. In
addition, in certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in those countries.
SECURITIES LENDING
The Portfolio may lend its investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending investment securities,
the Portfolio attempts to increase its income through the receipt of interest on
the loan. Any gain or loss in the market price of the securities loaned that
might occur during the term of the loan would be for the Portfolio's accounts.
The Portfolio may lend its investment securities to qualified brokers, dealers,
domestic and foreign banks or other financial institutions, so long as the
terms, the structure and the aggregate amount of such loans are not inconsistent
with the Investment Company Act of 1940, as amended, (the "1940 Act") or the
rules and regulations or interpretations of the Securities and Exchange
Commission (the "Commission") thereunder, which currently require that (a) the
borrower pledge and maintain with the Portfolio collateral consisting of cash,
an irrevocable letter of credit issued by a domestic U.S. bank or securities
issued or guaranteed by the United States Government having a value at all times
not less than 100% of the value of the securities loaned, (b) the borrower add
to such collateral whenever the price of the securities loaned rises (i.e., the
borrower "marks to the market" on a daily basis), (c) the loan be made subject
to termination by the Portfolio at any time, and (d) the Portfolio receives
reasonable interest on the loan (which may include the Portfolio investing any
cash collateral in interest bearing short-term investments). All relevant facts
and circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Board of Trustees.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities so long as such fees are set forth in a written contract and approved
by the investment company's Board of Trustees. The Portfolio will continue to
retain any voting rights with respect to the loaned securities. If a material
event occurs affecting an investment on a loan, the loan must be called and the
securities voted.
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HEDGING STRATEGIES
The Portfolio may engage in various portfolio strategies to hedge against
adverse movements in the equity markets. The Portfolio may write (i.e., sell)
covered call options on its portfolio securities, purchase put and call options
on securities and engage in transactions in related options on futures. Each of
these portfolio strategies is described below:
a) FUTURES CONTRACTS
The Portfolio may enter into futures contracts. Futures contracts provide for
the future sale by one party and purchase by another party of a specified amount
of a specific security at a specified future time and at a specified price.
Futures contracts which are standardized as to maturity date and underlying
financial instrument are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission ("CFTC"), a U.S. Government agency.
Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out an
open futures position is done by trading an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
acceptable securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Portfolio
expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers" or
"speculators." Hedgers use the futures markets primarily to offset unfavorable
changes in the value of securities otherwise held for investment purposes or
expected to be acquired by them. Speculators are less inclined to own the
securities underlying the futures contracts which they trade and use futures
contracts with the expectation of realizing profits from a fluctuation in
interest rates.
Regulations of the CFTC applicable to the Trust require that all of its futures
transactions constitute bona fide straddles positions or that the Trust's
commodity futures and option positions be for other purposes, to the extent that
the aggregate initial margins and premiums required to establish such
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non-hedging positions do not exceed five percent of the liquidation value of the
Portfolio. The Portfolio will only sell futures contracts to protect securities
it owns against price declines or purchase contracts to protect against an
increase in the price of securities it intends to purchase. As evidence of this
hedging interest, the Portfolio expects that approximately 75% of its futures
contract purchases will be "completed," that is, equivalent amounts of related
securities will have been purchased or will be purchased by the Portfolio on the
settlement date of the futures contracts.
Although techniques other than the sale and purchase of futures contracts could
be used to control the Portfolio's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Portfolio will incur commission expenses in both opening and closing out
futures positions, these costs are lower than transaction costs incurred in the
purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
The Portfolio will not enter into futures contract transactions to the extent
that, immediately thereafter, the sum of its initial margin deposits on open
contracts exceeds 5% of the market value of its total assets. In addition, the
Portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts would
exceed 20% of its total assets.
RISK FACTORS IN FUTURES TRANSACTIONS
The Portfolio will minimize the risk that it will be unable to close out a
futures position by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
However, there can be no assurance that a liquid secondary market will exist for
a particular futures contract at any given time. Thus, it may not be possible to
close a futures position. In the event of adverse price movements, the Portfolio
would continue to be required to make daily cash payments to maintain its
required margin. In such situations, if the Portfolio has insufficient cash, it
may have to sell securities to meet daily margin requirements at a time when it
may be disadvantageous to do so. In addition, the Portfolio may be required to
make delivery of the instruments underlying futures contracts it holds. The
inability to close futures positions also could have an adverse impact on the
Portfolio's ability to effectively hedge.
The risk of loss in trading futures contracts in some strategies can be
substantial due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in excess of the amount
invested in the contract. However, because the futures strategies of the
Portfolio are engaged in only for hedging purposes, the Adviser does not believe
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that the Portfolio is subject to the risks of loss frequently associated with
futures transactions. The Portfolio would presumably have sustained comparable
losses if, instead of futures contracts, it had invested in the underlying
financial instrument and sold them after the decline.
Utilization of futures transactions by the Portfolio does involve the risk of
imperfect or no correlation where the securities underlying the futures
contracts have different maturities than the portfolio securities being hedged.
It is also possible that the Portfolio could lose money on futures contracts and
also experience a decline in value of portfolio securities. There is also the
risk of loss by the Portfolio of margin deposits in the event of bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and, therefore, does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
Futures contracts may be traded on foreign exchanges. Such transactions are
subject to the risks of governmental actions affecting trading in or the prices
of the securities. The value of such positions also could be adversely affected
by (i) other complex foreign political and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in the Portfolio's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lesser trading
volume.
The investment by the Portfolio in futures contracts and options on futures
contracts is subject to many complex and special tax rules. The treatment by the
Portfolio of certain futures and forward contracts is generally governed by
Section 1256 of the Internal Revenue Code of 1986, as amended (the "Code").
These "Section 1256" positions generally include listed options on futures
contracts, regulated futures contracts and certain foreign currency contracts
and options thereon.
Absent a tax election to the contrary, each such Section 1256 position held by
the Portfolio will be marked-to-market (i.e., treated as if it were sold for
fair market value) on the last business day of the Portfolio's fiscal year, and
all gain or loss associated with fiscal year transactions and marked-to-market
positions at fiscal year end (except certain currency gain or loss covered by
Section 988 of the Code) will generally be treated as 60% long-term capital gain
or loss and 40% short-term capital gain or loss. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or
short-term capital losses into long-term capital losses within the Portfolio.
The acceleration of income on Section 1256 positions may require the Portfolio
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to accrue taxable income without the corresponding receipt of cash. In order to
generate cash to satisfy the distribution requirements of the Code, the
Portfolio may be required to dispose of portfolio securities that it otherwise
would have continued to hold or to use cash flows from other sources such as the
sale of the Portfolio's shares. In these ways, any or all of these rules may
affect both the amount, character and timing of income distributed to
shareholders by the Portfolio.
b) OPTIONS
The Portfolio may purchase and sell put and call options on securities and
futures contracts for hedging purposes. Investments in options involve some of
the same considerations that are involved in connection with investments in
futures contracts (e.g., the existence of a liquid secondary market). In
addition, the purchase of an option also entails the risk that changes in the
value of the underlying security or contract will not be fully reflected in the
value of the option purchased. Depending on the pricing of the option compared
to either the futures contract on which it is based or the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract or securities.
WRITING COVERED CALL OPTIONS
The principal reason for writing call options is to attempt to realize, through
the receipt of premiums, a greater return than would be realized on securities
alone. By writing covered call options, the Portfolio gives up the opportunity,
while the option is in effect, to profit from any price increase in the
underlying security above the option exercise price. In addition, the
Portfolio's ability to sell the underlying security will be limited while the
option is in effect unless it effects a closing purchase transaction. A closing
purchase transaction cancels out the Portfolio's position as the writer of an
option by means of an offsetting purchase of an identical option prior to the
expiration of the option that it has written. Covered call options serve as a
partial hedge against the price of the underlying security declining. The
Portfolio writes only covered options, which means that so long as the Portfolio
is obligated as the writer of the option it will, in a segregated account with
its custodian, maintain cash, U.S. government securities, other high grade
liquid debt securities or other liquid securities denominated in U.S. dollars
with a value equal to or greater than the exercise price of the underlying
securities.
PURCHASING OPTIONS
The amount of any appreciation in the value of the underlying security subject
to a put will be partially offset by the amount of the premium paid for the put
option and any related transaction costs. Prior to its expiration, a put option
may be sold in a closing sale transaction and profit or loss from a sale will
depend on whether the amount received is more or less than the premium paid for
the put option plus the related transaction costs. A closing sale transaction
cancels out the Portfolio's position as purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option
that it has purchased. In certain circumstances, the Portfolio may purchase call
options on securities held in its investment portfolios on which it has written
call options or on securities which it intends to purchase.
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c) SHORT SALES
The Portfolio may seek to hedge investments or realize additional gains through
short sales. The Portfolio may make short sales, which are transactions in which
the Portfolio sells a security it does not own, in anticipation of a decline in
the market value of the security. To complete such a transaction, the Portfolio
must borrow the security to make delivery to the buyer. The Portfolio then is
obligated to replace the security borrowed by purchasing it at the market price
at or prior to the time of replacement. The price at such time may be more or
less than the price at which the security was sold. Until the security is
replaced, the Portfolio is required to repay the lender any dividends or
interest that accrue during the period of the loan. To borrow the security, the
Portfolio also may be required to pay a premium, which would increase the cost
of the security sold. The net proceeds of the short sale will be retained by the
broker, to the extent necessary to meet margin requirements, until the short
position is closed out. The Portfolio also will incur transaction costs in
effecting short sales.
The Portfolio will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the Portfolio replaces the borrowed security. The Portfolio will realize a gain
if the security declines in price between those dates. The amount of any gain
will be decreased, and the amount of any loss increased by the amount of the
premium, dividends, interest, or expenses the Portfolio may be required to pay
in connection with a short sale.
No securities will be sold short if, after effect is given to any such short
sale, the total market value of all securities sold short would exceed 25% of
the value of the Portfolio's net equity. The Portfolio similarly will limit its
short sales of the securities of any single issuer if the market value of the
securities that have been sold short would exceed two percent (2%) of the value
of the Portfolio's net equity or if such securities would constitute more than
two percent (2%) of any class of the issuer's securities.
Whenever the Portfolio engages in short sales, its custodian segregates an
amount of cash or U.S. Government securities or other high-grade liquid debt
securities equal to the difference between (a) the market value of the
securities sold short at the time they were sold short and (b) any cash or U.S.
Government securities required to be deposited with the broker in connection
with the short sale (not including the proceeds from the short sale). The
segregated assets are marked-to-market daily, provided that at no time will the
amount deposited in it plus the amount deposited with the broker be less than
the market value of the securities at the time they were sold short.
In addition, the Portfolio may make short sales "against the box," i.e. when a
security identical to one owned by the Portfolio is borrowed and sold short. If
the Portfolio enters into a short sale against the box, it is required to
segregate securities equivalent in kind and amount to the securities sold short
(or securities convertible or exchangeable into such securities) and is required
to hold such securities while the short sale is outstanding. The Portfolio will
incur transaction costs, in connection with opening, maintaining, and closing
short sales against the box. A short sale may result in the recognition of gain
with respect to a security for Federal income tax purposes under certain rules
which treat certain short sales of the same or substantially identical positions
with respect to such a security as a constructive sale at the time a short
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position is entered into by the Portfolio. See, "DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAXES."
Except as specified above and as described under "INVESTMENT LIMITATIONS" below,
the foregoing investment policies are not fundamental and the Trustees may
change such policies without an affirmative vote of a majority of the
outstanding voting securities of the Portfolio, as defined in the 1940 Act.
INVESTMENT LIMITATIONS
The following limitations supplement those set forth in the Prospectus. Whenever
an investment limitation sets forth a percentage limitation on investment or
utilization of assets, such limitation shall be determined immediately after and
as a result of the Portfolio's acquisition of such security or other asset.
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether the investment complies with the Portfolio's investment limitations.
Investment limitations (1) through (9) described below are fundamental policies
and cannot be changed without approval by a "majority of the outstanding shares"
(as defined in the 1940 Act) of the Portfolio. The Portfolio will not:
(1) with respect to 75% of its assets, invest more than 5% of its
total assets at the time of purchase in the securities of any
single issuer (other than obligations issued or guaranteed as
to principal and interest by the government of the U.S. or any
agency or instrumentality thereof);
(2) with respect to 75% of its assets, purchase more than 10% of
any class of the outstanding voting securities of any issuer;
(3) borrow money, except as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 33
1/3 % of the Portfolio's gross assets valued at the lower of
market or cost, and the Portfolio may not purchase additional
securities when borrowings exceed 5% of total gross assets;
(4) pledge, mortgage or hypothecate any of its assets to an extent
greater than 33% of its total assets at fair market value;
(5) invest in physical commodities or contracts on physical
commodities;
(6) purchase or sell real estate or real estate limited
partnerships, although it may purchase and sell securities of
companies which deal in real estate and may purchase and sell
securities which are secured by interests in real estate;
(7) make loans except (i) by purchasing debt securities in
accordance with its investment objectives; (ii) by lending its
portfolio securities to banks, brokers, dealers and other
financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations or
interpretations of the Commission thereunder; and (iii) as
otherwise permitted by exemptive order of the Commission;
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(8) underwrite the securities of other issuers;
(9) issue senior securities, as defined in the 1940 Act, except
that this restriction shall not be deemed to prohibit the
Portfolio from (i) making any permitted borrowings, mortgages
or pledges, or (ii) entering into options, futures or
repurchase transactions;
(10) invest in futures and/or options on futures unless (i) not
more than 5% of the Portfolio's assets are required as deposit
to secure obligations under such futures and/or options on
futures contracts, provided, however, that in the case of an
option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing such 5%; and
(ii) not more than 20% of the Portfolio's assets are invested
in futures and options;
(11) purchase on margin except as specified in (10) above;
(12) invest more than an aggregate of 15% of the net assets of the
Portfolio, determined at the time of investment, in securities
subject to legal or contractual restrictions on resale or
securities for which there are no readily available markets.
In addition, the Portfolio has adopted a fundamental policy that it will not
acquire any securities of companies within one industry if, as a result of such
acquisition, more than 25% of the value of the Portfolio's total assets would be
invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or
instruments issued by U.S. banks when the Portfolio adopts a temporary defensive
position.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Officers of the Trust manage its day-to-day operations and are responsible
to the Trust's Board of Trustees. The Trustees set broad policies for the Trust
and elect its Officers. The following is a list of the Trustees and Officers of
the Trust and a brief statement of their present positions and principal
occupations during the past five years:
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*DAN L. HOCKENBROUGH President, Chief Financial Officer and Chairman of the
5949 Sherry Lane Board of Brazos Insurance Funds and Trustee,
Suite 1600 President, Treasurer and Chief Financial Officer of
Dallas, Texas 75225 Brazos Mutual Funds; Since August 1996, Business
Age 40 Manager of John McStay Investment Counsel. Formerly,
Chief Financial Officer of Waugh Enterprises, Inc.
from November 1995 until August 1996; and Assistant
Controller of Hicks, Muse, Tate & Furst Incorporated
from December 1992 to November 1995.
*LOREN J. SOETENGA Vice President and Treasurer of Brazos Insurance Funds
5949 Sherry Lane and Vice President of Brazos Mutual Funds, Principal of
Suite 1600 John McStay Investment Counsel. Formerly, Partner of
Dallas, Texas 75225 Chronos Management, Inc. until 1996.
Age 31
*TRICIA A. HUNDLEY Vice President, Secretary and Compliance Officer of
5949 Sherry Lane Brazos Insurance Funds and Vice President, Secretary
Suite 1600 and Compliance Officer of Brazos Mutual Funds; Partner
Dallas, Texas 75225 of John McStay Investment Counsel since 1987.
Age 49
JOE NEUBERGER Assistant Treasurer of Brazos Insurance Funds and
[ADDRESS]
[AGE]
BOB KERN Assistant Secretary of Brazos Insurance Funds and
[ADDRESS]
[AGE]
DANA ARMOUR Assistant Secretary of Brazos Insurance Funds and
[ADDRESS]
[AGE]
* This person is deemed to be an "interested person" of the Trust as that term
is defined in the 1940 Act.
REMUNERATION OF TRUSTEES AND OFFICERS
Each Trustee of the Trust who is not an "interested person" of the Trust, as
defined by the Investment Company Act of 1940, as amended, or an officer of the
Trust, receives compensation for his services as Trustee consisting of a $1,250
quarterly retainer fee per Portfolio of the Trust and a $1,250 fee for each
meeting of the Board. Each Trustee is reimbursed for reasonable out-of-pocket
expenses incurred in connection with attendance at the Board meeting.
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Trustees who are also officers or affiliated persons receive no remuneration for
their service as Trustees. The Trust's officers and employees are paid by either
the Adviser or the Administrator and receive no compensation from the Trust.
PRINCIPAL HOLDERS OF SECURITIES
Shares of the Portfolio will be owned by insurance companies as depositors of
separate accounts which are used to fund variable annuity contracts and variable
life insurance contracts. ____________ Insurance Company may be deemed a control
person of the Fund in that upon the commencement of the offering of the
Portfolio, certain of its separate accounts held 100% of the shares of the
Portfolio.
As of ___________ ___, 2000, the Trustees and officers of the Trust owned in the
aggregate less than 1% of the total outstanding shares of the Portfolio.
INVESTMENT ADVISER AND OTHER SERVICES
John McStay Investment Counsel, L.P. ( "JMIC" or the "Adviser") which was formed
as a limited partnership in 1983, is located at 5949 Sherry Lane, Suite 1600,
Dallas, Texas 75225 and acts as the Adviser for the Trust and Brazos Mutual
Funds (the "Company"), consisting of the Brazos Small Cap Growth, Brazos Micro
Cap Growth, Brazos Mid Cap Growth, Brazos Real Estate Securities, and the Brazos
Multi Cap Growth Portfolios. On June 30, 1999, JMIC reorganized and completed
the sale of an 80% managing membership interest in JMIC to American
International Group, Inc. ("AIG") resulting in JMIC becoming a majority owned
indirect subsidiary of AIG and minority owned by the employees of JMIC.
The Adviser provides investment management services to institutions and
individuals and currently has approximately $4.5 billion in assets under
management. John D. McStay may be deemed to control the Adviser as a result of
ownership of a majority interest in John McStay & Associates ("JMA"), the
general partner of the Adviser. JMA owns a majority interest in the Adviser.
DISTRIBUTOR
_____________________(the "Distributor") acts as Distributor for the Trust
pursuant to the Distribution Agreement between _______________ and the Trust.
______________ will receive no compensation for distribution of shares of the
Portfolio, except for reimbursement by the Adviser of out-of-pocket expenses.
ADMINISTRATION FEES
Firstar Mutual Fund Services, LLC (the "Administrator" or "FMFS") 615 E.
Michigan Street, Milwaukee, WI 53202 serves as Administrator, Transfer Agent and
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Dividend Paying Agent of the Trust and also provides accounting services to the
Trust pursuant to the Portfolio Administration Servicing Agreement between FMFS
and the Trust. FMFS is an indirect wholly-owned subsidiary of Firstar
Corporation, a multi-bank holding company.
As Administrator, FMFS supplies corporate secretarial services, office
facilities, non-investment-related statistical and research data, executive and
administrative services, internal auditing and regulatory compliance services.
FMFS also assists in the preparation of reports to shareholders, prepares proxy
statements, updates prospectuses and makes filings with the Securities and
Exchange Commission and state securities authorities. FMFS performs certain
budgeting and financial reporting and compliance monitoring activities. For the
services provided as Administrator, FMFS receives an annual fee from the Trust
equal to the greater of: (1) a minimum annual fee of $___________ or (2) an
asset-based fee, equal to a percentage of the average daily net assets of the
Trust, according to the following schedule:
The Administrator's fee shall be payable monthly, as soon as practicable after
the last day of each month, based on the Trust's average daily net assets as
determined at the close of business on each business day throughout the month.
FMFS also serves as Transfer Agent and Dividend Paying Agent of the Trust.
CUSTODIAN
Firstar Bank, N.A. ("Firstar"), serves as the Custodian for the Trust pursuant
to the Custody Agreement, including Fund accounting services, between Firstar
and the Trust. As custodian the Bank has agreed to (a) maintain a separate
account or accounts in the name of the Trust, (b) hold and transfer portfolio
securities on account of the Trust, (c) accept receipts and make disbursements
of money on behalf of the Trust, (d) collect and receive all income and other
payments and distributions on account of the Trust's portfolio securities, and
(e) make periodic reports to the Trust's Trustees concerning the Trust's
operations. Firstar is authorized to select one or more banks or trust companies
to serve as sub-custodian on behalf of the Trust, provided that Firstar remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Trust harmless from the negligent acts and omissions of any
sub-custodian. For its services to the Trust under the Custodian Agreement,
Firstar receives a fee in addition to transaction charges and out-of-pocket
expenses.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, ___________________, _________, New York, is the
independent accountant for the Trust.
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ADVISORY FEES
As compensation for services rendered by the Adviser under the Investment
Advisory Agreement, the Trust pays the Adviser an annual fee in monthly
installments, calculated by applying the following annual percentage rates to
the Portfolio's average daily net assets for the month:
BRAZOS Small Cap Growth Portfolio.................................. __.____%
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the brokers
or dealers that will execute the purchases and sales of investment securities
for the Portfolio and directs the Adviser to use its best efforts to obtain the
best execution with respect to all transactions for the Portfolio. The Adviser
may, however, consistent with the interests of the Portfolio, select brokers on
the basis of the research, statistical and pricing services they provide to the
Portfolio. Information and research received from such brokers will be in
addition to, and not in lieu of, the services required to be performed by the
Adviser under the Investment Advisory Agreement. A commission paid to such
brokers may be higher than that which another qualified broker would have
charged for effecting the same transaction, provided that such commissions are
paid in compliance with the Securities Exchange Act of 1934, as amended, and
that the Adviser determines in good faith that such commission is reasonable in
terms either of the transaction or the overall responsibility of the Adviser to
the Portfolio and the Adviser's other clients.
It is not the Trust's practice to allocate brokerage or principal business on
the basis of sales of shares which may be made through broker-dealer firms.
However, the Adviser may place portfolio orders with qualified broker-dealers
who recommend the Portfolio or who act as agents in the purchase of shares of
the Portfolio for their clients.
Some securities considered for investment by the Portfolio may also be
appropriate for other clients served by the Adviser. If purchases or sales of
securities consistent with the investment policies of the Portfolio and one or
more of these other clients served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the Portfolio
and clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations, are
subject to periodic review by the Trust's Board of Trustees.
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<PAGE>
The Investment Advisory Agreement authorizes the Adviser to select the brokers
or dealers that will execute the purchases and sales of investment securities
for the Portfolio. The Agreement directs the Adviser to use its best efforts to
obtain the best available price and most favorable execution for all
transactions of the Portfolio. The Adviser may buy and sell securities for the
account through the Adviser's affiliated broker-dealer. In such instances, the
affiliated broker-dealer will complete transactions pursuant to procedures
designed to ensure that charges for the transactions do not exceed usual and
customary levels obtainable from other, unaffiliated broker-dealers. Such
transactions and the procedures are supervised by the Trust's Board of Trustees.
It is understood that the affiliated broker-dealer will not be utilized in
situations where, in the Adviser's judgment, the brokerage services of another
security firm would be in the best interest of the Portfolio. If consistent with
the interests of the Portfolio, the Adviser may select brokers on the basis of
research, statistical and pricing services these brokers provide to the
Portfolio. Information and research received from such brokers will be in
addition to, and not in lieu of, the services required to be performed by the
Adviser under the Investment Advisory Agreement. Such brokers may be paid a
higher commission than that which another qualified broker would have charged
for effecting the same transaction, provided that such commissions are paid in
compliance with the Securities Exchange Act of 1934, as amended, and that the
Adviser determines in good faith that the commission is reasonable in terms
either of the transaction or the overall responsibility of the Adviser to the
Portfolio and the Adviser's other clients.
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Trust's Agreement and Declaration of Trust permits the Trust to issue an
unlimited number of shares of beneficial interest, with a par value of $.001 per
Share. The Trustees have the power to designate one or more series
("Portfolios") or classes of shares of beneficial interest without further
action by shareholders.
On each matter submitted to a vote of the shareholders, each holder of a share
shall be entitled to one vote for each whole share and each fractional share
shall be entitled to a proportionate fractional vote. The shareholders of the
Portfolio are the insurance companies for their separate accounts using the
Portfolio to fund variable annuity contracts and variable life contracts. The
insurance company depositors of the separate accounts pass voting rights to
shares held for variable annuity contracts and variable life contracts through
to contract owners as described in the prospectus for the applicable variable
annuity or variable life insurance contract.
In the event of liquidation of the Trust, the holders of the shares of the
Portfolio shall be entitled to receive, when and as declared by the Trustees,
the excess of the assets belonging to the Portfolio, over the liabilities
belonging to the Portfolio. The assets so distributable to the holders of shares
of the Portfolio or class thereof shall be distributed to the holders in
proportion to the number of shares of the Portfolio held by them and recorded on
the books of the Trust. The liquidation of the Portfolio may be authorized at
any time by vote of a majority of the Trustees then in office.
Shareholders have no pre-emptive or other rights to subscribe to any additional
shares or other securities issued by the Trust, except as the Trustees in their
sole discretion shall have determined by resolution.
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The shares of the Portfolio are fully paid and nonassessable, have no preference
as to conversion, exchange, dividends, retirement or other features and have no
pre-emptive rights. They have noncumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees. A shareholder is entitled to one vote for each full
share held (and a fractional vote for each fractional share held), then standing
in his name on the books of the Trust.
Annual meetings will not be held except as required by the 1940 Act and other
applicable laws. The Trust has undertaken that its Trustees will call a meeting
of shareholders if such a meeting is requested in writing by the holders of not
less than 10% of the outstanding shares of the Trust. The Trust will assist
shareholder communications in such matters.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
The dividends on the shares of beneficial interest, par value $.001, of the
Trust, consisting of all of the Portfolio's net investment income, will be
declared and distributed quarterly to the extent not previously declared as a
dividend. Distributions are declared and paid at least annually in the aggregate
amount so that the Portfolio avoids any federal income tax liability and
satisfies the annual distribution requirements set forth in Section 4982 of the
Internal Revenue Code of 1986, as amended (the "Code") treating the required
distribution percentage as 100% instead of 98%, and taking into account other
amounts that have been or will be declared for distribution. Distribution
payment will be made to each shareholder of record, at the time of declaration
of the dividend, in additional shares of the Portfolio which will be credited to
the shareholder's account or, at the shareholder's option, in cash, except that
dividends payable to holders who redeem all of their shares shall be distributed
in cash within five business days after redemption.
To determine the net investment income, the general assets and liabilities of
the Trust not belonging to the Portfolio are allocated to or charged against the
assets belonging to the Portfolio in proportion to the relative assets of the
Portfolio at the time the Portfolio's net asset value was last determined.
Further provisions concerning the payment of dividends are set forth in the
Statement of Additional Information, as from time to time amended.
Designated officers of the Trust are authorized to treat any amounts declared
for distribution, to the extent permitted by Code Section 855, as a "Throwback
dividend" distributed during the Trust's immediately preceding fiscal year, and
to make designations with respect to any amounts declared as they deem
appropriate, including designations of dividends as capital gain dividends to
the extent permitted under Code Section 852(b)(3), designations of
exempt-interest dividends pursuant to Code Section 852(b)(5), designations of
foreign taxes paid and gross income derived from foreign sources pursuant to
Code Section 853(c) and designations under Code Section 854(b) of dividends
eligible for the corporate dividends-received deduction under Code Section 243.
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<PAGE>
The Portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for Federal tax purposes. Any net capital gains
recognized by the Portfolio will be distributed to its investors without need to
offset (for Federal income tax purposes) such gains against any net capital
losses of another Portfolio.
The Portfolio may engage in certain transactions, such as short sales, and may
invest in certain instruments, such as futures contracts, which may result in
constructive sales of appreciated positions in securities for Federal income tax
purposes. A constructive sale generally occurs when the Portfolio has entered
into a short sale of the same or substantially identical securities or if it
enters into a futures or forward contract to deliver the same or substantially
identical securities and in certain other circumstances. If a constructive sale
occurs, the Portfolio will recognize either ordinary income or capital gain
depending on the length of time which it held the security which was
constructively sold.
Dividends paid by the Portfolio from net investment income and short-term
capital gains, either in cash or reinvested in shares, will be taxable to
shareholders as ordinary income. Dividends paid from the Portfolio will
generally qualify in part for the 70% dividends-received deductions for
corporations, but the portion of the dividends so qualified depends on the
aggregate qualifying dividend income received by the Portfolio from domestic
(U.S.) sources.
Distributions paid by the Portfolio from long-term capital gains are taxable to
shareholders subject to income tax as long-term capital gains regardless of the
length of time the shareholder has owned shares in the Portfolio. Also, for
those shareholders subject to tax, if purchases of shares in the Portfolio are
made shortly before the record date for a capital gains distribution or a
dividend, a portion of the investment will be returned as a taxable
distribution. Shareholders are notified annually by the Trust as to the Federal
income tax status of dividends and distributions paid by the Portfolio.
Dividends and distributions may also be subject to state and local taxes.
Dividends declared in October, November, or December to shareholders of record
in such month and paid in January of the following year will be deemed to have
been paid by the Portfolio and received by the shareholders on December 31.
The Portfolio is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on the account registration form your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
In order for the Portfolio to continue to qualify for Federal income tax
treatment as a regulated investment company under the Code, at least 90% of the
Portfolio's gross income for a taxable year must be derived from certain
qualifying income, i.e., dividends, interest, income derived from loans of
securities and gains from the sale or other disposition of stock, securities or
foreign currencies, or other related income, including gains from options,
futures and forward contracts, derived with respect to its business investing in
stock, securities or currencies. Any net gain realized from the closing out of
futures contracts will, therefore, generally be qualifying income for purposes
of the 90% requirement.
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Except for transactions the Portfolio has identified as hedging transactions,
the Portfolio is required for Federal income tax purposes to recognize as income
for the taxable year its net unrealized gains and losses on forward currency and
futures contracts as of the end of the taxable year as well as those actually
realized during the year. In most cases, any such gain or loss recognized with
respect to a regulated futures contract is considered to be 60% long-term
capital gain or loss and 40% short-term capital gain or loss without regard to
the holding period of the contract. Recognized gain or loss attributable to a
foreign currency forward contract is treated as 100% ordinary income.
Furthermore, foreign currency futures contracts which are intended to hedge
against a change in the value of securities held by the Portfolio may affect the
holding period of such securities and, consequently, the nature of the gain or
loss on such securities upon disposition.
The Portfolio may be subject to foreign withholding taxes on income or gains
recognized with respect to its investment in certain foreign securities. If the
Portfolio purchases shares in certain foreign investment entities, called
"passive foreign investment companies," the Portfolio may be subject to U.S.
Federal income tax and a related interest charge on a portion of any "excess
distribution" or gain from the disposition of such shares, even if such income
is distributed as a taxable dividend by the Portfolio to its shareholders. If
more than 50% of the total assets of the Portfolio are invested in securities of
foreign corporations, the Portfolio may elect to pass-through to its
shareholders their pro rata share of foreign income taxes paid by the Portfolio.
If this election is made, shareholders will be required to include in their
gross income their pro rata share of the foreign taxes paid by the Portfolio.
However, shareholders will be entitled to deduct (as an itemized deduction in
the case of individuals) their share of such foreign taxes in computing their
taxable income or to claim a credit for such taxes against their U.S. Federal
income tax, subject to certain limitation under the Code. Finally, the Portfolio
may recognize gain or loss on transactions in foreign currencies as a by-product
of its investment in foreign securities.
The Portfolio will distribute to shareholders annually any net capital gains
which have been recognized for Federal income tax purposes (including unrealized
gains at the end of the Portfolio's taxable year) on futures transactions. Such
distribution will be combined with distributions of capital gains realized on
the Portfolio's other investments, and shareholders will be advised on the
nature of the payment.
Under Code Section 817(h), a variable life insurance or annuity contract will
not be treated as a life insurance policy or annuity contract, respectively,
under the Code, unless the segregated asset account upon which such contract or
policy is based is "adequately diversified." A segregated asset account will be
adequately diversified if it satisfies one of two alternative tests set forth in
the Treasury Regulations. specifically, the Treasury Regulations provide that,
except as permitted by the "safe harbor" discussed below, as of the end of each
calendar quarter (or within 30 days thereafter) no more than 55% of the
segregated asset account's total assets may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and each U.S. Government agency and instrumentality is considered a separate
issuer. As a safe harbor, a segregated asset account will be treated as being
adequately diversified if the diversification requirements under Subchapter M
are satisfied and no more than 55% of the value of the account's total assets
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are cash and cash items, U.S. Government securities and securities of other
regulated investment companies. In addition, a segregated asset account with
respect to a variable life insurance contract is treated as adequately
diversified to the extent of its investment in securities issued by the United
States Treasury.
For purposes of these alternative diversification tests, a segregated asset
account investing in shares of a regulated investment company will be entitled
to "look through" the regulated investment company to its pro rata portion of
the regulated investment company's assets, provided that the shares of such
regulated investment company are held only by insurance companies and certain
fund managers (a "Closed Fund").
If the segregated asset account upon which a variable contract is based is not
"adequately diversified" under the foregoing rules for each calendar quarter,
then (a) the variable contract is not treated as a life insurance contract or
annuity contract under the Code for all subsequent periods during which such
account is not "adequately diversified" and (b) the holders of such contract
must include as ordinary income the `income on the contract" for each taxable
year. Further, the income on a life insurance contract for all prior taxable
years is treated as received or accrued during the taxable year of the
policyholder in which the contract ceases to meet the definition of a "life
insurance contract" under the Code. The "income on the contract" is, generally,
the excess of (i) the sum of the increase in the net surrender value of the
contract during the taxable year and the cost of the life insurance protection
provided under the contract during the year, over (ii) the premiums paid under
the contract during the taxable year. In addition, if a Portfolio does not
constitute a Closed Fund, the holders of the contracts and annuities which
invest in the Portfolio through a segregated asset account may be treated as
owners of Portfolio shares and may be subject to tax on distributions made by
the Portfolio.
PERFORMANCE CALCULATIONS
PERFORMANCE
The Portfolio may from time to time quote various performance figures to
illustrate past performance. Performance quotations by investment companies are
subject to rules adopted by the Commission, which require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Trust be accompanied by
certain standardized performance information computed as required by the
Commission. Current yield and average annual compounded total return quotations
used by the Trust are based on the standardized methods of computing performance
mandated by the Commission. An explanation of those and other methods used to
compute or express performance follows.
YIELD
Current yield reflects the income per share earned by the Portfolio's
investment. The current yield of the Portfolio is determined by dividing the net
investment income per share earned during a 30-day base period by the maximum
offering price per share on the last day of the period and annualizing the
result. Expenses accrued for the period include any fees charged to all
shareholders during the base period.
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This figure is obtained using the following formula:
6
Yield = 2 [( a-b + 1)-1]
---
cd
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive income
distributions
d = the maximum offering price per share on the last day
of the period.
TOTAL RETURN
The average annual total return of the Portfolio is determined by finding the
average annual compounded rates of return over 1, 5 and 10 year periods that
would equate an initial hypothetical $1,000 investment to its ending redeemable
value. The calculation assumes that all dividends and distributions are
reinvested when paid. The quotation assumes the amount was completely redeemed
at the end of each 1, 5 and 10 year period and the deduction of all applicable
Trust expenses on an annual basis.
These figures will be calculated according to the following formula:
n
P(1+T) = 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 1, 5 or 10 year
periods at the end of the 1, 5 or 10 year periods (or
fractional portion thereof).
COMPARISONS
To help investors better evaluate how an investment in the Portfolio might
satisfy their investment objective, advertisements regarding the Trust may
discuss various measures of Trust performance as reported by various financial
publications. Advertisements may also compare performance (as calculated above)
to performance as reported by other investments, indices and averages. The
following publications, indices and averages may be used:
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(1) Dow Jones Composite Average or its component averages - an
unmanaged index composed of 30 blue-chip industrial
corporation stocks (Dow Jones Industrial Average), 15
utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
(2) Standard & Poor's 500 Stock Index or its component indices -
an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation
stocks. Comparisons of performance assume reinvestment of
dividends.
(3) Standard & Poor's MidCap 400 Index - an unmanaged index
measuring the performance of non-S&P 500 stocks in the
mid-range sector of the U.S. stock market.
(4) The New York Stock Exchange composite or component indices -
unmanaged indices of all industrial, utilities, transportation
and finance stocks listed on the New York Stock Exchange.
(5) Wilshire 5000 Equity Index or its component indices -
represents the return on the market value of all common equity
securities for which daily pricing is available. Comparisons
of performance assume reinvestment of dividends.
(6) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed
Income Fund Performance Analysis - measure total return and
average current yield for the mutual fund industry. Rank
individual mutual fund performance over specified time
periods, assuming reinvestment of all distributions, exclusive
of any applicable sales charges.
(7) Morgan Stanley Capital International EAFE Index and World
Index - respectively, arithmetic, market value-weighted
averages of the performance of over 900 securities listed on
the stock exchanges of countries in Europe, Australia and the
Far East, and over 1,400 securities listed on the stock
exchanges of these continents, including North America.
(8) Goldman Sachs 100 Convertible Bond Index - currently includes
67 bonds and 33 preferred stocks. The original list of names
was generated by screening for convertible issues of 100
million or greater in market capitalization. The index is
priced monthly.
(9) Salomon Brothers GNMA Index - includes pools of mortgages
originated by private lenders and guaranteed by the mortgage
pools of the Government National Mortgage Association.
(10) Salomon Brothers High Grade Corporate Bond Index - consists of
publicly issued, non-convertible corporate bonds rated AA or
AAA. It is a value-weighted, total return index, including
approximately 800 issues with maturities of 12 years or
greater.
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(11) Salomon Brothers Broad Investment Grade Bond - is a
market-weighted index that contains approximately 4,700
individually priced investment grade corporate bonds rated BBB
or better, U.S. Treasury/agency issues and mortgage pass
through securities.
(12) Lehman Brothers Long-Term Treasury Bond - is composed of all
bonds covered by the Lehman Brothers Treasury Bond Index with
maturities of 10 years or greater.
(13) NASDAQ Industrial Index - is composed of more than 3,000
industrial issues. It is a value-weighted index calculated on
price change only and does not include income.
(14) Value Line - composed of over 1,600 stocks in the Value Line
Investment Survey.
(15) Russell 2000 - composed of the 2,000 smallest stocks in the
Russell 3000, a market value-weighted index of the 3,000
largest U.S. publicly-traded companies.
(16) Russell 2000 Growth - measures the performance of those
Russell 2000 companies with higher price-to-book ratios and
higher forecasted growth values.
(17) Russell 2000 Value - measures the performance of those Russell
2000 companies with lower price-to-book ratios and lower
forecasted growth values.
(18) Russell 2500 - composed of the 2,500 smallest stocks in the
Russell 3000, a market value-weighted index of the 3,000
largest U.S. publicly-traded companies.
(19) Composite Indices - 60% Standard & Poor's 500 Stock Index, 30%
Lehman Brothers Long-Term Treasury Bond and 10% U.S. Treasury
Bills; 70% Standard & Poor's 500 Stock Index and 30% NASDAQ
Industrial Index; 35% Standard & Poor's 500 Stock Index and
65% Salomon Brothers High Grade Bond Index; all stocks on the
NASDAQ system exclusive of those traded on an exchange, and
65% Standard & Poor's 500 Stock Index and 35% Salomon Brothers
High Grade Bond Index.
(20) CDA Mutual Fund Report published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk,
total return and average rate of return (average compounded
growth rate) over specified time periods for the mutual fund
industry.
(21) Mutual Fund Source Book published by Morningstar, Inc. -
analyzes price, yield, risk and total return for equity funds.
(22) Financial publications: Business Week, Changing Times,
Financial World, Forbes, Fortune, Money, Barron's, Consumer's
Digest, Financial Times, Global Investor, Wall Street Journal
and Weisenberger Investment Companies Service - publications
that rate fund performance over specified time periods.
24
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(23) Consumer Price Index (or Cost of Living Index), published by
the U.S. Bureau of Labor Statistics - a statistical measure of
change over time in the price of goods and services in major
expenditure groups.
(24) Stocks, Bonds, Bills and Inflation, published by Ibbotson
Associates - historical measure of yield, price and total
return for common and small company stock, long-term
government bonds, U.S. Treasury bills and inflation.
(25) Savings and Loan Historical Interest Rates - as published by
the U.S. Savings & Loan League Fact Book.
(26) Lehman Brothers Government/Corporate Index - a combination of
the Government and Corporate Bond Indices. The Government
Index includes public obligations of the U.S. Treasury, issues
of Government agencies, and corporate debt backed by the U.S.
Government. The Corporate Bond Index includes fixed-rate
nonconvertible corporate debt. Also included are Yankee Bonds
and nonconvertible debt issued by or guaranteed by foreign or
international governments and agencies. All issues are
investment grade (BBB) or higher, with maturities of at least
one year and an outstanding par value of at least $100 million
for U.S. Government issues and $25 million for others. Any
security downgraded during the month is held in the index
until month-end and then removed. All returns are market value
weighted inclusive of accrued income.
(27) Lehman Brothers Intermediate Government/Corporate Index - an
unmanaged index composed of a combination of the Government
and Corporate Bond Indices. All issues are investment grade
(BBB) or higher, with maturities of one to ten years and an
outstanding par value of at least $100 million for U.S.
Government issues and $25 million for others. The Government
Index includes public obligations of the U.S. Treasury, issues
of Government agencies, and corporate debt backed by the U.S.
Government. The Corporate Bond Index includes fixed-rate
nonconvertible corporate debt. Also included are Yankee Bonds
and nonconvertible debt issued by or guaranteed by foreign or
international governments and agencies. Any security
downgraded during the month is held in the index until
month-end and then removed. All returns are market value
weighted inclusive of accrued income.
(28) Historical data supplied by the research departments of First
Boston Corporation; the J.P. Morgan companies; WP Brothers;
Merrill Lynch, Pierce, Fenner & Smith; Lehman Brothers, Inc.;
and Bloomberg L.P.
(29) NAREIT Equity Index - a compilation of market-weighted
securities data collected from all tax-qualified equity real
estate investment trusts listed on the New York and American
Stock Exchanges and the NASDAQ. The index tracks performance,
as well as REIT assets, by property type and geographic
region.
(30) Wilshire Real Estate Securities Index, published by Wilshire
Associates - a market capitalization-weighted index of
publicly traded real estate securities, such as real estate
investment trusts, real estate operating companies and
partnerships.
25
<PAGE>
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the composition of investments in the Portfolio, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
Portfolio to calculate its performance. In addition, there can be no assurance
that the Portfolio will continue this performance as compared to such other
averages.
CODE OF ETHICS
The Trust has adopted a Code of Ethics which restricts, to a certain extent,
personal transactions by access persons of the Trust and imposes certain
disclosure and reporting obligations.
26
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current
opinion of the creditworthiness of an obligor with respect to financial
obligations having an original maturity of no more than 365 days. The following
summarizes the rating categories used by Standard and Poor's for commercial
paper:
"A-1" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
A-1
<PAGE>
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the best capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial BankWatch short-term ratings assess the
likelihood of an untimely payment of principal and interest of debt instruments
with original maturities of one year or less. The following summarizes the
ratings used by Thomson Financial BankWatch:
A-3
<PAGE>
"TBW-1" - This designation represents Thomson Financial
BankWatch's highest category and indicates a very high likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial
BankWatch's second-highest category and indicates that while the degree of
safety regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson Financial
BankWatch's lowest investment-grade category and indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
"TBW-4" - This designation represents Thomson Financial
BankWatch's lowest rating category and indicates that the obligation is regarded
as non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded
as having significant speculative characteristics. "BB" indicates the least
degree of speculation and "C" the highest. While such obligations will likely
have some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions.
A-4
<PAGE>
"BB" - An obligation rated "BB" is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment
than obligations rated "BB", but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable
to nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D"
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"c" - The 'c' subscript is used to provide additional
information to investors that the bank may terminate its obligation to purchase
tendered bonds if the long-term credit rating of the issuer is below an
investment-grade level and/or the issuer's bonds are deemed taxable.
"p" - The letter 'p' indicates that the rating is provisional.
A provisional rating assumes the successful completion of the project financed
by the debt being rated and indicates that payment of debt service requirements
is largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk of
default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
A-5
<PAGE>
* Continuance of the ratings is contingent upon Standard &
Poor's receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.
"r" - The 'r' highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience high volatility or
high variability in expected returns as a result of noncredit risks. Examples of
such obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an 'r'
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
N.R. Not rated. Debt obligations of issuers outside the United
States and its territories are rated on the same basis as domestic corporate and
municipal issues. The ratings measure the creditworthiness of the obligor but do
not take into account currency exchange and related uncertainties.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
A-6
<PAGE>
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" indicates poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. This is the
lowest investment grade category.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
A-7
<PAGE>
The following summarizes the ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment grade category.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of
obligations in this category are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation of the obligor. While
expected recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
A-8
<PAGE>
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all
of their obligations. Entities rated "DDD" have the highest prospect for
resumption of performance or continued operation with or without a formal
reorganization process. Entities rated "DD" and "D" are generally undergoing a
formal reorganization or liquidation process; those rated "DD" are likely to
satisfy a higher portion of their outstanding obligations, while entities rated
"D" have a poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "CCC" may be modified by the
addition of a plus (+) or minus (-) sign to denote relative standing within
these major rating categories.
`NR' indicates the Fitch IBCA does not rate the issuer or
issue in question.
`Withdrawn': A rating is withdrawn when Fitch IBCA deems the
amount of information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify
investors that there is a reasonable probability of a rating change and the
likely direction of such change. These are designated as "Positive", indicating
a potential upgrade, "Negative", for a potential downgrade, or "Evolving", if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
Thomson Financial BankWatch assesses the likelihood of an
untimely repayment of principal or interest over the term to maturity of long
term debt and preferred stock which are issued by United States commercial
banks, thrifts and non-bank banks; non-United States banks; and broker-dealers.
The following summarizes the rating categories used by Thomson BankWatch for
long-term debt ratings:
"AAA" - This designation indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
A-9
<PAGE>
"BBB" - This designation represents the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson Financial BankWatch to non-investment grade long-term debt. Such
issues are regarded as having speculative characteristics regarding the
likelihood of timely repayment of principal and interest. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity
factors and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
A-10
<PAGE>
"MIG-1"/"VMIG-1" - This designation denotes best quality.
There is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality.
Margins of protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
A-11
<PAGE>
PART C
FORM N-1A
OTHER INFORMATION
Item 23. Exhibits
(a) (1) Certificate of Trust.
(2) Agreement and Declaration of Trust.
(b) (1) Bylaws.
(c) Not Applicable.
(d) (1) Form of Investment Advisory Agreement between Registrant and
John McStay Investment Counsel, L.P.
(e) (1) Form of Distribution Agreement [to be filed by amendment].
(f) Not Applicable.
(g) (1) Form of Custody Agreement between Registrant and Firstar
Bank, N.A.
(h) (1) Form of Portfolio Administration Servicing Agreement between
Registrant and Firstar Mutual Fund Services, LLC.
(2) Form of Transfer Agent Servicing Agreement between
Registrant and Firstar Mutual Fund Services, LLC.
(3) Form of Portfolio Accounting Servicing Agreement between
Registrant and Firstar Mutual Fund Services, LLC.
(i) Opinion of Drinker Biddle & Reath LLP.
(j) (1) Consent of Drinker Biddle & Reath LLP.
(2) Consent of PricewaterhouseCoopers LLP [to be filed by
amendment].
(k) Not Applicable.
(l) Initial Capital Agreement [to be filed by amendment].
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Code of Ethics of Brazos Insurance Funds.
Item 24. Persons Controlled by or Under Common Control with Registrant.
Registrant is not controlled by or under common control with any
person.
<PAGE>
Item 25. Indemnification
Reference is made to Article VII of Registrant's Agreement and
Declaration of Trust, which is filed as Exhibit (a)(2)hereto.
Registrant hereby also makes the undertaking consistent with Rule
484 under the Securities Act of 1933, as amended.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, 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 director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, office 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.
Indemnification of the Registrant and its investment adviser
against certain losses with respect to the Brazos Small Cap Growth
Portfolio is provided for in Section 7 of the Form of Investment
Advisory Agreement with John McStay Investment Counsel, L.P.,
which is filed as Exhibit (d)(1) hereto.
Indemnification of the Registrant and its shareholder or any
individual shareholder of a series of the Trust, Trustees or
individual Trustees of the Trust, its Administrators, against
certain losses and against failure to comply with the terms of the
Agreement is provided for in Section 4 of the Form of Portfolio
Administration Servicing Agreement which is filed as Exhibit
(h)(3)hereto.
Indemnification of Registrant and its Trustees, shareholders,
nominees, officers, agents or employees, the Custodian and any
Sub-Custodian, including any nominee of the Custodian or
Sub-Custodian, against certain losses is provided for in Articles
VIII and XII of the Form of Custody Agreement which is filed as
Exhibit (g)(1) hereto.
Indemnification of Registrant or its shareholder or any individual
shareholder of a series, Trustees, individual Trustee and Transfer
Agent against certain losses is provided for in Section 7 of the
Form of Transfer Agent Servicing Agreement which is filed as
Exhibit (h)(2) hereto.
Indemnification of Registrant or its shareholder or any individual
shareholder of a series, Trustees, individual Trustee and the
Portfolio Accountant against certain losses and against failure to
comply with the terms of the Agreement is provided for in Section
7 of the Form of Portfolio Accounting Servicing Agreement which is
filed as Exhibit (h)(3) hereto.
The Registrant has obtained from a major insurance carrier a
directors' and officers' liability policy covering certain types
of errors and omissions.
C-2
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
John McStay Investment Counsel, L.P., investment adviser to the
Brazos Small Cap Growth Portfolio, is a registered adviser under
the Investment Advisers Act of 1940.
To Registrant's knowledge, none of the directors or senior
executive officers of, John McStay Investment Counsel, L.P.,
except those set forth below, is, or has been at any time during
Registrant's past two fiscal years, engaged in any other business,
profession, vocation or employment of a substantial nature, except
that certain directors and officers of John McStay Investment
Counsel, L.P. also hold various positions with, and engage in
business for, their respective affiliates. Set forth below are the
names and principal businesses of the directors and certain of the
senior executive officers of John McStay Investment Counsel, L.P.
who are or have been engaged in any other business, profession,
vocation or employment of a substantial nature.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NAME POSITION WITH JOHN MCSTAY OTHER BUSINESS CONNECTIONS TYPE OF BUSINESS
INVESTMENT COUNSEL, L.P.
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Peter Harbeck Director Director and President, Investment Management
SunAmerica Asset
Management Corp.;
Director, SunAmerica
Capital Inc.; Director and
President, SunAmerica Fund
Services, Inc.; President,
Anchor Series Trust and AST
- ------------------------------------------------------------------------------------------------------------
Win Neuger Director Senior Vice President, and Insurance and Financial
Chief Investment Officer, services
American International
Group, Inc. and Chief
Executive Officer and
Director, AIG Global
Investment Group, Inc.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Item 27. Principal Underwriters
(a)
(b)
C-3
<PAGE>
Item 28. Location of Accounts and Records
The books, accounts and other documents required by Section 31 (a)
under the Investment Company Act of 1940, as amended, and the
rules promulgated thereunder will be maintained in the physical
possession of the Registrant, Brazos Insurance Funds, 5949 Sherry
Lane, Dallas, TX 75225; the Registrant's Adviser, John McStay
Investment Counsel, L.P., 5949 Sherry Lane, Dallas, TX 75225; the
Registrant's Transfer Agent and Portfolio Administrator, Firstar
Mutual Fund Services, LLC, 615 E. Michigan Street, Milwaukee, WI
53202; and the Registrant's Custodian Bank, Firstar Bank, N.A.,
615 E. Michigan Street, Milwaukee, WI 53202.
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Registrant hereby undertakes to call a meeting of shareholders for
the purpose of voting upon the question of the removal of a
Trustee or Trustees when requested in writing to do so by the
holders of at least 10% of the Registrant's outstanding shares and
in connection with such meeting to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940, as amended,
relating to shareholder communications.
Registrant hereby undertakes to furnish its Annual Report to
Shareholders upon request and without charge to any person to whom
a prospectus is delivered.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Dallas, and State of Texas
on the 9th day of February, 2000.
/s/ BRAZOS INSURANCE FUNDS
----------------------------------
Brazos Insurance Funds
Registrant
By: /s/ DAN L. HOCKENBROUGH *
------------------------------
Dan L. Hockenbrough
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
/s/ GEORGE GAU*
- -------------------------
George Gau Trustee February 9, 2000
/s/ DAN L. HOCKENBROUGH *
- -------------------------
Dan L. Hockenbrough Trustee, President, Chief February 9, 2000
Financial Officer,
Chairman of the Board
/s/ JOHN H. MASSEY *
- -------------------------
John H. Massey Trustee February 9, 2000
/s/ DAVID M. REICHERT *
- -------------------------
David M. Reichert Trustee February 9, 2000
* Pursuant to authority granted in a Power of Attorney filed herewith.
BY: /s/ AUDREY C. TALLEY
- -------------------------
Audrey C. Talley
Attorney-in-Fact
C-5
<PAGE>
POWER OF ATTORNEY
The undersigned hereby appoints each of Audrey Talley and Daniel
Hockenbrough as attorney-in-fact and agent, each individually in all capacities,
to execute, and to file any of the documents referred to below relating to the
registration of Brazos Insurance Funds (the "Trust") as an investment company
under the Investment Company Act of 1940, as amended, (the "Act") and the
Trust's Registration Statement on Form N-1A under the Act and under the
Securities Act of 1933, including any and all amendments thereto, covering the
registration of the Trust as an investment company and the sale of shares of the
series of the Trust, including all exhibits and any and all documents required
to be filed with respect thereto with any regulatory authority, including
applications for exemptive order rulings. The undersigned grants to said
attorney full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes, as he could do if
personally present, thereby ratifying all that said attorney-in-fact and agent
may lawfully do or cause to be done by virtue hereof.
The undersigned hereby executes this Power of Attorney as of this 21st
day of January, 2000.
/s/ DAVID REICHERT
----------------------------
Name: David Reichert
Title: Trustee
<PAGE>
POWER OF ATTORNEY
The undersigned hereby appoints each of Audrey Talley and Daniel
Hockenbrough as attorney-in-fact and agent, each individually in all capacities,
to execute, and to file any of the documents referred to below relating to the
registration of Brazos Insurance Funds (the "Trust") as an investment company
under the Investment Company Act of 1940, as amended, (the "Act") and the
Trust's Registration Statement on Form N-1A under the Act and under the
Securities Act of 1933, including any and all amendments thereto, covering the
registration of the Trust as an investment company and the sale of shares of the
series of the Trust, including all exhibits and any and all documents required
to be filed with respect thereto with any regulatory authority, including
applications for exemptive order rulings. The undersigned grants to said
attorney full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes, as he could do if
personally present, thereby ratifying all that said attorney-in-fact and agent
may lawfully do or cause to be done by virtue hereof.
The undersigned hereby executes this Power of Attorney as of this 21st
day of January, 2000.
/s/ JOHN MASSEY
----------------------------
Name: John Massey
Title: Trustee
<PAGE>
POWER OF ATTORNEY
The undersigned hereby appoints Audrey Talley as attorney-in-fact and
agent, individually in all capacities, to execute, and to file any of the
documents referred to below relating to the registration of Brazos Insurance
Funds (the "Trust") as an investment company under the Investment Company Act of
1940, as amended, (the "Act") and the Trust's Registration Statement on Form
N-1A under the Act and under the Securities Act of 1933, including any and all
amendments thereto, covering the registration of the Trust as an investment
company and the sale of shares of the series of the Trust, including all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, including applications for exemptive order
rulings. The undersigned grants to said attorney full authority to do every act
necessary to be done in order to effectuate the same as fully, to all intents
and purposes, as she could do if personally present, thereby ratifying all that
said attorney-in-fact and agent may lawfully do or cause to be done by virtue
hereof.
The undersigned hereby executes this Power of Attorney as of this 21st
day of January, 2000.
/s/ DANIEL HOCKENBROUGH
-------------------------------
Name: Daniel Hockenbrough
Title: Chief Financial Officer
<PAGE>
POWER OF ATTORNEY
The undersigned hereby appoints each of Audrey Talley and Daniel
Hockenbrough as attorney-in-fact and agent, each individually in all capacities,
to execute, and to file any of the documents referred to below relating to the
registration of Brazos Insurance Funds (the "Trust") as an investment company
under the Investment Company Act of 1940, as amended, (the "Act") and the
Trust's Registration Statement on Form N-1A under the Act and under the
Securities Act of 1933, including any and all amendments thereto, covering the
registration of the Trust as an investment company and the sale of shares of the
series of the Trust, including all exhibits and any and all documents required
to be filed with respect thereto with any regulatory authority, including
applications for exemptive order rulings. The undersigned grants to said
attorney full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes, as he could do if
personally present, thereby ratifying all that said attorney-in-fact and agent
may lawfully do or cause to be done by virtue hereof.
The undersigned hereby executes this Power of Attorney as of this 21st
day of January, 2000.
/s/ GEORGE GAU
----------------------------
Name: George Gau
Title: Trustee
<PAGE>
EXHIBIT INDEX
Exhibit No. Item
- ----------- ----
(a)(2) Agreement and Declaration of Trust dated January 21, 2000.
(b)(1) Bylaws.
(d)(1) Form of Investment Advisory Agreement between the Registrant
and John McStay Investment Counsel, L.P. with respect to
the BRAZOS Small Cap Growth Portfolio.
(g)(1) Form of Custody Agreement between the Registrant and Firstar
Bank, N.A. with respect to the BRAZOS Small Cap Growth
Portfolio.
(h)(1) Form of Portfolio Administration Servicing Agreement between
the Registrant and Firstar Mutual Fund Services, LLC with
respect to the BRAZOS Small Cap Growth Portfolio.
(2) Form of Transfer Agent Servicing Agreement between the
Registrant and Firstar Mutual Fund Services, LLC with respect
to the BRAZOS Small Cap Growth Portfolio.
(3) Form of Portfolio Accounting Servicing Agreement between the
Registrant and Firstar Mutual Fund Services, LLC with respect
to the BRAZOS Small Cap Growth Portfolio.
(i) Opinion of Drinker Biddle & Reath LLP.
(j)(1) Consent of Drinker Biddle & Reath LLP.
(p) Code of Ethics of Brazos Insurance Funds.
Effective as of
January 21, 2000
AGREEMENT AND DECLARATION OF TRUST
of
BRAZOS INSURANCE FUNDS
a Delaware Business Trust
Principal Place of Business:
5949 Sherry Lane, Suite 1600
Dallas, Texas 75225
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
ARTICLE I. Name and Definitions........................................................1
Section 1. Name...................................................................1
Section 2. Definitions............................................................1
(a) The "Trust"............................................................1
(b) The "Trust Property"...................................................1
(c) "Trustees".............................................................1
(d) "Shares"...............................................................1
(e) "Shareholder"..........................................................2
(f) "Person"...............................................................2
(g) The "1940 Act".........................................................2
(h) The terms "Commission" and "Principal Underwriter".....................2
(i) "Declaration of Trust".................................................2
(j) "By-Laws"..............................................................2
(k) The term "Interested Person"...........................................2
(l) "Investment Manager"...................................................2
(m) "Series"...............................................................2
ARTICLE II. PURPOSE OF TRUST............................................................2
ARTICLE III. SHARES......................................................................2
Section 1. Division of Beneficial Interest........................................2
Section 2. Ownership of Shares....................................................3
Section 3. Investments in the Trust...............................................3
Section 4. Status of Shares and Limitation of Personal Liability..................3
Section 5. Power of Board of Trustees to Change Provisions Relating to Shares.....4
Section 6. Establishment and Designation of Shares................................4
(a) Assets Held with Respect to a Particular Series........................4
(b) Liabilities Held with Respect to a Particular Series...................5
(c) Dividends, Distributions, Redemptions, and Repurchases.................5
(d) Voting.................................................................5
(e) Equality...............................................................6
(f) Fractions..............................................................6
(g) Exchange Privilege.....................................................6
(h) Combination of Series..................................................6
(i) Elimination of Series..................................................6
(j) Conversion Rights......................................................6
ARTICLE IV. THE BOARD OF TRUSTEES.......................................................6
Section 1. Number, Election and Tenure............................................6
Section 2. Effect of Death, Resignation, etc. of a Trustee........................7
Section 3. Powers.................................................................7
Section 4. Payment of Expenses by the Trust......................................10
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 5. Ownership of Assets of the Trust......................................10
Section 6. Service Contracts.....................................................10
ARTICLE V. SHAREHOLDERS' VOTING POWERS AND MEETINGS...................................11
Section 1. Voting Powers.........................................................11
Section 2. Voting Power and Meetings.............................................12
Section 3. Quorum and Required Vote..............................................12
Section 4. Action by Written Consent.............................................12
Section 5. Record Dates..........................................................12
ARTICLE VI. NET ASSET VALUE, DISTRIBUTIONS, AND REDEMPTIONS............................13
Section 1. Determination of Net Asset Value, Net Income, and Distributions.......13
Section 2. Redemptions and Repurchases...........................................13
Section 3. Redemptions at the Option of the Trust................................13
Section 4. Transfer of Shares....................................................14
ARTICLE VII. COMPENSATION AND LIMITATION OF LIABILITY...................................14
Section 1. Compensation of Trustees..............................................14
Section 2. Indemnification and Limitation of Liability...........................14
Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or Surety.........14
Section 4. Insurance.............................................................15
ARTICLE VIII. MISCELLANEOUS..............................................................15
Section 1. Liability of Third Persons Dealing with Trustees......................15
Section 2. Termination of Trust or Series........................................15
Section 3. Merger and Consolidation..............................................15
Section 4. Amendments............................................................16
Section 5. Filing of Copies, References, Headings................................16
Section 6. Applicable Law........................................................16
Section 7. Provisions in Conflict with Law or Regulations........................16
Section 8. Business Trust Only...................................................17
Section 9. Use of the Name "JMIC"................................................17
</TABLE>
(ii)
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
OF
BRAZOS INSURANCE FUNDS
WHEREAS, this AGREEMENT AND DECLARATION OF TRUST is made and entered
into as of the date set forth below by the Trustees named hereunder for the
purpose of forming a Delaware business trust in accordance with the provisions
hereinafter set forth,
NOW, THEREFORE, the Trustees hereby direct that a Certificate of Trust
be filed with the Office of the Secretary of State of the State of Delaware and
do hereby declare that the Trustees will hold IN TRUST all cash, securities and
other assets which the Trust now possesses or may hereafter acquire from time to
time in any manner and manage and dispose of the same upon the following terms
and conditions for the pro rata benefit of the holders of Shares in this Trust.
ARTICLE I.
Name and Definitions
SECTION 1. NAME. This Trust shall be known as "BRAZOS INSURANCE FUNDS"
and the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
SECTION 2. DEFINITIONS. Whenever used herein, unless otherwise required
by the context or specifically provided:
(a) The "Trust" refers to the Delaware business trust established by
this Agreement and Declaration of Trust, as amended from time to time;
(b) The "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust;
(c) "Trustees" refers to the persons who have signed this Agreement and
Declaration of Trust, so long as they continue in office in accordance with the
terms hereof, and all other persons who may from time to time be duly elected or
appointed to serve on the Board of Trustees in accordance with the provisions
hereof, and reference herein to a Trustee or the Trustees shall refer to such
person or persons in their capacity as trustees hereunder;
(d) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and includes
fractions of Shares as well as whole Shares;
<PAGE>
(e) "Shareholder" means a record owner of outstanding Shares;
(f) "Person" means and includes individuals, corporations,
partnerships, trusts, foundations, plans, associations, joint ventures, estates
and other entities, whether or not legal entities, and governments and agencies
and political subdivisions thereof, whether domestic or foreign;
(g) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time. References
herein to specific sections of the 1940 Act shall be deemed to include such
Rules and Regulations as are applicable to such sections as determined by the
Trustees or their designees;
(h) The terms "Commission" and "Principal Underwriter" shall have the
respective meanings given them in Section 2(a)(7) and Section (2)(a)(29) of the
1940 Act;
(i) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time;
(j) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time;
(k) The term "Interested Person" has the meaning given it in Section
2(a)(19) of the 1940 Act;
(l) "Investment Manager" or "Manager" means a party furnishing services
to the Trust pursuant to any contract described in Article IV, Section 7(a)
hereof;
(m) "Series" refers to each Series of Shares established and designated
under or in accordance with the provisions of Article III.
ARTICLE II.
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the
business of a management investment company registered under the 1940 Act
through one or more Series investing primarily in securities.
ARTICLE III.
Shares
SECTION 1. DIVISION OF BENEFICIAL INTEREST. The beneficial interest in
the Trust shall at all times be divided into an unlimited number of Shares, with
a par value of $.001 per Share. The Trustees may authorize the division of
Shares into separate Series and the division of Series into separate classes of
-2-
<PAGE>
Shares. The different Series shall be established and designated, and the
variations in the relative rights and preferences as between the different
Series shall be fixed and determined, by the Trustees. If only one Series shall
be established, the Shares shall have the rights and preferences provided for
herein and in Article III, Section 6 hereof to the extent relevant and not
otherwise provided for herein.
Subject to the provisions of Section 6 of this Article III, each Share
shall have voting rights as provided in Article V hereof, and holders of the
Shares of any Series shall be entitled to receive dividends, when, if and as
declared with respect thereto in the manner provided in Article VI, Section 1
hereof. No Share shall have any priority or preference over any other Share of
the same Series with respect to dividends or distributions of the Trust or
otherwise. All dividends and distributions shall be made ratably among all
Shareholders of a Series (or class) from the assets held with respect to such
Series according to the number of Shares of such Series (or class) held of
record by such Shareholders on the record date for any dividend or distribution
or on the date of termination of the Trust, as the case may be. Shareholders
shall have no preemptive or other right to subscribe to any additional Shares or
other securities issued by the Trust or any Series. The Trustees may from time
to time divide or combine the Shares of a Series into a greater or lesser number
of Shares of such Series without thereby materially changing the proportionate
beneficial interest of such Shares in the assets held with respect to that
Series or materially affecting the rights of Shares of any other Series.
SECTION 2. OWNERSHIP OF SHARES. The ownership of Shares shall be
recorded on the books of the Trust or a transfer or similar agent for the Trust,
which books shall be maintained separately for the Shares of each Series. No
certificates evidencing the ownership of Shares shall be issued except as the
Board of Trustees may otherwise determine from time to time. The Trustees may
make such rules as they consider appropriate for the transfer of Shares of each
Series (or class) and similar matters. The record books of the Trust as kept by
the Trust or any transfer or similar agent, as the case may be, shall be
conclusive as to the identity of the Shareholders of each Series and as to the
number of Shares of each Series held from time to time by each Shareholder.
SECTION 3. INVESTMENTS IN THE TRUST. Investments may be accepted by the
Trust from such Persons, at such times, on such terms, and for such
consideration as the Trustees from time to time may authorize. Each investment
shall be credited to the Shareholder's account in the form of full and
fractional Shares of the Trust, in such Series (or class) as the purchaser shall
select, at the net asset value per Share next determined for such Series (or
class) after receipt of the investment; provided, however, that the Trustees
may, in their sole discretion, impose a sales charge or reimbursement fee upon
investments in the Trust.
SECTION 4. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument and the By-Laws of the Trust. Every Shareholder by virtue of
having become a Shareholder shall be held to have expressly assented and agreed
to the terms hereof. The death of a Shareholder during the existence of the
Trust shall not operate to terminate the Trust, nor entitle the representative
of any deceased Shareholder to an accounting or to take any action in court or
elsewhere against
-3-
<PAGE>
the Trust or the Trustees, but shall entitle such representative only to the
rights of said deceased Shareholder under this Declaration of Trust. Ownership
of Shares shall not entitle a Shareholder to any title in or to the whole or any
part of the Trust Property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders as partners or joint venturers. Neither the Trust nor the Trustees,
nor any officer, employee or agent of the Trust shall have any power to bind
personally any Shareholder, or to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time agree to pay.
SECTION 5. POWER OF BOARD OF TRUSTEES TO CHANGE PROVISIONS RELATING TO
SHARES. Notwithstanding any other provision of this Declaration of Trust to the
contrary, and without limiting the power of the Board of Trustees to amend the
Declaration of Trust as provided elsewhere herein, the Board of Trustees shall
have the power to amend this Declaration of Trust, at any time and from time to
time, in such manner as the Board of Trustees may determine in their sole
discretion, without the need for Shareholder action, so as to add to, delete,
replace or otherwise modify any provisions relating to the Shares contained in
this Declaration of Trust, provided that before adopting any such amendment
without Shareholder approval the Board of Trustees shall determine that it is
consistent with the fair and equitable treatment of all Shareholders and that
Shareholder approval is not required by the 1940 Act or other applicable law. If
Shares have been issued, Shareholder approval shall be required to adopt any
amendments to this Declaration of Trust which would adversely affect to a
material degree the rights and preferences of the Shares of any Series (or
class) or to increase or decrease the par value of the Shares of any Series (or
class).
SECTION 6. ESTABLISHMENT AND DESIGNATION OF SHARES. The establishment
and designation of any Series (or class) of Shares shall be effective upon the
adoption by a majority of the Trustees, of a resolution which sets forth such
establishment and designation and the relative rights and preferences of such
Series (or class). Each such resolution shall be incorporated herein by
reference upon adoption.
Shares of each Series (or class) established pursuant to this Section
6, unless otherwise provided in the resolution establishing such Series, shall
have the following relative rights and preferences:
(a) ASSETS HELD WITH RESPECT TO A PARTICULAR SERIES. All consideration
received by the Trust for the issue or sale of Shares of a Series, including
dividends and distributions paid by, and reinvested in, such Series, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof from whatever source derived,
including, without limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably be held with respect to that Series for all purposes, subject only
to the rights of creditors, and shall be so recorded upon the books of account
of the Trust. Such consideration, assets, income, earnings, profits and proceeds
thereof, from whatever source derived, including, without limitation, any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment
-4-
<PAGE>
of such proceeds, in whatever form the same may be, are herein referred to as
"assets held with respect to" that Series. In the event that there are any
assets, income, earnings, profits and proceeds thereof, funds or payments which
are not readily identifiable as assets held with respect to any particular
Series (collectively "General Assets"), the Trustees shall allocate such General
Assets to, between or among any one or more of the Series in such manner and on
such basis as the Trustees, in their sole discretion, deem fair and equitable,
and any General Asset so allocated to a particular Series shall be held with
respect to that Series. Each such allocation by the Trustees shall be conclusive
and binding upon the Shareholders of all Series for all purposes in absence of
manifest error.
(b) LIABILITIES HELD WITH RESPECT TO A PARTICULAR SERIES. The assets of
the Trust held with respect to each Series shall be charged with the liabilities
of the Trust with respect to such Series and all expenses, costs, charges and
reserves attributable to such Series, and any general liabilities of the Trust
which are not readily identifiable as being held in respect of a Series shall be
allocated and charged by the Trustees to and among any one or more Series in
such manner and on such basis as the Trustees in their sole discretion deem fair
and equitable. The liabilities, expenses, costs, charges, and reserves so
charged to a Series are herein referred to as "liabilities held with respect to"
that Series. Each allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon the holders of all
Series for all purposes in absence of manifest error. All Persons who have
extended credit which has been allocated to a particular Series, or who have a
claim or contract which has been allocated to a Series, shall look exclusively
to the assets held with respect to such Series for payment of such credit,
claim, or contract. In the absence of an express agreement so limiting the
claims of such creditors, claimants and contracting parties, each creditor,
claimant and contracting party shall be deemed nevertheless to have agreed to
such limitation unless an express provision to the contrary has been
incorporated in the written contract or other document establishing the
contractual relationship.
(c) DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS, AND REPURCHASES. No dividend
or distribution including, without limitation, any distribution paid upon
termination of the Trust or of any Series (or class) with respect to, or any
redemption or repurchase of, the Shares of any Series (or class) shall be
effected by the Trust other than from the assets held with respect to such
Series, nor shall any Shareholder of any Series otherwise have any right or
claim against the assets held with respect to any other Series except to the
extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series. The Trustees shall have full discretion to
determine which items shall be treated as income and which items as capital; and
each such determination and allocation shall be conclusive and binding upon the
Shareholders in absence of manifest error.
(d) VOTING. All Shares of the Trust entitled to vote on a matter shall
vote without differentiation between the separate Series on a one-vote-per-Share
basis; provided however, if a matter to be voted on affects only the interests
of not all Series (or class of a Series), then only the Shareholders of such
affected Series (or class) shall be entitled to vote on the matter.
-5-
<PAGE>
(e) EQUALITY. All the Shares of each Series shall represent an equal
proportionate undivided interest in the assets held with respect to such Series
(subject to the liabilities of such Series and such rights and preferences as
may have been established and designated with respect to classes of Shares
within such Series), and each Share of a Series shall be equal to each other
Share of such Series.
(f) FRACTIONS. Any fractional Share of a Series shall have
proportionately all the rights and obligations of a whole share of such Series,
including rights with respect to voting, receipt of dividends and distributions
and redemption of Shares.
(g) EXCHANGE PRIVILEGE. The Trustees shall have the authority to
provide that the holders of Shares of any Series shall have the right to
exchange such Shares for Shares of one or more other Series in accordance with
such requirements and procedures as may be established by the Trustees.
(h) COMBINATION OF SERIES. The Trustees shall have the authority,
without the approval of the Shareholders of any Series unless otherwise required
by applicable law, to combine the assets and liabilities held with respect to
any two or more Series into assets and liabilities held with respect to a single
Series.
(i) ELIMINATION OF SERIES. At any time that there are no Shares
outstanding of a Series (or class), the Trustees may abolish such Series (or
class).
(j) CONVERSION RIGHTS. The Trustees shall have the authority to provide
from time to time that the holders of Shares of any Series or Class shall have
the right to convert or exchange said Shares for or into Shares of one or more
other Series or Classes in accordance with such requirements and procedures as
may be established from time to time by the Trustees.
ARTICLE IV.
The Board of Trustees
SECTION 1. NUMBER, ELECTION AND TENURE. The number of Trustees
constituting the Board of Trustees shall be fixed from time to time by a written
instrument signed, or by resolution approved at a duly constituted meeting, by a
majority of the Board of Trustees, provided, however, that the number of
Trustees shall in no event be less than one (1) nor more than fifteen (15).
Subject to the requirements of Section 16(a) of the 1940 Act, the Board of
Trustees, by action of a majority of the then Trustees at a duly constituted
meeting, may fill vacancies in the Board of Trustees and remove Trustees with or
without cause. Each Trustee shall serve during the continued lifetime of the
Trust until he or she dies, resigns, is declared bankrupt or incompetent by a
court of competent jurisdiction, or is removed. Any Trustee may resign at any
time by written instrument signed by him and delivered to any officer of the
Trust or to a meeting of the Trustees. Such resignation shall be effective upon
receipt unless specified to be effective at some other time. Except to the
extent expressly provided in a written agreement with the Trust, no Trustee
resigning and no Trustee removed shall have any right to any compensation
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for any period following his or her resignation or removal, or any right to
damages or other payment on account of such removal. Any Trustee may be removed
at any meeting of Shareholders by a vote of two-thirds of the outstanding Shares
of the Trust. A meeting of Shareholders for the purpose of electing or removing
one or more Trustees may be called (i) by the Trustees upon their own vote, or
(ii) upon the demand of Shareholders owning 10% or more of the Shares of the
Trust in the aggregate.
SECTION 2. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE. The death,
declination, resignation, retirement, removal, or incapacity of one or more
Trustees, or all of them, shall not operate to annul the Trust or to revoke any
existing agency created pursuant to the terms of this Declaration of Trust.
Whenever a vacancy in the Board of Trustees shall occur, until such vacancy is
filled as provided in Article IV, Section 1, the Trustees in office, regardless
of their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration of Trust.
SECTION 3. POWERS. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Board of Trustees, and
such Board shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in transactions of all kinds on
behalf of the Trust. Trustees, in all instances, shall act as principals and are
and shall be free from the control of the Shareholders. The Trustees shall have
full power and authority to do any and all acts and to make and execute any and
all contracts, documents and instruments that they may consider desirable,
necessary or appropriate in connection with the administration of the Trust.
Without limiting the foregoing, the Trustees may: adopt, amend and repeal
By-Laws not inconsistent with this Declaration of Trust providing for the
regulation and management of the affairs of the Trust; elect and remove such
officers and appoint and terminate such agents as they consider appropriate;
appoint from their own number and establish and terminate one or more committees
consisting of two or more Trustees who may exercise the powers and authority of
the Board of Trustees to the extent that the Trustees determine; employ one or
more custodians of the assets of the Trust and may authorize such custodians to
employ subcustodians and to deposit all or any part of such assets in a system
or systems for the central handling of securities or with a Federal Reserve
Bank, retain a transfer agent or a shareholder servicing agent, or both; provide
for the issuance and distribution of Shares by the Trust directly or through one
or more Principal Underwriters or otherwise; redeem, repurchase and transfer
Shares pursuant to applicable law; set record dates for the determination of
Shareholders with respect to various matters; declare and pay dividends and
distributions to Shareholders of each Series from the assets of such Series;
establish from time to time, in accordance with the provisions of Article III,
Section 6 hereof, any Series of Shares, each such Series to operate as a
separate and distinct investment medium and with separately defined investment
objectives and policies and distinct investment purpose; and in general delegate
such authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian, transfer or shareholder servicing agent, Investment Manager or
Principal Underwriter. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of this Declaration of Trust, the presumption shall be in favor of a
grant of power to the Trustees and unless otherwise specified herein or required
by the 1940 Act or other
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applicable law, any action by the Board of Trustees shall be deemed effective if
approved or taken by a majority of the Trustees then in office or a majority of
any duly constituted committee of Trustees. Any action required or permitted to
be taken at any meeting of the Board of Trustees, or any committee thereof, may
be taken without a meeting if all members of the Board of Trustees or committee
(as the case may be) consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of the Board of Trustees, or
committee, except as otherwise provided in the 1940 Act.
Without limiting the foregoing, the Trust shall have power and
authority:
(a) To invest and reinvest cash and cash items, to hold cash
uninvested, and to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, write
options on, lend or otherwise deal in or dispose of contracts for the future
acquisition or delivery of all types of securities, futures contracts and
options thereon, and forward currency contracts of every nature and kind,
including, without limitation, all types of bonds, debentures, stocks, preferred
stocks, negotiable or non-negotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or indebtedness, commercial paper,
repurchase agreements, bankers' acceptances, and other securities of any kind,
issued, created, guaranteed, or sponsored by any and all Persons. including,
without limitation, states, territories, and possessions of the United States
and the District of Columbia and any political subdivision, agency, or
instrumentality thereof, any foreign government or any political subdivision of
the U.S. Government or any foreign government, or any international
instrumentality or organization, or by any bank or savings institution, or by
any corporation or organization organized under the laws of the United States or
of any state, territory, or possession thereof, or by any corporation or
organization organized under any foreign law, or in "when issued" contracts for
any such securities, futures contracts and options thereon, and forward currency
contracts, to change the investments of the assets of the Trust; and to exercise
any and all rights, powers, and privileges of ownership or interest in respect
of any and all such investments of every kind and description, including,
without limitation, the right to consent and otherwise act with respect thereto,
with power to designate one or more Persons, to exercise any of said rights,
powers, and privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property rights relating
to any or all of the assets of the Trust or any Series;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and right of subscription or otherwise which in
any manner arise out of ownership of securities;
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(e) To hold any security or property in a form not indicating that it
is trust property, whether in bearer, unregistered or other negotiable form, or
in its own name or in the name of a custodian or subcustodian or a nominee or
nominees or otherwise or to authorize the custodian or a subcustodian or a
nominee or nominees to deposit the same in a securities depository, subject in
each case to the applicable provisions of the 1940 Act;
(f) To consent to, or participate in, any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) To litigate, compromise, arbitrate, settle or otherwise adjust
claims in favor of or against the Trust or a Series, or any matter in
controversy, including but not limited to claims for taxes,
(i) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(j) To borrow funds or other property in the name of the Trust or
Series exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary, desirable or appropriate for the
conduct of the business, including, without limitation, insurance policies
insuring the assets of the Trust or payment of distributions and principal on
its portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, Investment Manager, principal
underwriters, or independent contractors of the Trust, individually against all
claims and liabilities of every nature arising by reason of holding Shares,
holding, being or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such Person as Trustee,
officer, employee, agent, Investment Manager, Principal, Underwriter, or
independent contractor, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such Person against liability; and
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(m) To adopt, establish and carry out pension, profit-sharing, share bonus,
share purchase, savings, thrift and other retirement, incentive and benefit
plans, trusts and provisions, including the purchasing of life insurance and
annuity contracts as a means of providing such retirement and other benefits,
for any or all of the Trustees, officers, employees and agents of the Trust.
The Trust shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series. The
Trust shall not in any way be bound or limited by any present or future law or
custom in regard to investment by fiduciaries. The Trust shall not be required
to obtain any court order to deal with any assets of the Trust or take any other
action hereunder.
SECTION 4. PAYMENT OF EXPENSES BY THE TRUST. Subject to the provisions
of Article III, Section 6(b), the Trustees are authorized to pay or cause to be
paid out of the principal or income of the Trust or Series, or partly out of the
principal and partly out of income, and to charge or allocate the same to,
between or among such one or more of the Series that may be established or
designated pursuant to Article III, Section 6, all expenses, fees, charges,
taxes and liabilities incurred or arising in connection with the Trust or
Series, or in connection with the management thereof, including, but not limited
to, the Trustees' compensation and such expenses and charges for the services of
the Trust's officers, employees, Investment Manager, Principal Underwriter,
auditors, counsel, custodian, transfer agent, Shareholder servicing agent, and
such other agents or independent contractors and such other expenses and charges
as the Trustees may deem necessary or proper to incur.
SECTION 5. OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trust, except
that the Trustees shall have power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine. Upon the resignation, incompetency, bankruptcy, removal,
or death of a Trustee he or she shall automatically cease to have any such title
in any of the Trust Property, and the title of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered. The Trustees may determine that the Trust or the
Trustees, acting for and on behalf of the Trust, shall be deemed to hold
beneficial ownership of any income earned on the securities owned by the Trust,
whether domestic or foreign.
SECTION 6. SERVICE CONTRACTS.
(a) The Trustees may, at any time and from time to time, contract for
exclusive or nonexclusive advisory, management and/or administrative services
for the Trust or for any Series with any Person; and any such contract may
contain such other terms as the Trustees may determine, including without
limitation, authority for the Investment Manager to determine from time to time
without prior consultation with the Trustees what investments shall be
purchased, held, sold or exchanged and what portion, if any, of the assets of
the Trust shall be held
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uninvested and to make changes in the Trust's investments, and such other
responsibilities as may specifically be delegated to such Person.
(b) The Trustees may also, at any time and from time to time, contract
with any Persons, appointing such Persons exclusive or nonexclusive distributor
or Principal Underwriter for the Shares of one or more of the Series or other
securities to be issued by the Trust. Every such contract may contain such other
terms as the Trustees may determine.
(c) The Trustees are also empowered, at any time and from time to time,
to contract with any Persons, appointing such Person(s) to serve as
custodian(s), transfer agent and/or shareholder servicing agent for the Trust or
one or more of its Series. Every such contract shall comply with such terms as
may be required by the Trustees.
(d) The Trustees are further empowered, at any time and from time to
time, to contract with any Persons to provide such other services to the Trust
or one or more of the Series, as the Trustees determine to be in the best
interests of the Trust and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of the
Trust is a shareholder, director, officer, partner, trustee, employee,
Manager, adviser, Principal Underwriter, distributor, or affiliate or
agent of or for any Person with which an advisory, management or
administration contract, or Principal Underwriter's or distributor's
contract, or transfer, shareholder servicing or other type of service
contract may be made, or that
(ii) any Person with which an advisory, management or
administration contract or Principal Underwriter's or distributor's
contract, or transfer, shareholder servicing or other type of service
contract may be made also has an advisory, management or administration
contract, or principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other service contract, or has other
business or interests with any other Person,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same, or create any liability or accountability to the Trust or its
Shareholders, provided approval of each such contract is made pursuant to the
applicable requirements of the 1940 Act.
ARTICLE V.
Shareholders' Voting Powers and Meetings
SECTION 1. VOTING POWERS. Subject to the provisions of Article III,
Sections 5 and 6(d), the Shareholders shall have right to vote only (i) for the
election or removal of Trustees as provided in Article IV, Section 1, and (ii)
with respect to such additional matters relating to the Trust as may be required
by the applicable provisions of the 1940 Act, including Section 16(a)
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thereof, and (iii) on such other matters as the Trustees may consider necessary
or desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger.
SECTION 2. VOTING POWER AND MEETINGS. Meetings of the Shareholders may
be called by the Trustees for the purposes described in Section 1 of this
Article V. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or caused
to be given by the Trustees by delivering personally or mailing such notice not
more than ninety (90), nor less than ten (10) days before such meeting, postage
prepaid, stating the time and place of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust. Whenever notice
of a meeting is required to be given to a Shareholder under this Declaration of
Trust, a written waiver thereof, executed before or after the meeting by such
Shareholder or his or her attorney thereunto authorized and filed with the
records of the meeting, or actual attendance at the meeting of Shareholders in
person or by proxy, shall be deemed equivalent to such notice.
SECTION 3. QUORUM AND REQUIRED VOTE. Except when a larger quorum is
required by the applicable provisions of the 1940 Act, the presence in person or
by proxy of a majority of the Shares entitled to vote on a matter shall
constitute a quorum at a Shareholders' meeting. Any meeting of Shareholders may
be adjourned from time to time by a majority of the votes properly cast upon the
question of adjourning a meeting to another date and time, whether or not a
quorum is present, and the meeting may be held as adjourned within a reasonable
time after the date set for the original meeting without further notice. Subject
to the provisions of Article III, Section 6(d) and the applicable provisions of
the 1940 Act, when a quorum is present at any meeting, a majority of the Shares
voted shall decide any questions except only a plurality vote shall be necessary
to elect Trustees.
SECTION 4. ACTION BY WRITTEN CONSENT. Any action taken by Shareholders
may be taken without a meeting if all the holders of Shares entitled to vote on
the matter are provided with not less than 7 days written notice thereof and
written consent to the action is filed with the records of the meetings of
Shareholders by the holders of the number of shares that would be required to
approve the matter as provided in Article V, Section 3. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
SECTION 5. RECORD DATES. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, the Trustees may fix a time, which shall be not more than ninety (90)
nor less than ten (10) days before the date of any meeting of Shareholders, as
the record date for determining the Shareholders having the right to notice of
and to vote at such meeting and any adjournment thereof, and in such case only
Shareholders of record on such record date shall have such right,
notwithstanding any transfer of shares on the books of the Trust after the
record date. For the purpose of determining the
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Shareholders who are entitled to receive payment of any dividend or of any other
distribution, the Trustees may fix a date, which shall be before the date for
the payment of such dividend or distribution, as the record date for determining
the Shareholders having the right to receive such dividend or distribution.
Nothing in this Section shall be construed as precluding the Trustees from
setting different record dates for different Series.
ARTICLE VI.
Net Asset Value, Distributions, and Redemptions
SECTION 1. DETERMINATION OF NET ASSET VALUE, NET INCOME, AND
DISTRIBUTIONS. Subject to Article III, Section 6 hereof, the Trustees, in their
absolute discretion, may prescribe and shall set forth in the By-laws or in a
duly adopted resolution of the Trustees such bases and time for determining the
per Share net asset value of the Shares of any Series and the declaration and
payment of dividends and distributions on the Shares of any Series, as they may
deem necessary or desirable.
SECTION 2. REDEMPTIONS AND REPURCHASES. The Trust shall purchase such
Shares as are offered by any Shareholder for redemption, upon receipt by the
Trust or a Person designated by the Trust that the Trust redeem such Shares or
in accordance with such procedures for redemption as the Trustees may from time
to time authorize; and the Trust will pay therefor the net asset value thereof,
in accordance with the By-Laws and the applicable provisions of the 1940 Act.
Payment for said Shares shall be made by the Trust to the Shareholder within
seven days after the date on which the request for redemption is received in
proper form. The obligation set forth in this Section 2 is subject to the
provision that in the event that any time the New York Stock Exchange (the
"Exchange") is closed for other than weekends or holidays, or if permitted by
the Rules of the Commission during periods when trading on the Exchange is
restricted or during any emergency which makes it impracticable for the Trust to
dispose of the investments of the applicable Series or to determine fairly the
value of the net assets held with respect to such Series or during any other
period permitted by order of the Commission for the protection of investors,
such obligations may be suspended or postponed by the Trustees.
The redemption price may in any case or cases be paid in cash or wholly
or partly in kind in accordance with Rule 18f-1 under the 1940 Act if the
Trustees determine that such payment is advisable in the interest of the
remaining Shareholders of the Series of which the Shares are being redeemed.
Subject to the foregoing, the selection and quantity of securities or other
property so paid or delivered as all or part of the redemption price shall be
determined by or under authority of the Trustees. In no case shall the Trust be
liable for any delay of any corporation or other Person in transferring
securities selected for delivery as all or part of any payment in kind.
SECTION 3. REDEMPTIONS AT THE OPTION OF THE TRUST. The Trust shall have
the right, at its option, upon 60 days notice to the affected Shareholder at any
time to redeem Shares of any Shareholder at the net asset value thereof as
described in Section 1 of this Article VI: (i) if at such time such Shareholder
owns Shares of any Series having an aggregate net asset value of less
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than a minimum value determined from time to time by the Trustees; or (ii) to
the extent that such Shareholder owns Shares of a Series equal to or in excess
of a maximum percentage of the outstanding Shares of such Series determined from
time to time by the Trustees; or (iii) to the extent that such Shareholder owns
Shares equal to or in excess of a maximum percentage, determined from time to
time by the Trustees, of the outstanding Shares of the Trust.
SECTION 4. TRANSFER OF SHARES. The Trust shall transfer shares held of
record by any Person to any other Person upon receipt by the Trust or a Person
designated by the Trust of a written request therefore in such form and pursuant
to such procedures as may be approved by the Trustees.
ARTICLE VII.
Compensation and Limitation of Liability
SECTION 1. COMPENSATION OF TRUSTEES. The Trustees as such shall be
entitled to reasonable compensation from the Trust, and they may fix the amount
of such compensation from time to time. Nothing herein shall in any way prevent
the employment of any Trustee to provide advisory, management, legal,
accounting, investment banking or other services to the Trust and to be
specially compensated for such services by the Trust.
SECTION 2. INDEMNIFICATION AND LIMITATION OF LIABILITY. The Trustees
shall not be responsible or liable in any event for any neglect or wrong-doing
of any officer, agent, employee, Manager or Principal Underwriter of the Trust,
nor shall any Trustee be responsible for the act or omission of any other
Trustee, and, subject to the provisions of the Bylaws, the Trust out of its
assets may indemnify and hold harmless each and every Trustee and officer of the
Trust from and against any and all claims, demands, costs, losses, expenses, and
damages whatsoever arising out of or related to such Trustee's performance of
his or her duties as a Trustee or officer of the Trust; provided that nothing
herein contained shall indemnify, hold harmless or protect any Trustee or
officer from or against any liability to the Trust or any Shareholder to which
he or she 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 or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
SECTION 3. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR
SURETY. The exercise by the Trustees of their powers hereunder shall be binding
upon everyone interested in or dealing with the Trust. A Trustee shall be liable
to the Trust and to any Shareholder solely for his or her own willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and shall not be liable for
errors of judgment or mistakes of fact or law. The Trustees may take advice of
counsel or other experts with respect to the
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meaning and operation of this Declaration of Trust, and shall be under no
liability for any act or omission in accordance with such advice nor for failing
to follow such advice. The Trustees shall not be required to give any bond as
such, nor any surety if a bond is required.
SECTION 4. INSURANCE. The Trustees shall be entitled and empowered to
the fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee or officer in connection with any claim, action, suit or
proceeding in which he or she becomes involved by virtue of his or her capacity
or former capacity with the Trust, whether or not the Trust would have the power
to indemnify him or her against such liability under the provisions of this
Article.
ARTICLE VIII.
Miscellaneous
SECTION 1. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No Person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
SECTION 2. TERMINATION OF TRUST OR SERIES. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by the Trustees upon 60 days prior written notice
to the Shareholders. Any Series may be terminated at any time by the Trustees
upon 60 days prior written notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be),
after paying or otherwise providing for all charges, taxes, expenses and
liabilities held, severally, with respect to each Series (or the applicable
Series, as the case may be), whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall, in accordance with such procedures
as the Trustees consider appropriate, reduce the remaining assets held,
severally, with respect to each Series (or the applicable Series, as the case
may be), to distributable form in cash or shares or other securities, and any
combination thereof, and distribute the proceeds held with respect to each
Series (or the applicable Series, as the case may be), to the Shareholders of
that Series, as a Series, ratably according to the number of Shares of that
Series held by the several Shareholders on the date of termination.
SECTION 3. MERGER AND CONSOLIDATION. The Trustees may cause (i) the
Trust or one or more of its Series to the extent consistent with applicable law
to be merged into or consolidated with another Trust, series or Person, (ii) the
Shares of the Trust or any Series to be converted into beneficial interests in
another business trust (or series thereof), (iii) the Shares to be exchanged for
assets or property under or pursuant to any state or federal statute to the
extent permitted by law or (iv) a sale of assets of the Trust or one or more of
its Series. Such merger or consolidation, Share conversion, Share exchange or
sale of assets must be authorized by vote as provided in Article V, Section 3
herein; provided that in all respects not governed by statute or applicable law,
the Trustees shall have power to prescribe the procedure necessary or
appropriate
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to accomplish a sale of assets, Share exchange, merger or consolidation
including the power to create one or more separate business trusts to which all
or any part of the assets, liabilities, profits or losses of the Trust may be
transferred and to provide for the conversion of Shares of the Trust or any
Series into beneficial interests in such separate business trust or trusts (or
series thereof).
SECTION 4. AMENDMENTS. This Declaration of Trust may be restated and/or
amended at any time by an instrument in writing signed by a majority of the
Trustees then holding office. Any such restatement and/or amendment hereto shall
be effective immediately upon execution and approval. The Certificate of Trust
of the Trust may be restated and/or amended by a similar procedure, and any such
restatement and/or amendment shall be effective immediately upon filing with the
Office of the Secretary of State of the State of Delaware or upon such future
date as may be stated therein.
SECTION 5. FILING OF COPIES, REFERENCES, HEADINGS. The original or a
copy of this instrument and of each restatement and/or amendment hereto shall be
kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such restatements and/or amendments have been
made and as to any matters in connection with the Trust hereunder; and, with the
same effect as if it were the original, may rely on a copy certified by an
officer of the Trust to be a copy of this instrument or of any such restatements
and/or amendments. In this instrument and in any such restatements and/or
amendment, references to this instrument, and all expressions like "herein,"
"hereof" and "hereunder," shall be deemed to refer to this instrument as amended
or affected by any such restatements and/or amendments. Headings are placed
herein for convenience of reference only and shall not be taken as a part hereof
or control or affect the meaning, construction or effect of this instrument.
Whenever the singular number is used herein, the same shall include the plural;
and the neuter, masculine and feminine genders shall include each other, as
applicable. This instrument may be executed in any number of counterparts each
of which shall be deemed an original.
SECTION 6. APPLICABLE LAW. This Agreement and Declaration of Trust is
created under and is to be governed by and construed and administered according
to the laws of the State of Delaware and the Delaware Business Trust Act, as
amended from time to time (the "Act"). The Trust shall be a Delaware business
trust pursuant to such Act, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by such a business
trust.
SECTION 7. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of the Declaration of Trust are severable, and if
the Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of the Declaration of Trust; provided, however, that such determination
shall not affect any of the remaining provisions of the Declaration of Trust or
render invalid or improper any action taken or omitted prior to such
determination.
-16-
<PAGE>
(b) If any provision of the Declaration of Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration of Trust in any jurisdiction.
SECTION 8. BUSINESS TRUST ONLY. It is the intention of the Trustees to
create a business trust pursuant to the Act, and thereby to create only the
relationship of trustee and beneficial owners within the meaning of such Act
between the Trustees and each Shareholder. It is not the intention of the
Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment, joint venture, or any form of legal
relationship other than a business trust pursuant to such Act. Nothing in this
Declaration of Trust shall be construed to make the Shareholders, either by
themselves or with the Trustees, partners or members of a joint stock
association.
SECTION 9. USE OF THE NAME "JMIC". The name "JMIC" and all rights to
the use of the name "JMIC" belong to John McStay Investment Counsel, L.P. (the
"Advisor"), the Manager of the Trust. The Advisor has consented to the use by
the Trust of the identifying words "JMIC" and has granted to the Trust a
non-exclusive license to use the name "JMIC" as part of the name of any Series
of Shares. In the event the Advisor or an affiliate of the Advisor is not
appointed as Manager or ceases to be the Manager of the Trust or of any Series
using such names, the non-exclusive license granted herein may be revoked by the
Advisor and the Trust promptly shall cease using the name "JMIC" as part of the
name of any Series of Shares, upon receipt of the written request therefore by
the Advisor or any successor to its interests in such name.
IN WITNESS WHEREOF, the Trustees named below do hereby make and enter
into this Declaration of Trust as of the 21st day of January, 2000.
/s/ GEORGE W. GAU
------------------------------
George W. Gau
8009 Long Canyon Dr.
Austin, TX 78730
/s/ DANIEL HOCKENBROUGH
------------------------------
Daniel Hockenbrough
5949 Sherry Lane
Suite 1600
Dallas, Texas 75225
-17-
<PAGE>
/s/ JOHN H.MASSEY
------------------------------
John H. Massey
4004 Windsor Avenue
Dallas, Texas 75205
/s/ DAVID M. REICHERT
------------------------------
David M. Reichert
7415 Stonecrest Drive
Dallas, Texas 75240
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS
5949 Sherry Lane, Suite 1600, Dallas, Texas 75225
-18-
BY-LAWS
OF
BRAZOS INSURANCE FUNDS
(THE "TRUST")
ARTICLE I
FISCAL YEAR AND OFFICES
SECTION 1. FISCAL YEAR. Unless otherwise provided by
resolution of the Board of Trustees, the fiscal year of the Trust shall begin on
the 1st day of December and end on the 30th day of November.
SECTION 2. DELAWARE OFFICE. The Board of Trustees shall
establish a registered office in the State of Delaware and shall appoint as the
Trust's registered agent for service of process in the State of Delaware an
individual resident of the State of Delaware or a Delaware corporation or a
foreign corporation authorized to transact business in the State of Delaware; in
each case the business office of such registered agent for service of process
shall be identical with the registered Delaware office of the Trust.
SECTION 3. OTHER OFFICES. The Board of Trustees may at any
time establish branch or subordinate offices at any place or places where the
Trust intends to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETING. Meetings of the shareholders for
the election of trustees shall be held in such place as shall be fixed by
resolution of the Board of Trustees and stated in the notice of the meeting.
SECTION 2. ANNUAL MEETINGS. An Annual Meeting of shareholders
will not be held unless the Investment Company Act of 1940 requires the election
of trustees to be acted upon.
SECTION 3. SPECIAL MEETINGS. Special Meetings of the
shareholders may be called at any time by the President, or by a majority of the
Board of Trustees, and shall be called by the Secretary upon written request of
the holders of shares entitled to cast not less than ten percent of all the
votes entitled to be cast at such meeting provided that (a) such request shall
state the purposes of such meeting and the matters proposed to be acted on and
(b) the shareholders requesting such meeting shall have paid to the Trust the
<PAGE>
reasonable estimated cost of preparing and mailing the notice thereof, which the
Secretary shall determine and specify to such shareholders. No special meeting
need be called upon the request of shareholders entitled to cast less than a
majority of all votes entitled to be cast at such meeting to consider any matter
which is substantially the same as a matter voted on at any meeting of the
shareholders held during the preceding twelve months. The foregoing provisions
of this section 3 notwithstanding a special meeting of shareholders shall be
called upon the request of the holders of at least ten percent of the shares
entitled to vote for the purpose of consideration of removal of a director from
office as provided in section 16(c) of the Investment Company Act of 1940.
SECTION 4. NOTICE. Not less than ten, nor more than ninety
days before the date of every Annual or Special Shareholders Meeting, the
Secretary shall cause to be mailed to each shareholder entitled to vote at such
meeting at his (her) address (as it appears on the records of the Trust at the
time of mailing) written notice stating the time and place of the meeting and,
in the case of a Special Meeting of Shareholders, shall be limited to the
purposes stated in the notice. Notice of adjournment of a shareholders meeting
to another time or place need not be given, if such time and place are announced
at the meeting.
SECTION 5. RECORD DATE FOR MEETINGS. Subject to the provisions
of the Declaration of Trust, the Board of Trustees may fix in advance a date not
more than ninety, nor less than ten days, prior to the date of any annual or
special meeting of the shareholders as a record date for the determination of
the shareholders entitled to receive notice of, and to vote at any meeting and
any adjournment thereof; and in such case such shareholders and only such
shareholders as shall be shareholders of record on the date so fixed shall be
entitled to receive notice of and to vote at such meeting and any adjournment
thereof as the case may be, notwithstanding any transfer of any stock on the
books of the Trust after any such record date fixed as aforesaid.
SECTION 6. QUORUM. At any meeting of shareholders, the
presence in person or by proxy of the holders of record of a majority of the
shares issued and outstanding and entitled to vote thereon shall constitute a
quorum for the transaction of any business at the meeting, except as otherwise
provided by the Investment Company Act of 1940 or in the Trust's Declaration of
Trust. If, however, such quorum shall not be present or represented at any
meeting of the shareholders, the holders of a majority of the shares present or
in person or by proxy shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented to a date not more than 120 days after the
original record date. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
SECTION 7. VOTING. Each shareholder shall have one vote for
each full share and a fractional vote for each fractional share of stock having
voting power held by such shareholder on the record date set pursuant to Section
5 on each matter submitted to a vote at a meeting of shareholders. Such vote may
be made in person or by proxy. At all meetings of the shareholders, a quorum
being present, all matters shall be decided by majority vote of the shares of
beneficial interest entitled to vote held by shareholders present in person or
by proxy, unless the question is one for which by express provision of the laws
of the State of Delaware, the Investment Company Act of 1940, as from time to
time amended, or the Declaration of Trust, a different vote is required, in
which case such express provision shall
<PAGE>
control the decision of such question. At all meetings of shareholders, unless
the voting is conducted by inspectors, all questions relating to the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the Chairman of the meeting.
SECTION 8. INSPECTORS. At any election of trustees, the Board
of Trustees prior thereto may, or, if they have not so acted, the Chairman of
the meeting may appoint one or more inspectors of election who shall first
subscribe an oath of affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken.
SECTION 9. STOCK LEDGER AND LIST OF SHAREHOLDERS. It shall be
the duty of the Secretary or Assistant Secretary of the Trust to cause an
original or duplicate share ledger to be maintained at the office of the Trust's
transfer agent. Such share ledger may be in written form or any other form
capable of being converted into written form within a reasonable time for visual
inspection.
SECTION 10. ACTION WITHOUT MEETING. Any action to be taken by
shareholders may be taken without a meeting if (a) all shareholders entitled to
vote on the matter consent to the action in writing, and (b) all shareholders
entitled to notice of the meeting but not entitled to vote at it sign a written
waiver of any right to dissent, and (c) the written consents are filed with the
records of the meetings of shareholders. Such consent shall be treated for all
purposes as a vote at a meeting.
ARTICLE III
TRUSTEES
SECTION 1. GENERAL POWERS. The business of the Trust shall be
managed under the direction of its Board of Trustees, which may exercise all
powers of the Trust, except such as are by statute, or the Declaration of Trust,
or by these By-laws conferred upon or reserved to the shareholders.
SECTION 2. NUMBER AND TERM OF OFFICE. The number of trustees
which shall constitute the whole Board shall be determined from time to time by
the Board of Trustees, but shall not be fewer than the minimum number permitted
by applicable laws, nor more than fifteen. Each trustee elected shall hold
office until his successor is elected and qualified. Trustees need not be
shareholders.
SECTION 3. ELECTIONS. Provided a quorum is present, the
trustees shall be elected by the vote of a plurality of the shares present in
person or by proxy, except that any vacancy on the Board of Trustees may be
filled by a majority vote of the Board of Trustees, although less than a quorum,
subject to the requirements of Section 16(a) of the Investment Company Act of
1940.
SECTION 4. PLACE OF MEETING. Meetings of the Board of
Trustees, regular or special, may be held at any place as the Board may from
time to time determine.
<PAGE>
SECTION 5. QUORUM. At all meetings of the Board of Trustees,
one-third of the entire Board of Trustees shall constitute a quorum for the
transaction of business provided that in no case may a quorum be less than two
persons. The action of a majority of the trustees present at any meeting at
which a quorum is present shall be the action of the Board of Trustees unless
the concurrence of a greater proportion is required for such action by the
Investment Company Act of 1940, these Bylaws or the Declaration of Trust. If a
quorum shall not be present at any meeting of trustees, the trustees present
thereat may by a majority vote adjourn the meeting from time to time without
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of
Trustees may be held without additional notice at such time and place as shall
from time to time be determined by the Board of Trustees provided that notice of
any change in the time or place of such meetings shall be sent promptly to each
trustee not present at the meeting at which such change was made in the manner
provided for notice of special meetings.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of
Trustees may be called by the President on one day's notice to each trustee;
Special meetings shall be called by the President or Secretary in like manner
and on like notice on the written request of two trustees.
SECTION 8. TELEPHONE MEETING. Members of the Board of Trustees
or a committee of the Board of Trustees may participate in a meeting by means of
a conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time.
SECTION 9. INFORMAL ACTIONS. Any action required or permitted
to be taken at any meeting of the Board of Trustees or of any committee thereof
may be taken without a meeting, if a written consent to such action is signed by
all members of the Board or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board or
committee.
SECTION 10. COMMITTEES. The Board of Trustees may by
resolution passed by a majority of the entire Board appoint from among its
members an Executive Committee and other committees composed of two or more
trustees, and may delegate to such committees, in the intervals between meetings
of the Board of Trustees, any or all of the powers of the Board of Trustees in
the management of the business and affairs of the Trust.
SECTION 11. ACTION OF COMMITTEES. In the absence of an
appropriate resolution of the Board of Trustees, each committee may adopt such
rules and regulations governing its proceedings, quorum and manner of acting as
it shall deem proper and desirable, provided that the quorum shall not be less
than two trustees. The committees shall keep minutes of their proceedings and
shall report the same to the Board of Trustees at the meeting next succeeding,
and any action by the committee shall be subject to revision and alteration by
the Board of Trustees, provided that no rights of third persons shall be
affected by any such revision or alteration. In the absence of any member of
such committee, the members thereof
<PAGE>
present at any meeting, whether or not they constitute a quorum, may appoint a
member of the Board of Trustees to act in the place of such absent member.
SECTION 12. COMPENSATION. Any trustee, whether or not he is a
salaried officer or employee of the Trust, may be compensated for his services
as trustee or as a member of a committee of trustees, or as Chairman of the
Board or chairman of a committee by fixed periodic payments or by fees for
attendance at meetings or by both, and in addition may be reimbursed for
transportation and other expenses, all in such manner and amounts as the Board
of Trustees may from time to time determine.
ARTICLE IV
NOTICES
SECTION 1. FORM. Notices to shareholders shall be in writing
and delivered personally or mailed to the shareholders at their addresses
appearing on the books of the Trust. Notices to trustees shall be oral or by
telephone or telegram or in writing delivered personally or mailed to the
trustees at their addresses appearing on the books of the Trust. Notice by mail
shall be deemed to be given at the time when the same shall be mailed. Subject
to the provisions of the Investment Company Act of 1940, notice to trustees need
not state the purpose of a regular or special meeting.
SECTION 2. WAIVER. Whenever any notice of the time, place or
purpose of any meeting of shareholders, trustees or a committee is required to
be given under the provisions of the Declaration of Trust or these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice and filed with the records of the meeting, whether before or after the
holding thereof, or actual attendance at the meeting of shareholders in person
or by proxy, or at the meeting of Trustees or a committee in person, shall be
deemed equivalent to the giving of such notice to such persons.
ARTICLE V
OFFICERS
SECTION 1. EXECUTIVE OFFICERS. The officers of the Trust shall
be chosen by the Board of Trustees and shall include a President, a Secretary
and a Treasurer. The Board of Trustees may, from time to time, elect or appoint
a Chief Financial Officer, a Controller, one or more Vice Presidents, Assistant
Secretaries and Assistant Treasurers. The Board of Trustees, at its discretion,
may also appoint a trustee as Chairman of the Board who shall perform and
execute such executive and administrative duties and powers as the Board of
Trustees shall from time to time prescribe. The same person may hold two or more
offices, except that no person shall be both President and Vice-President and no
officer shall execute, acknowledge or verify any instrument in more than one
capacity, if such instrument is required by law, the Declaration of Trust or
these Bylaws to be executed, acknowledged or verified by two or more officers.
<PAGE>
SECTION 2. ELECTION. The Board of Trustees shall choose a
President, a Secretary and a Treasurer.
SECTION 3. OTHER OFFICERS. The Board of Trustees from time to
time may appoint such other officers and agents as it shall deem advisable, who
shall hold their offices for such terms and shall exercise powers and perform
such duties as shall be determined from time to time by the Board. The Board of
Trustees from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
SECTION 4. COMPENSATION. The salaries or other compensation of
all officers and agents of the Trust shall be fixed by the Board of Trustees,
except that the Board of Trustees may delegate to any person or group of persons
the power to fix the salary or other compensation of any subordinate officers or
agents appointed pursuant to Section 3 of this Article V.
SECTION 5. TENURE. The officers of the Trust shall serve at
the pleasure of the Board of Trustees. Any officer or agent may be removed by
the affirmative vote of a majority of the Board of Trustees whenever, in its
judgment, the best interests of the Trust will be served thereby. In addition,
any officer or agent appointed pursuant to Section 3 may be removed, either with
or without cause, by any officer upon whom such power of removal shall have been
conferred by the Board of Trustees. Any vacancy occurring in any office of the
Trust by death, resignation, removal or otherwise shall be filled by the Board
of Trustees, unless pursuant to Section 3 the power of appointment has been
conferred by the Board of Trustees on any other officer.
SECTION 6. PRESIDENT. The President shall be the Chief
Executive Officer of the Trust and shall see that all orders and resolutions of
the Board are carried into effect. The President shall also be the Chief
Administrative Officer of the Trust and shall perform such other duties and have
such other powers as the Board of Trustees may from time to time prescribe.
SECTION 7. CHAIRMAN OF THE BOARD. The Chairman of the Board,
if one shall be chosen, shall perform and execute such executive duties and
administrative powers as the Board of Trustees shall from time to time
prescribe.
SECTION 8. CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall perform and execute such executive duties as the Board of Trustees
shall prescribe, including the supervision of the finances and books of account
of the Trust, the funds and property of the Trust and the statement of the
financial condition of the Trust.
SECTION 9. VICE-PRESIDENT. The Vice-Presidents, in order of
their seniority, shall, in the absence or disability of the President, perform
the duties and exercise the powers of the President and shall perform such other
duties as the Board of Trustees or the President may from time to time
prescribe.
<PAGE>
SECTION 10. SECRETARY. The Secretary shall attend all meetings
of the Board of Trustees and all meetings of the shareholders and record all the
proceedings thereof and shall perform like duties for any committee when
required. He shall give, or cause to be given, notice of meetings of the
shareholders and of the Board of Trustees, shall have charge of the records of
the Trust, including the stock books, and shall perform such other duties as may
be prescribed by the Board of Trustees or Chief Executive Officer, under whose
supervision he shall be. He shall keep in safe custody the seal of the Trust
and, when authorized by the Board of Trustees, shall affix and attest the same
to any instrument requiring it. The Board of Trustees may give general authority
to any other officer to affix the seal of the Trust and to attest the affixing
by his signature.
SECTION 11. ASSISTANT SECRETARIES. The Assistant Secretaries
in order of their seniority, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties as the Board of Trustees shall prescribe.
SECTION 12. TREASURER. The Treasurer shall have general charge
of the finances and books of account of the Trust. Except as otherwise provided
by the Board of Trustees, he shall have general supervision of the funds and
property of the Trust and of the performance by the custodian of its duties with
respect thereto. He shall render to the Board of Trustees, whenever directed by
the Board, an account of the financial condition of the Trust and of all his
transactions as Treasurer. He shall cause to be prepared annually a full and
correct statement of the affairs of the Trust, including a balance sheet and a
statement of operations for the preceding fiscal year. He shall perform all the
acts incidental to the office of Treasurer, subject to the control of the Board
of Trustees.
SECTION 13. ASSISTANT TREASURER. The Assistant Treasurer shall
in the absence or disability of the Treasurer, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties as the Board of
Trustees may from time to time prescribe.
ARTICLE VI
INDEMNIFICATION AND INSURANCE
SECTION 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose
of this Article, "agent" means any person who is or was a Trustee or officer of
this Trust and any person who, while a trustee or officer of this Trust, is or
was serving at the request of this Trust as a Trustee, director, officer,
partner, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise; "Trust" includes any
domestic or foreign predecessor entity of this Trust in a merger, consolidation,
or other transaction in which the predecessor's existence ceased upon
consummation of the transaction; "proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative; and "expenses" includes without limitation attorney's fees and
any expenses of establishing a right to indemnification under this Article.
SECTION 2. ACTIONS OTHER THAN BY TRUST. This Trust shall
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding (other than
<PAGE>
an action by or in the right of this Trust) by reason of the fact that such
person is or was an agent of this Trust, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding, if it is determined that person acted in good faith and
reasonably believed: (a) in the case of conduct in his official capacity as an
agent of the Trust, that his conduct was in the Trust's best interests and (b)
in all other cases, that his conduct was at least not opposed to the Trust's
best interests and (c) in the case of a criminal proceeding, that he had no
reasonable cause to believe the conduct of that person was unlawful. The
termination of any proceeding by judgment, order or settlement shall not of
itself create a presumption that the person did not meet the requisite standard
of conduct set forth in this Section. The termination of any proceeding by
conviction, or a plea of nolo contendere or its equivalent, or an entry of an
order of probation prior to judgment, creates a rebuttable presumption that the
person did not meet the requisite standard of conduct set forth in this Section.
SECTION 3. ACTIONS BY THE TRUST. This Trust shall indemnify
any person who was or is a party or is threatened to be made a party to any
proceeding by or in the right of this Trust to procure a judgment in its favor
by reason of the fact that that person is or was an agent of this Trust, against
expenses actually and reasonably incurred by that person in connection with the
defense or settlement of that action if that person acted in good faith, in a
manner that person believed to be in the best interests of this Trust and with
such care, including reasonable inquiry, as an ordinarily prudent person in a
like position would use under similar circumstances.
SECTION 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any
provision to the contrary contained herein, there shall be no right to
indemnification for any liability arising by reason of willful misfeasance, bad
faith, gross negligence, or the reckless disregard of the duties involved in the
conduct of the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this
Article:
(a) In respect of any proceeding as to which that person
shall have been adjudged to be liable on the basis
that personal benefit was improperly received by him,
whether or not the benefit resulted from an action
taken in the person's official capacity; or
(b) In respect of any proceeding as to which that person
shall have been adjudged to be liable in the
performance of that person's duty to this Trust,
unless and only to the extent that the court in which
that action was brought shall determine upon
application that in view of all the relevant
circumstances of the case, that person is fairly and
reasonably entitled to indemnity for the expenses
which the court shall determine; however, in such
case, indemnification with respect to any proceeding
by or in the right of the Trust or in which liability
shall have been adjudged by reason of the disabling
conduct set forth in the preceding paragraph shall be
limited to expenses; or
(c) Of amounts paid in settling or otherwise disposing of
a proceeding, with or without court approval, or of
expenses incurred in defending a proceeding which is
settled or otherwise disposed of without court
<PAGE>
approval, unless the required approval set forth in
Section 6 of this Article is obtained.
SECTION 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an
agent of this Trust has been successful, on the merits or otherwise, in the
defense of any proceeding referred to in Sections 2 or 3 of this Article before
the court or other body before whom the proceeding was brought, the agent shall
be indemnified against expenses actually and reasonably incurred by the agent in
connection therewith, provided that the Board of Trustees, including a majority
who are disinterested, non-party Trustees, also determines that based upon a
review of the facts, the agent was not liable by reason of the disabling conduct
referred to in Section 4 of this Article.
SECTION 6. REQUIRED APPROVAL. Except as provided in Section 5
of this Article, any indemnification under this Article shall be made by this
Trust only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of this
Article and is not prohibited from indemnification because of the disabling
conduct set forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of
Trustees who are not parties to the
proceeding and are not interested persons of
the Trust (as defined in the Investment
Company Act of 1940);
(b) A written opinion by an independent legal
counsel; or
(c) The shareholders; however, shares held by
agents who are parties to the proceeding may
not be voted on the subject matter under
this SubSection.
SECTION 7. ADVANCE OF EXPENSES. Expenses incurred in defending
any proceeding may be advanced by this Trust before the final disposition of the
proceeding if (a) receipt of a written affirmation by the agent of his good
faith belief that he has met the standard of conduct necessary for
indemnification under this Article and a written undertaking by or on behalf of
the agent, such undertaking being an unlimited general obligation to repay the
amount of the advance if it is ultimately determined that he has not met those
requirements, and (b) a determination that the facts then known to those making
the determination would not preclude indemnification under this Article.
Determinations and authorizations of payments under this Section must be made in
the manner specified in Section 6 of this Article for determining that the
indemnification is permissible.
SECTION 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this
Article shall affect any right to indemnification to which persons other than
Trustees and officers of this Trust or any subsidiary hereof may be entitled by
contract or otherwise.
SECTION 9. LIMITATIONS. No indemnification or advance shall be
made under this Article, except as provided in Sections 5 or 6 in any
circumstances where it appears:
(a) That it would be inconsistent with a provision of the
Agreement and Declaration of Trust of the Trust, a
resolution of the shareholders, or an agreement in
<PAGE>
effect at the time of accrual of the alleged cause of
action asserted in the proceeding in which the
expenses were incurred or other amounts were paid
which prohibits or otherwise limits indemnification;
or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a
settlement.
SECTION 10. INSURANCE. Upon and in the event of a
determination by the Board of Trustees of this Trust to purchase such insurance,
this Trust shall purchase and maintain insurance on behalf of any agent or
employee of this Trust against any liability asserted against or incurred by the
agent or employee in such capacity or arising out of the agent's or employee's
status as such to the fullest extent permitted by law.
SECTION 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article
does not apply to any proceeding against any Trustee, investment manager or
other fiduciary of an employee benefit plan in that person's capacity as such,
even though that person may also be an agent of this Trust as defined in Section
1 of this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ARTICLE VII
SHARES OF BENEFICIAL INTEREST
SECTION 1. CERTIFICATES. A certificate or certificates
representing and certifying the class and the full, but not fractional, number
of shares of beneficial interest owned by each shareholder in the Trust shall
not be issued except as the Board of Trustees may otherwise determine from time
to time. Any such certificate issued shall be signed by facsimile signature or
otherwise by the President or a Vice-President and counter-signed by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer.
SECTION 2. SIGNATURE. In case any officer who has signed any
certificate ceases to be an officer of the Trust before the certificate is
issued, the certificate may nevertheless be issued by the Trust with the same
effect as if the officer had not ceased to be such officer as of the date of its
issue.
SECTION 3. RECORDING AND TRANSFER WITHOUT CERTIFICATES. The
Trust shall have the full power to participate in any program approved by the
Board of Trustees providing for the recording and transfer of ownership of the
Trust's shares by electronic or other means without the issuance of
certificates.
SECTION 4. LOST CERTIFICATES. The Board of Trustees may direct
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Trust alleged to have been stolen, lost
or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to have been stolen, lost or destroyed, or
<PAGE>
upon other satisfactory evidence of such theft, loss or destruction and may in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such stolen, lost or destroyed certificate or certificates, or his
legal representative, to give the Trust a bond with sufficient surety, to the
Trust to indemnify it against any loss or claim that may be made by reason of
the issuance of a new certificate.
SECTION 5. TRANSFER OF SHARES. Transfers of shares of
beneficial interest of the Trust shall be made on the books of the Trust by the
holder of record thereof (in person or by his attorney thereunto duly authorized
by a power of attorney duly executed in writing and filed with the Secretary of
the Trust) (i) if a certificate or certificates have been issued, upon the
surrender of the certificate or certificates, properly endorsed or accompanied
by proper instruments of transfer, representing such shares, or (ii) as
otherwise prescribed by the Board of Trustees. Every certificate exchanged,
surrendered for redemption or otherwise returned to the Trust shall be marked
"Canceled" with the date of cancellation.
SECTION 6. REGISTERED SHAREHOLDERS. The Trust shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by applicable law or the Declaration of Trust.
SECTION 7. TRANSFER AGENTS AND REGISTRARS. The Board of
Trustees may, from time to time, appoint or remove transfer agents and or
registrars of the Trust, and they may appoint the same person as both transfer
agent and registrar. Upon any such appointment being made, all certificates
representing shares of beneficial interest thereafter issued shall be
countersigned by such transfer agent and shall not be valid unless so
countersigned.
SECTION 8. STOCK LEDGER. The Trust shall maintain an original
stock ledger containing the names and addresses of all shareholders and the
number and class of shares held by each shareholder. Such stock ledger may be in
written form or any other form capable of being converted into written form
within reasonable time for visual inspection.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. CUSTODIANSHIP. Except as otherwise provided by
resolution of the Board of Trustees, the Trust shall place and at all times
maintain in the custody of a custodian (including any sub-custodian for the
custodian) all funds, securities and similar investments owned by the Trust.
Subject to the approval of the Board of Trustees, the custodian may enter into
arrangements with securities depositories, provided such arrangements comply
with the provisions of the Investment Company Act of 1940 and the rules and
regulations promulgated thereunder.
<PAGE>
SECTION 2. EXECUTION OF INSTRUMENTS. All deeds, documents,
transfers, contracts, agreements and other instruments requiring execution by
the Trust shall be signed by the President or a Vice President.
SECTION 3. NET ASSET VALUE. The net asset value per share
shall be determined separately as to each class of the Trust's shares, by
dividing the sum of the total market value of the class's investments and other
assets, less any liabilities, by the total outstanding shares of such class,
subject to the Investment Company Act of 1940 and any other applicable Federal
securities law or rule or regulation currently in effect.
ARTICLE IX
AMENDMENTS
The Board of Trustees shall have the power to make, alter and
repeal the Bylaws of the Trust.
[FORM OF]
INVESTMENT ADVISORY AGREEMENT
BRAZOS INSURANCE FUNDS
BRAZOS SMALL CAP GROWTH PORTFOLIO
AGREEMENT made this __ day of January, 2000 by and between Brazos Insurance
Funds, a Delaware business trust (the "Trust") and John McStay Investment
Counsel, L.P., a limited partnership (the "Adviser").
1. DUTIES OF ADVISER. The Trust hereby appoints the Adviser to act as
investment adviser to the Trust for the period and on such terms as set forth in
this Agreement. The Trust employs the Adviser to manage the investment and
reinvestment of the assets of its portfolios of securities, to continuously
review, supervise and administer the investment program of the portfolios, to
determine in its discretion the securities to be purchased or sold and the
portion of the Trust's assets to be held uninvested, to provide the Trust with
records concerning the Adviser's activities which the Trust is required to
maintain, and to render regular reports to the Trust's officers and Board of
Trustees concerning the Adviser's discharge of the foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to the
control of the officers and the Board of Trustees of the Trust, and in
compliance with the objectives, policies and limitations set forth in the
Trust's prospectus and applicable laws and regulations. Notwithstanding any
provision of this Agreement to the contrary, the Adviser will not be required to
perform its services under this Agreement in accordance with any such objective,
policy, or limitation if performance of the Adviser's services in accordance
<PAGE>
therewith would, in the judgment of the Adviser, prevent the investments of a
"segregated asset account" (within the meaning of section 817(h) of the Internal
Revenue Code of 1986, as amended) investing solely in the shares of any Fund
from being "adequately diversified" within the meaning of such section 817(h)
and the regulations prescribed by the Secretary of the Treasury thereunder. The
Adviser accepts such employment and agrees to render the services and to
provide, at its own expense, the office space, furnishings and equipment and the
personnel required by it to perform the services on the terms and for the
compensation provided herein.
2. PORTFOLIO TRANSACTIONS. The Adviser is responsible for decisions
to buy or sell securities and other investments for the assets of a Portfolio,
broker-dealers and futures commission merchants' selection, and negotiation of
brokerage commission and futures commission merchants' rates. As a general
matter, in executing Portfolio transactions, the Adviser may employ or deal with
such broker-dealers or futures commission merchants as may, in the Adviser's
best judgment, provide prompt and reliable execution of the transactions at
favorable prices and reasonable commission rates. In selecting such
broker-dealers or futures commission merchants, the Adviser shall consider all
relevant factors including price (including the applicable brokerage commission,
dealer spread or futures commission merchant rate), the size of the order, the
nature of the market for the security or other investment, the timing of the
transaction, the reputation, experience and financial stability of the
broker-dealer or futures commission merchant involved, the quality of the
service, the difficult of execution, the execution capabilities and operational
facilities of the firm involved, and, in the case of securities, the firm's risk
in positioning a block of securities. Subject to such policies as the Trustees
may determine and consistent with Section 28(e) of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), the Adviser shall not be deemed to have
acted unlawfully or to have breached any duty created by this Agreement or
<PAGE>
otherwise solely by reason of the Adviser's having caused a Portfolio to pay a
member of an exchange, broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission another member of
an exchange, broker or dealer would have charged for effecting that transaction,
if the Adviser determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such member of an exchange, broker or dealer viewed in terms of
either that particular transaction or the Adviser's overall responsibility with
respect to such Portfolio and to other clients as to which the Adviser exercises
investment discretion. In accordance with Section 11(a) of the 1934 Act and Rule
11a2-2(T) thereunder, and subject to any other applicable laws and regulations
including Section 17(e) of the Act and Rule 17e-1 thereunder, the Adviser may
engage its affiliates or any other subadviser to the Trust and its respective
affiliates, as broker-dealers or futures commission merchants to effect
Portfolio transactions in securities and other investments for a Portfolio. The
Adviser will promptly communicate to the officers and the Trustees of the Trust
such information relating to Portfolio transactions as they may reasonably
request. To the extent consistent with applicable law, the Adviser may aggregate
purchase or sell orders for the Portfolio with contemporaneous purchase or sell
orders of other clients of the Adviser or its affiliated persons. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Adviser in the manner the
Adviser determines to be equitable and consistent with its and its affiliates'
fiduciary obligations to the Portfolio and to such other clients. The Adviser
hereby acknowledges that such aggregation of orders may not result in more
favorable pricing or lower brokerage commissions in all instances.
<PAGE>
3. COMPENSATION OF THE ADVISER. For the services to be rendered by
the Adviser as provided in Section 1 of this Agreement, the Trust shall pay to
the Adviser in monthly installments, an advisory fee calculated by applying the
following annual percentage rates to the Trust's average daily net assets for
the month:
Brazos Small Cap Growth Portfolio _____%
The Adviser may voluntarily or contractually agree to reduce any portion of
the compensation or reimbursement of expenses, including organizational
expenses, due to it pursuant to this Agreement and may similarly agree to make
payments to limit expenses which are the responsibility of the Trust under this
Agreement. Any voluntary reduction or payment shall be applicable only to such
specific reduction or payment and shall not constitute an agreement to reduce
any future compensation or reimbursement due to the Adviser hereunder or to
continue future payments. Any such reduction will be agreed upon prior to
accrual of the related expense or fee and will be estimated daily. Any fee
withheld shall be voluntarily reduced and any Fund expense paid by the Adviser
voluntarily or pursuant to an agreed expense limitation shall be reimbursed by
the Trust to the Adviser in the first, second, or third (or any combination
thereof) fiscal year next succeeding the fiscal year of the withholding
reduction, or payment to the extent permitted by applicable law if the aggregate
expenses for the next succeeding fiscal year, second fiscal year or third
succeeding fiscal year do not exceed any limitation to which the Adviser has
agreed. Such reimbursement may be paid prior to the Trust's payment of current
expenses if so requested by the Adviser if such payment may require the Adviser
to waive or reduce its fees hereunder or to pay current Trust Expenses.
In the event of termination of this Agreement, the fee provided in this
Section shall be computed on the basis of the period ending on the last business
day on which this Agreement is in effect subject to a pro rata adjustment based
on the number of days elapsed in the current fiscal month as a percentage of the
total number of days in such month.
4. OTHER SERVICES. At the request of the Trust, the Adviser in its
discretion may make available to the Trust office facilities, equipment,
personnel and other services. Such office facilities, equipment, personnel and
services shall be provided for or rendered by the Adviser and billed to the
Trust at the Adviser's cost.
5. REPORTS. The Trust and the Adviser agree to furnish to each other
current prospectuses, proxy statements, reports to shareholders, certified
copies of their financial statements, and such other information with regard to
their affairs as each may reasonably request.
6. STATUS OF ADVISER. The services of the Adviser to the Trust are
not to be deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services to the Trust are not impaired
thereby.
7. LIABILITY OF ADVISER. In the absence of (i) willful misfeasance,
bad faith or gross negligence on the part of the Adviser in performance of its
obligations and duties hereunder, (ii) reckless disregard by the Adviser of its
obligations and duties hereunder, or (iii) a loss resulting from a breach of
<PAGE>
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the Investment Company Act of 1940 ("1940
Act"), the Adviser shall not be subject to any liability whatsoever to the
Trust, or to any shareholder of the Trust, for any error or judgment, mistake of
law or any other act or omission in the course of, or connected with, rendering
services hereunder including, without limitation, for any losses that may be
sustained in connection with the purchase, holding, redemption or sale of any
security on behalf of the Trust.
8. PERMISSIBLE INTERESTS. Subject to and in accordance with the
Certificate of Trust and Agreement and Declaration of Trust of the Trust and the
Certificate of Limited Partnership and Partnership Agreement of the Adviser,
Trustees, officers, agents and shareholders of the Trust are or may be
interested in the Adviser (or any successor thereof) as Trustees, officers,
agents, shareholders or otherwise; Trustees, officers, agents and shareholders
of the Adviser are or may be interested in the Trust as Trustees, officers,
agents, shareholders or otherwise; and the Adviser (or any successor) is or may
be interested in the Trust as a shareholder or otherwise; and the effect of any
such interrelationships shall be governed by said organizational documents and
the provisions of the 1940 Act.
9. DURATION AND TERMINATION. This Agreement, unless sooner terminated
as provided herein, shall continue until the earlier of January 21, 2002 or the
date of the first annual or special meeting of the shareholders of the Trust, if
any, and, if approved by a majority of the outstanding voting securities of the
Trust, thereafter shall continue for periods of one year so long as such
continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Board of Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party, cast in
<PAGE>
person at a meeting called for the purpose of voting on such approval, and (b)
by the Board of Trustees of the Trust or (c) by vote of a majority of the
outstanding voting securities of the Trust; PROVIDED HOWEVER, that if the
shareholders of the Trust fail to approve the Agreement as provided herein, the
Adviser may continue to serve in such capacity in the manner and to the extent
permitted by the 1940 Act and rules thereunder. This 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 voting securities of the Trust on 60 days' written notice to
the Adviser. This Agreement may be terminated by the Adviser at any time,
without the payment of any penalty, upon 90 days' written notice to the Trust.
This agreement will automatically and immediately terminate in the event of its
assignment. Any notice under this Agreement shall be given in writing, addressed
and delivered or mailed postpaid, to the other party at the principal office of
such party.
As used in this Section 9, the terms "assignment," "interested
persons,", and "a vote of a majority of the outstanding voting securities" shall
have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and
Section 2(a)(42) of the 1940 Act.
10. AMENDMENT OF AGREEMENT. This Agreement may be amended by mutual
consent, but the consent of the Trust must be approved (a) by vote of a majority
of those members of the Board of Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such amendment, and (b) by vote of a
majority of the outstanding voting securities of the Trust.
<PAGE>
11. SEVERABILITY. If any provisions 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of this __ day of January, 2000.
JOHN McSTAY INVESTMENT COUNSEL, L.P. BRAZOS INSURANCE FUNDS
By__________________________________ By_____________________
John D. McStay, President ____________, President
CUSTODY AGREEMENT
This AGREEMENT, dated as of _________ 2000, by and between the Brazos
Insurance Funds (the "Trust"), a Delaware business trust and FIRSTAR BANK, N.A.,
a national banking association (the "Custodian").
W I T N E S S E T H:
WHEREAS, the Trust desires that the Trust's Securities and cash be held
and administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(1) of the 1940 Act;
WHEREAS, the Trust desires that the securities and cash of the Small
Cap Growth Portfolio (the "Fund") and each additional series of the Trust listed
on Exhibit D attached hereto (collectively, the "Funds") as may be amended from
time to time, shall be hereafter held and administered by Custodian pursuant to
the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1.1 "AUTHORIZED PERSON" means any Officer or other person duly
authorized by resolution of the Board of Trustees to give Oral
Instructions and Written Instructions on behalf of the Fund
and named in Exhibit A hereto or in such resolutions of the
Board of Trustees, certified by an Officer, as may be received
by the Custodian from time to time.
1.2 "BOARD OF TRUSTEES" shall mean the Trustees from time to time
serving under the Trust's Agreement and Declaration of Trust,
as from time to time amended.
1.3 "BOOK-ENTRY SYSTEM" shall mean a federal book-entry system as
provided in Subpart O of Treasury Circular No. 300, 31 CFR
306, in Subpart B of 31 CFR Part 350, or in such book-entry
regulations of federal agencies as are substantially in the
form of such Subpart O.
<PAGE>
1.4 "BUSINESS DAY" shall mean any day recognized as a settlement
day by The New York Stock Exchange, Inc. and any other day for
which the Trust computes the net asset value of Shares of the
Fund.
1.5 "FUND CUSTODY ACCOUNT" shall mean any of the accounts in the
name of the Trust, which is provided for in Section 3.2 below.
1.6 "NASD" shall mean The National Association of Securities
Dealers, Inc.
1.7 "OFFICER" shall mean the Chairman, President, any Vice
President, any Assistant Vice President, the Secretary, any
Assistant Secretary, the Treasurer, or any Assistant Treasurer
of the Trust.
1.8 "ORAL INSTRUCTIONS" shall mean instructions orally transmitted
to and accepted by the Custodian because such instructions
are: (i) reasonably believed by the Custodian to have been
given by an Authorized Person, (ii) recorded and kept among
the records of the Custodian made in the ordinary course of
business and (iii) orally confirmed by the Custodian. The
Trust shall cause all Oral Instructions to be confirmed by
Written Instructions prior to the end of the next Business
Day. If such Written Instructions confirming Oral Instructions
are not received by the Custodian prior to a transaction, it
shall in no way affect the validity of the transaction or the
authorization thereof by the Trust. If Oral Instructions vary
from the Written Instructions which purport to confirm them,
the Custodian shall notify the Trust of such variance but such
Oral Instructions will govern unless the Custodian has not yet
acted.
1.9 "PROPER INSTRUCTIONS" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written
Instructions when deemed appropriate by both parties.
1.10 "SECURITIES DEPOSITORY" shall mean The Depository Trust
Company and (provided that Custodian shall have received a
copy of a resolution of the Board of Trustees, certified by an
Officer, specifically approving the use of such clearing
agency as a depository for the Fund) any other clearing agency
registered with the Securities and Exchange Commission under
Section 17A of the Securities and Exchange Act of 1934 as
amended (the "1934 Act"), which acts as a system for the
central handling of Securities where all Securities of any
particular class or series of an issuer deposited within the
system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of the
Securities.
1.11 "SECURITIES" shall include, without limitation, common and
preferred stocks, bonds, call options, put options,
debentures, notes, bank certificates of deposit, bankers'
acceptances, mortgage-backed securities or other obligations,
and any certificates, receipts, warrants or other instruments
or documents representing rights to receive, purchase or
subscribe for the same, or evidencing or representing any
other rights or interests therein, or any similar property or
<PAGE>
assets that the Custodian has the facilities to clear and to
service.
1.12 "SHARES" shall mean, with respect to a Fund, the units of
beneficial interest issued by the Trust on account of the
Fund.
1.13 "SUB-CUSTODIAN" shall mean and include (i) any branch of a
"U.S. Bank," as that term is defined in Rule 17f-5 under the
1940 Act, (ii) any "Eligible Foreign Custodian," as that term
is defined in Rule 17f-5 under the 1940 Act, having a contract
with the Custodian which the Custodian has determined will
provide reasonable care of assets of the Funds based on the
standards specified in Section 3.3 below. Such contract shall
include provisions that provide: (i) for indemnification or
insurance arrangements (or any combination of the foregoing)
such that the Funds will be adequately protected against the
risk of loss of assets held in accordance with such contract;
(ii) that the Funds' assets will not be subject to any right,
charge, security interest, lien or claim of any kind in favor
of the Sub-Custodian or its creditors except a claim of
payment for their safe custody or administration, in the case
of cash deposits, liens or rights in favor of creditors of the
Sub-Custodian arising under bankruptcy, insolvency, or similar
laws; (iii) that beneficial ownership for the Funds' assets
will be freely transferable without the payment of money or
value other than for safe custody or administration; (iv) that
adequate records will be maintained identifying the assets as
belonging to the Funds or as being held by a third party for
the benefit of the Funds; (v) that the Funds' independent
public accountants will be given access to those records or
confirmation of the contents of those records; and (vi) that
the Funds will receive periodic reports with respect to the
safekeeping of the Funds' assets, including, but not limited
to, notification of any transfer to or from a Fund's account
or a third party account containing assets held for the
benefit of the Fund. Such contract may contain, in lieu of any
or all of the provisions specified above, such other
provisions that the Custodian determines will provide, in
their entirety, the same or a greater level of care and
protection for Fund assets as the specified provisions, in
their entirety.
1.14 "WRITTEN INSTRUCTIONS" shall mean (i) written communications
actually received by the Custodian and signed by an Authorized
Person, or (ii) communications by telex or any other such
system from one or more persons reasonably believed by the
Custodian to be Authorized Persons, or (iii) communications
between electro-mechanical or electronic devices provided that
the use of such devices and the procedures for the use thereof
shall have been approved by resolutions of the Board of
Trustees, a copy of which, certified by an Officer, shall have
been delivered to the Custodian.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 APPOINTMENT. The Trust hereby constitutes and appoints the
Custodian as custodian of all Securities and cash owned by or
<PAGE>
in the possession of the Fund at any time during the period of
this Agreement.
2.2 ACCEPTANCE. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as
hereinafter set forth.
2.3 DOCUMENTS TO BE FURNISHED. The following documents, including
any amendments thereto, will be provided contemporaneously
with the execution of the Agreement to the Custodian by the
Trust:
a. A copy of the Declaration of Trust certified
by the Secretary;
b. A copy of the Bylaws of the Trust certified
by the Secretary;
c. A copy of the resolution of the Board of
Trustees of the Trust appointing the
Custodian, certified by the Secretary;
d. A copy of the then current Prospectus of the
Fund; and
e. A certification of the Chairman and
Secretary of the Trust setting forth the
names and signatures of the current Officers
of the Trust and other Authorized Persons.
2.4 NOTICE OF APPOINTMENT OF DIVIDEND AND TRANSFER AGENT. The
Trust agrees to notify the Custodian in writing of the
appointment, termination or change in appointment of any
Dividend and Transfer Agent of the Fund.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 SEGREGATION. All Securities and non-cash property held by the
Custodian for the account of the Fund (other than Securities
maintained in a Securities Depository or Book-Entry System)
shall be physically segregated from other Securities and
non-cash property in the possession of the Custodian
(including the Securities and non-cash property of the other
Funds) and shall be identified as subject to this Agreement.
3.2 FUND CUSTODY ACCOUNTS. As to each Fund, the Custodian shall
open and maintain in its trust department a custody account in
the name of the Trust coupled with the name of the Fund,
subject only to draft or order of the Custodian, in which the
Custodian shall enter and carry all Securities, cash and other
assets of such Fund which are delivered to it.
3.3 APPOINTMENT OF AGENTS. (a) In its discretion, the Custodian
may appoint one or more Sub-Custodians to act as Securities
Depositories or as sub-custodians to hold Securities and cash
of the Funds and to carry out such other provisions of this
Agreement as it may determine, provided, however, that the
appointment of any such agents and maintenance of any
Securities and cash of the Fund shall be at the Custodian's
expense and shall not relieve the Custodian of any of its
obligations or liabilities under this Agreement.
(b) If, after the initial approval of Sub-Custodians by the Board
of Trustees in connection with this Agreement, the Custodian
<PAGE>
wishes to appoint other Sub-Custodians to hold property of the
Fund, it will so notify the Trust and provide it with
information reasonably necessary to determine any such new
Sub-Custodian's eligibility under Rule 17f-5 under the 1940
Act, including a copy of the proposed agreement with such
Sub-Custodian. The Trust shall at the meeting of the Board of
Trustees next following receipt of such notice and information
give a written approval or disapproval of the proposed action.
(c) The Agreement between the Custodian and each Sub-Custodian
acting hereunder shall contain the required provisions set
forth in Rule 17f-5(a)(1)(iii).
(d) At the end of each calendar quarter, the Custodian shall
provide written reports notifying the Board of Trustees of the
placement of the Securities and cash of the Funds with a
particular Sub-Custodian and of any material changes in the
Funds' arrangements. The Custodian shall promptly take such
steps as may be required to withdraw assets of the Funds from
any Sub-Custodian that has ceased to meet the requirements of
Rule 17f-5 under the 1940 Act.
(e) With respect to its responsibilities under this Section 3.3,
the Custodian hereby warrants to the Trust that it agrees to
exercise reasonable care, prudence and diligence such as a
person having responsibility for the safekeeping of property
of the Funds. The Custodian further warrants that a Fund's
assets will be subject to reasonable care, based on the
standards applicable to custodians in the relevant market, if
maintained with each Sub-Custodian, after considering all
factors relevant to the safekeeping of such assets, including,
without limitation: (i) the Sub-Custodian's practices,
procedures, and internal controls, for certificated securities
(if applicable), the method of keeping custodial records, and
the security and data protection practices; (ii) whether the
Sub-Custodian has the requisite financial strength to provide
reasonable care for Fund assets; (iii) the Sub-Custodian's
general reputation and standing and, in the case of a
Securities Depository, the Securities Depository's operating
history and number of participants; and (iv) whether the Fund
will have jurisdiction over and be able to enforce judgments
against the Sub-Custodian, such as by virtue of the existence
of any offices of the Sub-Custodian in the United States or
the Sub-Custodian's consent to service of process in the
United States.
(f) The Custodian shall establish a system to monitor the
appropriateness of maintaining the Fund's assets with a
particular Sub-Custodian and the contract governing the Funds'
arrangements with such Sub-Custodian.
3.3 DELIVERY OF ASSETS TO CUSTODIAN. The Trust shall deliver, or
cause to be delivered, to the Custodian all of the Funds'
Securities, cash and other assets, including (a) all payments
of income, payments of principal and capital distributions
received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the period
of this Agreement, and (b) all cash received by the Fund for
the issuance, at any time during such period, of Shares. The
<PAGE>
Custodian shall not be responsible for such Securities, cash
or other assets until actually received by it.
3.4 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. The Custodian
may deposit and/or maintain Securities of the Fund in a
Securities Depository or in a Book-Entry System, subject to
the following provisions:
(a) Prior to a deposit of Securities of the Funds in any
Securities Depository or Book-Entry System, the Trust shall
deliver to the Custodian a resolution of the Board of
Trustees, certified by an Officer, authorizing and instructing
the Custodian on an on-going basis to deposit in such
Securities Depository or Book-Entry System all Securities
eligible for deposit therein and to make use of such
Securities Depository or Book-Entry System to the extent
possible and practical in connection with its performance
hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of collateral
consisting of Securities.
(b) Securities of the Funds kept in a Book-Entry System or
Securities Depository shall be kept in an account ("Depository
Account") of the Custodian in such Book-Entry System or
Securities Depository which includes only assets held by the
Custodian as a fiduciary, custodian or otherwise for
customers.
(c) The records of the Custodian with respect to Securities of the
Fund maintained in a Book-Entry System or Securities
Depository shall, by book-entry, identify such Securities as
belonging to such Fund.
(d) If Securities purchased by a Fund are to be held in a
Book-Entry System or Securities Depository, the Custodian
shall pay for such Securities upon (i) receipt of advice from
the Book-Entry System or Securities Depository that such
Securities have been transferred to the Depository Account,
and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account
of such Fund. If Securities sold by a Fund are held in a
Book-Entry System or Securities Depository, the Custodian
shall transfer such Securities upon (i) receipt of advice from
the Book-Entry System or Securities Depository that payment
for such Securities has been transferred to the Depository
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of such Fund.
(e) The Custodian shall provide the Trust with copies of any
report (obtained by the Custodian from a Book-Entry System or
Securities Depository in which Securities of the Fund are
kept) on the internal accounting controls and procedures for
safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) Anything to the contrary in this Agreement notwithstanding,
the Custodian shall be liable to the Trust for any loss or
damage to the Fund resulting (i) from the use of a Book-Entry
<PAGE>
System or Securities Depository by reason of any negligence or
willful misconduct on the part of Custodian or any
Sub-Custodian appointed pursuant to Section 3.3 above or any
of its or their employees, or (ii) from failure of Custodian
or any such Sub-Custodian to enforce effectively such rights
as it may have against a Book-Entry System or Securities
Depository. At its election, the Trust shall be subrogated to
the rights of the Custodian with respect to any claim against
a Book-Entry System or Securities Depository or any other
person from any loss or damage to the Fund arising from the
use of such Book-Entry System or Securities Depository, if and
to the extent that the Fund has not been made whole for any
such loss or damage.
3.5 DISBURSEMENT OF MONEYS FROM FUND CUSTODY ACCOUNT. Upon receipt
of Proper Instructions, the Custodian shall disburse moneys
from the Fund Custody Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only
in accordance with Section 4.1 of this Agreement and
only (i) in the case of Securities (other than
options on Securities, futures contracts and options
on futures contracts), against the delivery to the
Custodian (or any Sub-Custodian appointed pursuant to
Section 3.3 above) of such Securities registered as
provided in Section 3.9 below or in proper form for
transfer, or if the purchase of such Securities is
effected through a Book-Entry System or Securities
Depository, in accordance with the conditions set
forth in Section 3.5 above; (ii) in the case of
options on Securities, against delivery to the
Custodian (or such Sub-Custodian) of such receipts as
are required by the customs prevailing among dealers
in such options; (iii) in the case of futures
contracts and options on futures contracts, against
delivery to the Custodian (or such Sub-Custodian) of
evidence of title thereto in favor of the Fund or any
nominee referred to in Section 3.9 below; and (iv) in
the case of repurchase or reverse repurchase
agreements entered into between the Trust and a bank
which is a member of the Federal Reserve System or
between the Trust and a primary dealer in U.S.
Government securities, against delivery of the
purchased Securities either in certificate form or
through an entry crediting the Custodian's account at
a Book-Entry System or Securities Depository with
such Securities;
(b) In connection with the conversion, exchange or
surrender, as set forth in Section 3.7(f) below, of
Securities owned by the Fund;
(c) For the payment of any dividends or capital gain
distributions declared by the Fund;
(d) In payment of the redemption price of Shares as
provided in Section 5.1 below;
(e) For the payment of any expense or liability incurred
by the Fund, including but not limited to the
<PAGE>
following payments for the account of the Fund:
interest; taxes; administration, investment advisory,
accounting, auditing, transfer agent, custodian,
trustee and legal fees; and other operating expenses
of the Fund; in all cases, whether or not such
expenses are to be in whole or in part capitalized or
treated as deferred expenses;
(f) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian and a
broker-dealer registered under the 1934 Act and a
member of the NASD, relating to compliance with rules
of The Options Clearing Corporation and of any
registered national securities exchange (or of any
similar organization or organizations) regarding
escrow or other arrangements in connection with
transactions by the Fund;
(g) For transfer in accordance with the provision of any
agreement among the Trust, the Custodian, and a
futures commission merchant registered under the
Commodity Exchange Act, relating to compliance with
the rules of the Commodity Futures Trading Commission
and/or any contract market (or any similar
organization or organizations) regarding account
deposits in connection with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or
other interest-bearing account with any banking
institution (including the Custodian), which deposit
or account has a term of one year or less; and
(i) For any other proper purpose, but only upon receipt,
in addition to Proper Instructions, of a copy of a
resolution of the Board of Trustees, certified by an
Officer, specifying the amount and purpose of such
payment, declaring such purpose to be a proper
corporate purpose, and naming the person or persons
to whom such payment is to be made.
3.6 DELIVERY OF SECURITIES FROM FUND CUSTODY ACCOUNT. Upon receipt
of Proper Instructions, the Custodian shall release and
deliver Securities from the Fund Custody Account but only in
the following cases:
(a) Upon the sale of Securities for the account of the
Fund but only against receipt of payment therefor in
cash, by certified or cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry
System or Securities Depository, in accordance with
the provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with
tender or other similar offers for Securities of the
Fund; provided that, in any such case, the cash or
other consideration is to be delivered to the
Custodian;
(d) To the issuer thereof or its agent (i) for transfer
into the name of the Fund, the Custodian or any
<PAGE>
Sub-Custodian appointed pursuant to Section 3.3
above, or of any nominee or nominees of any of the
foregoing, or (ii) for exchange for a different
number of certificates or other evidence representing
the same aggregate face amount or number of units;
provided that, in any such case, the new Securities
are to be delivered to the Custodian;
(e) To the broker selling Securities, for examination in
accordance with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan or
merger, consolidation, recapitalization,
reorganization or readjustment of the issuer of such
Securities, or pursuant to provisions for conversion
contained in such Securities, or pursuant to any
deposit agreement, including surrender or receipt of
underlying Securities in connection with the issuance
or cancellation of depository receipts; provided
that, in any such case, the new Securities and cash,
if any, are to be delivered to the Custodian;
(g) Upon receipt of payment therefor pursuant to any
repurchase or reverse repurchase agreement entered
into by the Fund;
(h) In the case of warrants, rights or similar
Securities, upon the exercise thereof, provided that,
in any such case, the new Securities and cash, if
any, are to be delivered to the Custodian;
(i) For delivery in connection with any loans of
Securities of the Fund, but only against receipt of
such collateral as the Trust shall have specified to
the Custodian in Proper Instructions;
(j) For delivery as security in connection with any
borrowings by the Fund requiring a pledge of assets
by the Trust, but only against receipt by the
Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation,
reorganization, merger, consolidation or
recapitalization of the Trust;
(l) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a
broker-dealer registered under the 1934 Act and a
member of the NASD, relating to compliance with the
rules of The Options Clearing Corporation and of any
registered national securities exchange (or of any
similar organization or organizations) regarding
escrow or other arrangements in connection with
transactions by the Fund;
(m) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian, and a
futures commission merchant registered under the
Commodity Exchange Act, relating to compliance with
the rules of the Commodity Futures Trading Commission
<PAGE>
and/or any contract market (or any similar
organization or organizations) regarding account
deposits in connection with transactions by the Fund;
or
(n) For any other proper corporate purpose, but only upon
receipt, in addition to Proper Instructions, of a
copy of a resolution of the Board of Trustees,
certified by an Officer, specifying the Securities to
be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose
to be a proper corporate purpose, and naming the
person or persons to whom delivery of such Securities
shall be made.
3.7 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise
instructed by the Trust, the Custodian shall with respect to
all Securities held for the Fund:
(a) Subject to Section 7.4 below, collect on a timely
basis all income and other payments to which the Fund
is entitled either by law or pursuant to custom in
the securities business;
(b) Present for payment and, subject to Section 7.4
below, collect on a timely basis the amount payable
upon all Securities which may mature or be called,
redeemed, or retired, or otherwise become payable;
(c) Endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary
form for Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income
tax laws or the laws or regulations of any other
taxing authority now or hereafter in effect, and
prepare and submit reports to the Internal Revenue
Service ("IRS") and to the Trust at such time, in
such manner and containing such information as is
prescribed by the IRS;
(f) Hold for the Fund, either directly or, with respect
to Securities held therein, through a Book-Entry
System or Securities Depository, all rights and
similar securities issued with respect to Securities
of the Fund; and
(g) In general, and except as otherwise directed in
Proper Instructions, attend to all non-discretionary
details in connection with the sale, exchange,
substitution, purchase, transfer and other dealings
with Securities and assets of the Fund.
3.8 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held
for a Fund that are issued or issuable only in bearer form
<PAGE>
shall be held by the Custodian in that form, provided that any
such Securities shall be held in a Book-Entry System if
eligible therefor. All other Securities held for the Fund may
be registered in the name of such Fund, the Custodian, or any
Sub-Custodian appointed pursuant to Section 3.3 above, or in
the name of any nominee of any of them, or in the name of a
Book-Entry System, Securities Depository or any nominee of
either thereof. The Trust shall furnish to the Custodian
appropriate instruments to enable the Custodian to hold or
deliver in proper form for transfer, or to register in the
name of any of the nominees hereinabove referred to or in the
name of a Book-Entry System or Securities Depository, any
Securities registered in the name of a Fund.
3.9 RECORDS.
(a) The Custodian shall maintain, by Fund, complete and
accurate records with respect to Securities, cash or
other property held for the Fund, including (i)
journals or other records of original entry
containing an itemized daily record in detail of all
receipts and deliveries of Securities and all
receipts and disbursements of cash; (ii) ledgers (or
other records) reflecting (A) Securities in transfer,
(B) Securities in physical possession, (C) monies and
Securities borrowed and monies and Securities loaned
(together with a record of the collateral therefor
and substitutions of such collateral), (D) dividends
and interest received, and (E) dividends receivable
and interest receivable; and (iii) canceled checks
and bank records related thereto. The Custodian shall
keep such other books and records of the Funds as the
Trust shall reasonably request, or as may be required
by the 1940 Act, including, but not limited to,
Section 31 of the 1940 Act and Rule 31a-2 promulgated
thereunder.
(b) All such books and records maintained by the
Custodian shall (i) be maintained in a form
acceptable to the Trust and in compliance with rules
and regulations of the Securities and Exchange
Commission, (ii) be the property of the Trust and at
all times during the regular business hours of the
Custodian be made available upon request for
inspection by duly authorized officers, employees or
agents of the Trust and employees or agents of the
Securities and Exchange Commission, and (iii) if
required to be maintained by Rule 31a-1 under the
1940 Act, be preserved for the periods prescribed in
Rule 31a-2 under the 1940 Act.
3.10 FUND REPORTS BY CUSTODIAN. The Custodian shall furnish the
Trust with a daily activity statement and a summary of all
transfers to or from each Fund Custody Account on the day
following such transfers. At least monthly and from time to
time, the Custodian shall furnish the Trust with a detailed
statement of the Securities and moneys held by the Custodian
and the Sub-Custodians for the Fund under this Agreement.
3.11 OTHER REPORTS BY CUSTODIAN. The Custodian shall provide the
Trust with such reports, as the Trust may reasonably request
from time to time, on the internal accounting controls and
<PAGE>
procedures for safeguarding Securities, which are employed by
the Custodian or any Sub-Custodian appointed pursuant to
Section 3.3 above.
3.12 PROXIES AND OTHER MATERIALS. The Custodian shall cause all
proxies relating to Securities which are not registered in the
name of the Fund, to be promptly executed by the registered
holder of such Securities, without indication of the manner in
which such proxies are to be voted, and shall promptly deliver
to the Trust such proxies, all proxy soliciting materials and
all notices relating to such Securities.
3.13 INFORMATION ON CORPORATE ACTIONS. The Custodian shall promptly
deliver to the Trust all information received by the Custodian
and pertaining to Securities being held by the Fund with
respect to optional tender or exchange offers, calls for
redemption or purchase, or expiration of rights as described
in the Standards of Service Guide attached as Exhibit B. If
the Trust desires to take action with respect to any tender
offer, exchange offer or other similar transaction, the Trust
shall notify the Custodian at least five Business Days prior
to the date on which the Custodian is to take such action. The
Trust will provide or cause to be provided to the Custodian
all relevant information for any Security which has unique
put/option provisions at least five Business Days prior to the
beginning date of the tender period.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.1 PURCHASE OF SECURITIES. Promptly upon each purchase of
Securities for the Fund, Written Instructions shall be
delivered to the Custodian, specifying (a) the name of the
issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal
amount (and accrued interest, if any) or other units
purchased, (c) the date of purchase and settlement, (d) the
purchase price per unit, (e) the total amount payable upon
such purchase, and (f) the name of the person to whom such
amount is payable. The Custodian shall upon receipt of such
Securities purchased by such Fund pay out of the moneys held
for the account of a Fund the total amount specified in such
Written Instructions to the person named therein. The
Custodian shall not be under any obligation to pay out moneys
to cover the cost of a purchase of Securities for the Fund, if
in the Fund Custody Account there is insufficient cash
available to the Fund for which such purchase was made.
4.2 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES
PURCHASED. In any and every case where payment for the
purchase of Securities for a Fund is made by the Custodian in
advance of receipt of the Securities purchased but in the
absence of specified Written Instructions to so pay in
advance, the Custodian shall be liable to the Fund for such
Securities to the same extent as if the Securities had been
received by the Custodian.
<PAGE>
4.3 SALE OF SECURITIES. Promptly upon each sale of Securities by a
Fund, Written Instructions shall be delivered to the
Custodian, specifying (a) the name of the issuer or writer of
such Securities, and the title or other description thereof,
(b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale
and settlement, (d) the sale price per unit, (e) the total
amount payable upon such sale, and (f) the person to whom such
Securities are to be delivered. Upon receipt of the total
amount payable to the Fund as specified in such Written
Instructions, the Custodian shall deliver such Securities to
the person specified in such Written Instructions. Subject to
the foregoing, the Custodian may accept payment in such form
as shall be satisfactory to it, and may deliver Securities and
arrange for payment in accordance with the customs prevailing
among dealers in Securities.
4.4 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 4.3 above
or any other provision of this Agreement, the Custodian, when
instructed to deliver Securities against payment, shall be
entitled, if in accordance with generally accepted market
practice, to deliver such Securities prior to actual receipt
of final payment therefor. In any such case, the Fund shall
bear the risk that final payment for such Securities may not
be made or that such Securities may be returned or otherwise
held or disposed of by or through the person to whom they were
delivered, and the Custodian shall have no liability for any
for the foregoing.
4.5 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and
from time to time, the Custodian may credit the Fund Custody
Account, prior to actual receipt of final payment thereof,
with (i) proceeds from the sale of Securities which it has
been instructed to deliver against payment, (ii) proceeds from
the redemption of Securities or other assets of the Fund, and
(iii) income from cash, Securities or other assets of the
Fund. Any such credit shall be conditional upon actual receipt
by Custodian of final payment and may be reversed if final
payment is not actually received in full. The Custodian may,
in its sole discretion and from time to time, permit the Fund
to use funds so credited to the Fund Custody Account in
anticipation of actual receipt of final payment. Any such
funds shall be repayable immediately upon demand made by the
Custodian at any time prior to the actual receipt of all final
payments in anticipation of which funds were credited to the
Fund Custody Account.
4.6 ADVANCES BY CUSTODIAN FOR SETTLEMENT. The Custodian may, in
its sole discretion and from time to time, advance funds to
the Trust to facilitate the settlement of a Fund's
transactions in the Fund Custody Account. Any such advance
shall be repayable immediately upon demand made by Custodian.
ARTICLE V
REDEMPTION OF FUND SHARES
5.1 TRANSFER OF FUNDS. From such funds as may be available for the
purpose in the relevant Fund Custody Account, and upon receipt
of Proper Instructions specifying that the funds are required
<PAGE>
to redeem Shares of the Fund, the Custodian shall wire each
amount specified in such Proper Instructions to or through
such bank as the Trust may designate with respect to such
amount in such Proper Instructions.
5.2 NO DUTY REGARDING PAYING BANKS. The Custodian shall not be
under any obligation to effect payment or distribution by any
bank designated in Proper Instructions given pursuant to
Section 5.1 above of any amount paid by the Custodian to such
bank in accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer
registered under the 1934 Act and a member of the
NASD (or any futures commission merchant registered
under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing
Trust and of any registered national securities
exchange (or the Commodity Futures Trading Commission
or any registered contract market), or of any similar
organization or organizations, regarding escrow or
other arrangements in connection with transactions by
the Fund,
(b) for purposes of segregating cash or Securities in
connection with securities options purchased or
written by the Fund or in connection with financial
futures contracts (or options thereon) purchased or
sold by the Fund,
(c) which constitute collateral for loans of Securities
made by the Fund,
(d) for purposes of compliance by the Fund with
requirements under the 1940 Act for the maintenance
of segregated accounts by registered investment
companies in connection with reverse repurchase
agreements and when-issued, delayed delivery and firm
commitment transactions, and
(e) for other proper corporate purposes, but only upon
receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board of
Trustees, certified by an Officer, setting forth the
purpose or purposes of such segregated account and
declaring such purposes to be proper corporate
purposes.
Each segregated account established under this Article VI shall be
established and maintained for a single Fund only. All Proper Instructions
relating to a segregated account shall
<PAGE>
specify the Fund involved.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 STANDARD OF CARE. The Custodian shall be held to the exercise
of reasonable care in carrying out its obligations under this
Agreement, and shall be without liability to the Trust or any
Fund for any loss, damage, cost, expense (including attorneys'
fees and disbursements), liability or claim unless such loss,
damage, cost, expense, liability or claim arises from
negligence, bad faith or willful misconduct on its part or on
the part of any Sub-Custodian appointed pursuant to Section
3.3 above. The Custodian shall be entitled to rely on and may
act upon advice of counsel on all matters, and shall be
without liability for any action reasonably taken or omitted
pursuant to such advice. The Custodian shall promptly notify
the Trust of any action taken or omitted by the Custodian
pursuant to advice of counsel. The Custodian shall not be
under any obligation at any time to ascertain whether the
Trust or the Fund is in compliance with the 1940 Act, the
regulations thereunder, the provisions of the Trust's charter
documents or by-laws, or its investment objectives and
policies as then in effect.
7.2 ACTUAL COLLECTION REQUIRED. The Custodian shall not be liable
for, or considered to be the custodian of, any cash belonging
to a Fund or any money represented by a check, draft or other
instrument for the payment of money, until the Custodian or
its agents actually receive such cash or collect on such
instrument.
7.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent
that it is in the exercise of reasonable care, the Custodian
shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto
received or delivered by it pursuant to this Agreement.
7.4 LIMITATION ON DUTY TO COLLECT. Custodian shall not be required
to enforce collection, by legal means or otherwise, of any
money or property due and payable with respect to Securities
held for the Fund if such Securities are in default or payment
is not made after due demand or presentation.
7.5 RELIANCE UPON DOCUMENTS AND INSTRUCTIONS. The Custodian shall
be entitled to rely upon any certificate, notice or other
instrument in writing received by it and reasonably believed
by it to be genuine. The Custodian shall be entitled to rely
upon any Oral Instructions and any Written Instructions
actually received by it pursuant to this Agreement.
7.6 EXPRESS DUTIES ONLY. The Custodian shall have no duties or
obligations whatsoever except such duties and obligations as
are specifically set forth in this Agreement, and no covenant
or obligation shall be implied in this Agreement against the
Custodian.
<PAGE>
7.7 CO-OPERATION. The Custodian shall cooperate with and supply
necessary information to the entity or entities appointed by
the Trust to keep the books of account of the Funds and/or
compute the value of the assets of the Funds. The Custodian
shall take all such reasonable actions as the Trust may from
time to time request to enable the Trust to obtain, from year
to year, favorable opinions from the Trust's independent
accountants with respect to the Custodian's activities
hereunder in connection with (a) the preparation of the
Trust's reports on Form N-1A and Form N-SAR and any other
reports required by the Securities and Exchange Commission,
and (b) the fulfillment by the Trust of any other requirements
of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION BY TRUST. The Trust shall indemnify and hold
harmless the Custodian and any Sub-Custodian appointed
pursuant to Section 3.3 above, and any nominee of the
Custodian or of such Sub-Custodian, from and against any loss,
damage, cost, expense (including attorneys' fees and
disbursements), liability (including, without limitation,
liability arising under the Securities Act of 1933, the 1934
Act, the 1940 Act, and any state or foreign securities and/or
banking laws) or claim arising directly or indirectly (a) from
the fact that Securities are registered in the name of any
such nominee, or (b) from any action or inaction by the
Custodian or such Sub-Custodian (i) at the request or
direction of or in reliance on the advice of the Trust, or
(ii) upon Proper Instructions, or (c) generally, from the
performance of its obligations under this Agreement or any
sub-custody agreement with a Sub-Custodian appointed pursuant
to Section 3.3 above, provided that neither the Custodian nor
any such Sub-Custodian shall be indemnified and held harmless
from and against any such loss, damage, cost, expense,
liability or claim arising from the Custodian's or such
Sub-Custodian's negligence, negligent failure to act, bad
faith or willful misconduct.
8.2 INDEMNIFICATION BY CUSTODIAN. The Custodian shall indemnify
and hold harmless the Trust from and against any loss, damage,
cost, expense (including attorneys' fees and disbursements),
liability (including without limitation, liability arising
under the Securities Act of 1933, the 1934 Act, the 1940 Act,
and any state or foreign securities and/or banking laws) or
claim arising from (a) the negligence, negligent failure to
act, bad faith or willful misconduct of the Custodian or any
Sub-Custodian appointed pursuant to Section 3.3 above, or any
nominee of the Custodian or of such Sub-Custodian; or (b) the
Trust's performance of this Agreement, except such as may
arise from the Trust's own bad faith, negligent action,
negligent failure to act, or willful misconduct.
8.3 INDEMNITY TO BE PROVIDED. If the Trust requests the Custodian
to take any action with respect to Securities, which may, in
the opinion of the Custodian, result in the Custodian or its
nominee becoming liable for the payment of money or incurring
liability of some other form, the Custodian shall not be
required to take such action until the Trust shall have
<PAGE>
provided indemnity therefor to the Custodian in an amount and
form satisfactory to the Custodian.
8.4 SECURITY. If the Custodian advances cash or Securities to the
Fund for any purpose, either at the Trust's request or as
otherwise contemplated in this Agreement, or in the event that
the Custodian or its nominee incurs, in connection with its
performance under this Agreement, any loss, damage, cost,
expense (including attorneys' fees and disbursements),
liability or claim (except such as may arise from its or its
nominee's negligence, bad faith or willful misconduct), then,
in any such event, any property at any time held for the
account of such Fund shall be security therefor, and should
the Fund fail promptly to repay or indemnify the Custodian,
the Custodian shall be entitled to utilize available cash of
such Fund and to dispose of other assets of such Fund to the
extent necessary to obtain reimbursement or indemnification.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian in the event of a failure
or delay (i) shall not discriminate against the Funds in favor of any other
customer of the Custodian in making computer time and personnel available to
input or process the transactions contemplated by this Agreement and (ii) shall
use its best efforts to ameliorate the effects of any such failure or delay.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 EFFECTIVE PERIOD. This Agreement shall become effective as of
its execution and shall continue in full force and effect
until terminated as hereinafter provided.
10.2 TERMINATION. Either party hereto may terminate this Agreement
by giving to the other party a notice in writing specifying
the date of such termination, which shall be not less than
ninety (90) days after the date of the giving of such notice.
If a successor custodian shall have been appointed by the
Board of Trustees, the Custodian shall, upon receipt of a
notice of acceptance by the successor custodian, on such
specified date of termination (a) deliver directly to the
successor custodian all Securities (other than Securities held
in a Book-Entry System or Securities Depository) and cash then
owned by the Fund and held by the Custodian as custodian, and
(b) transfer any Securities held in a Book-Entry System or
<PAGE>
Securities Depository to an account of or for the benefit of
the Funds at the successor custodian, provided that the Trust
shall have paid to the Custodian all fees, expenses and other
amounts to the payment or reimbursement of which it shall then
be entitled. Upon such delivery and transfer, the Custodian
shall be relieved of all obligations under this Agreement. The
Trust may at any time immediately terminate this Agreement in
the event of the appointment of a conservator or receiver for
the Custodian by regulatory authorities or upon the happening
of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
10.3 FAILURE TO APPOINT SUCCESSOR CUSTODIAN. If a successor
custodian is not designated by the Trust on or before the date
of termination specified pursuant to Section 10.1 above, then
the Custodian shall have the right to deliver to a bank or
corporation company of its own selection, which (a) is a
"bank" as defined in the 1940 Act and (b) has aggregate
capital, surplus and undivided profits as shown on its then
most recent published report of not less than $25 million, all
Securities, cash and other property held by Custodian under
this Agreement and to transfer to an account of or for the
Funds at such bank or trust company all Securities of the
Funds held in a Book-Entry System or Securities Depository.
Upon such delivery and transfer, such bank or trust company
shall be the successor custodian under this Agreement and the
Custodian shall be relieved of all obligations under this
Agreement.
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon from
time to time by the Trust and the Custodian. The fees and other charges in
effect on the date hereof and applicable to the Fund are set forth in Exhibit C
attached hereto. Amounts owed by the Trust to the Custodian shall only be paid
out of the assets and property of the particular Fund involved.
ARTICLE XII
LIMITATION OF LIABILITY
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the property of
the Trust as provided in the Trust's Agreement and Declaration of Trust, as from
time to time amended. The execution and delivery of this Agreement have been
authorized by the Trustees, and this Agreement has been signed and delivered by
an authorized officer of the Trust, acting as such, and neither such
authorization by the Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the corporation
property of the Trust as provided in the above-mentioned Agreement and
Declaration of Trust.
<PAGE>
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions,
and other communications to be given hereunder shall be in writing and shall be
sent or delivered to the recipient at the address set forth after its name
hereinbelow:
TO THE TRUST:
John McStay Investment Counsel
5949 Sherry Lane, Suite 1600
Dallas, TX 75225
TO CUSTODIAN:
Firstar Bank, N.A.
425 Walnut Street, M.L. CN-WN-06TC
Cincinnati, Ohio 45202
Attention: Mutual Fund Custody Services
Telephone: (513) 632_____
Facsimile: (513) 632-3299
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XIII. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
14.2 REFERENCES TO CUSTODIAN. The Trust shall not circulate any
printed matter which contains any reference to Custodian
without the prior written approval of Custodian, excepting
printed matter contained in the prospectus or statement of
additional information for the Fund and such other printed
matter as merely identifies Custodian as custodian for the
Fund. The Trust shall submit printed matter requiring approval
to Custodian in draft form, allowing sufficient time for
review by Custodian and its counsel prior to any deadline for
printing.
14.3 NO WAIVER. No failure by either party hereto to exercise, and
no delay by such party in exercising, any right hereunder
shall operate as a waiver thereof. The exercise by either
party hereto of any right hereunder shall not preclude the
exercise of any other right, and the remedies provided herein
are cumulative
1
<PAGE>
and not exclusive of any remedies provided at law or in
equity.
14.4 AMENDMENTS. This Agreement cannot be changed orally and no
amendment to this Agreement shall be effective unless
evidenced by an instrument in writing executed by the parties
hereto.
14.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate
counterparts, each of which shall be deemed an original but
all of which together shall constitute but one and the same
instrument.
14.6 SEVERABILITY. If any provision of this Agreement shall be
invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of
the remaining provisions shall not be affected or impaired
thereby.
14.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that
this Agreement shall not be assignable by either party hereto
without the written consent of the other party hereto.
14.8 HEADINGS. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning
or construction of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered in its name and on its behalf by its
representatives thereunto duly authorized, all as of the day and year first
above written.
ATTEST: BRAZOS INSURANCE FUNDS
______________________________ By:_____________________________
ATTEST: FIRSTAR BANK, N.A.
______________________________ By:____________________________
<PAGE>
EXHIBIT A
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons
authorized by the Trust to administer the Fund Custody Accounts.
AUTHORIZED PERSONS SPECIMEN SIGNATURES
President: ___________________
Secretary: ___________________
Treasurer: ___________________
Vice President: ___________________
Adviser Employees: ___________________
Transfer Agent/Fund Accountant
Employees: ___________________
___________________
___________________
___________________
___________________
<PAGE>
EXHIBIT B
FIRSTAR INSTITUTIONAL CUSTODY SERVICES
STANDARDS OF SERVICE GUIDE
Firstar Bank, N.A. is committed to providing superior quality service
to all customers and their agents at all times. We have compiled this guide as a
tool for our clients to determine our standards for the processing of security
settlements, payment collection, and capital change transactions. Deadlines
recited in this guide represent the times required for Firstar Bank to guarantee
processing. Failure to meet these deadlines will result in settlement at our
client's risk. In all cases, Firstar Bank will make every effort to complete all
processing on a timely basis.
Firstar Bank is a direct participant of the Depository Trust Company, a
direct member of the Federal Reserve Bank of Cleveland, and utilizes the Bankers
Trust Company as its agent for ineligible and foreign securities.
For corporate reorganizations, Firstar Bank utilizes SEI's Reorg
Source, Financial Information, Inc., XCITEK, DTC Important Notices, and the WALL
STREET JOURNAL.
For bond calls and mandatory puts, Firstar Bank utilizes SEI's Bond
Source, Kenny Information Systems, Standard & Poor's Corporation, and DTC
Important Notices. Firstar Bank will not notify clients of optional put
opportunities.
Any securities delivered free to Firstar Bank or its agents must be
received three (3) business days prior to any payment or settlement in order for
the Firstar Bank standards of service to apply.
Should you have any questions regarding the information contained in
this guide, please feel free to contact your account representative.
THE INFORMATION CONTAINED IN THIS STANDARDS OF SERVICE GUIDE
IS SUBJECT TO CHANGE. SHOULD ANY CHANGES BE MADE FIRSTAR BANK
WILL PROVIDE YOU WITH AN UPDATED COPY OF ITS STANDARDS OF
SERVICE GUIDE.
<PAGE>
<TABLE>
<CAPTION>
FIRSTAR BANK SECURITY SETTLEMENT STANDARDS
TRANSACTION TYPE INSTRUCTIONS DEADLINES* DELIVERY INSTRUCTIONS
<S> <C> <C>
DTC 1:30 P.M. on Settlement Date DTC Participant #2803
Agent Bank ID 27895
Institutional #_______________
For Account #____________
Federal Reserve Book Entry 12:30 P.M. on Settlement Date Federal Reserve Bank of Cinti/Trust
for Firstar Bank, N.A. ABA# 042000013
For Account #_____________
Fed Wireable FNMA & FHLMC 12:30 P.M. on Settlement Date Bk of NYC/Cust
ABA 021000018
A/C Firstar Bank # 117612
For Account #____________
Federal Reserve Book Entry (Repurchase 1:00 P.M. on Settlement Date Federal Reserve Bank of Cinti/Spec
Agreement Collateral Only) for Firstar Bank, N.A. ABA# 042000013
For Account #_____________
PTC Securities 12:00 P.M. on Settlement Date PTC For Account BYORK
(GNMA Book Entry) Firstar Bank / 117612
Physical Securities 9:30 A.M. EST on Settlement Date Bank of New York
(for Deliveries, by 4:00 P.M. on One Wall Street- 3rd Floor - Window A
Settlement Date minus 1) New York, NY 10286
For account of Firstar Bank / Cust #117612
Attn: Donald Hoover
CEDEL/EURO-CLEAR 11:00 A.M. on Settlement Date minus 2 Cedel a/c 55021
FFC: a/c 387000
Firstar Bank / Global Omnibus
Cash Wire Transfer 3:00 P.M. Firstar Bank, N.A. Cinti/Trust ABA# 042000013
Credit Account #9901877
Further Credit to ___________
Account # _______________
</TABLE>
* All times listed are Eastern Standard Time.
<PAGE>
<TABLE>
<CAPTION>
FIRSTAR BANK PAYMENT STANDARDS
SECURITY TYPE INCOME PRINCIPAL
<S> <C> <C>
Equities Payable Date
Municipal Bonds* Payable Date Payable Date
Corporate Bonds* Payable Date Payable Date
Federal Reserve Bank Book Entry* Payable Date Payable Date
PTC GNMA's (P&I) Payable Date + 1 Payable Date + 1
CMOs *
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
SBA Loan Certificates When Received When Received
Unit Investment Trust Certificates* Payable Date Payable Date
Certificates of Deposit* Payable Date + 1 Payable Date + 1
Limited Partnerships When Received When Received
Foreign Securities When Received When Received
*Variable Rate Securities
Federal Reserve Bank Book Entry Payable Date Payable Date
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
</TABLE>
NOTE: If a payable date falls on a weekend or bank holiday, payment will be made
on the immediately following business day.
<PAGE>
<TABLE>
<CAPTION>
FIRSTAR BANK CORPORATE REORGANIZATION STANDARDS
TYPE OF ACTION NOTIFICATION TO CLIENT DEADLINE FOR CLIENT INSTRUCTIONS TRANSACTION
TO FIRSTAR BANK POSTING
<S> <C> <C> <C>
Rights, Warrants, Later of 10 business days prior to 5 business days prior to expiration Upon receipt
and Optional Mergers expiration or receipt of notice
Mandatory Puts with Later of 10 business days prior to 5 business days prior to expiration Upon receipt
Option to Retain expiration or receipt of notice
Class Actions 10 business days prior to expiration date 5 business days prior to expiration Upon receipt
Voluntary Tenders, Later of 10 business days prior to 5 business days prior to expiration Upon receipt
Exchanges, expiration or receipt of notice
and Conversions
Mandatory Puts, Defaults, At posting of funds or securities received None Upon receipt
Liquidations, Bankruptcies, Stock
Splits, Mandatory Exchanges
Full and Partial Calls Later of 10 business days prior to None Upon receipt
expiration or receipt of notice
</TABLE>
NOTE: Fractional shares/par amounts resulting from any of the above will
be sold.
<PAGE>
EXHIBIT C
FIRSTAR BANK, N.A.
DOMESTIC CUSTODY FEE SCHEDULE
Firstar Bank, N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following Schedule:
Annual fee based upon market value
2 basis points per year
Minimum annual fee per fund - $3,000
Investment transactions (purchase, sale, exchange, tender, redemption, maturity,
receipt, delivery):
$12.00 per book entry security (depository or Federal Reserve system)
$25.00 per definitive security (physical)
$25.00 per mutual fund trade
$75.00 per Euroclear
$ 8.00 per principal reduction on pass-through certificates
$ 6.00 per short sale/liability transaction
$35.00 per option/futures contract
$15.00 per variation margin
$15.00 per Fed wire deposit or withdrawal
Variable Amount Demand Notes: Used as a short-term investment, variable amount
notes offer safety and prevailing high interest rates. Our charge, which is 1/4
of 1%, is deducted from the variable amount note income at the time it is
credited to your account.
Plus out-of-pocket expenses, and extraordinary expenses based upon complexity
Fees are billed monthly, based upon market value at the beginning of the month
PAGE 1
PORTFOLIO ADMINISTRATION SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this ___ day of ______,
2000, by and between Brazos Insurance Funds, a Delaware business trust
(hereinafter referred to as the "Trust") and Firstar Mutual Fund Services, LLC,
a corporation organized under the laws of the State of Wisconsin (hereinafter
referred to as "FMFS").
WHEREAS, the Trust is an open-end management investment company which
is registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust is authorized to create separate series, each with
its own separate investment portfolio;
WHEREAS, FMFS is in the business of providing, among other things, fund
administration services for the benefit of its customers; and
WHEREAS, the Trust desires to retain FMFS to act as Administrator for
the Small Cap Growth Portfolio (the "Portfolio") and for each additional series
of the Trust listed on Exhibit A attached hereto, as may be amended from time to
time.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and FMFS agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
The Trust hereby appoints FMFS as Administrator of the Trust on the
terms and conditions set forth in this Agreement, and FMFS hereby
accepts such appointment and agrees to perform the services and duties
set forth in this Agreement in consideration of the compensation
provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FMFS
A. General Portfolio Management
1. Act as liaison among all Portfolio service providers
2. Supply:
a. Corporate secretarial services
b. Office facilities (which may be in FMFS's or its
affiliate's own offices)
c. Non-investment-related statistical and research data
as needed
3. Coordinate board communication by:
<PAGE>
Page 2
a. Establish meeting agendas
b. Preparing board reports based on financial and
administrative data
c. Evaluating independent auditor
d. Securing and monitoring fidelity bond and director
and officer liability coverage, and making the
necessary SEC filings relating thereto
e. Preparing minutes of meetings of the board and
shareholders
f. Recommend dividend declarations to the Board, prepare
and distribute to appropriate parties notices
announcing declaration of dividends and other
distributions to shareholders
g. Provide personnel to serve as officers of the Trust if
so elected by the Board and attend Board meetings to
present materials for Board review
4. Audits
a. Prepare appropriate schedules and assist independent
auditors
b. Provide information to SEC and facilitate audit
process
c. Provide office facilities
5. Assist in overall operations of the Portfolio
6. Pay Portfolio expenses upon written authorization from the
Trust
7. Monitor arrangements under shareholder services or similar
plan
B. Compliance
1. Regulatory Compliance
a. Monitor compliance with 1940 Act requirements,
including:
1) Asset diversification tests
2) Total return and SEC yield calculations
3) Maintenance of books and records under Rule 31a-3
4) Code of Ethics for the disinterested trustees of
the Portfolio
b. Monitor Portfolio's compliance with the policies and
investment limitations of the Trust as set forth in
its Prospectus and Statement of Additional Information
c. Maintain awareness of applicable regulatory and
operational service issues and recommend dispositions
2. SEC Registration and Reporting
a. Assist Trust counsel in updating Prospectus and
Statement of Additional Information and in preparing
proxy statements and Rule 24f-2 notices
b. Prepare annual and semiannual reports, Form N-SAR
filings and Rule 24f-2 notices
<PAGE>
Page 3
c. Coordinate the printing, filing and mailing of
publicly disseminated Prospectuses and reports
d. File fidelity bond under Rule 17g-1
e. File shareholder reports under Rule 30b2-1
f. Monitor sales of each Portfolio's shares and ensure
that such shares are properly registered with the SEC
and the appropriate state authorities
g. File Rule 24f-2 notices
3. IRS Compliance
a. Monitor the Trust's status as a regulated investment
company under Subchapter M, including without
limitation, review of the following:
1) Asset diversification requirements
2) Qualifying income requirements
3) Distribution requirements
b. Calculate required distributions (including excise tax
distributions)
C. Financial Reporting
1. Provide financial data required by Portfolio's Prospectus
and Statement of Additional Information;
2. Prepare financial reports for officers, shareholders, tax
authorities, performance reporting companies, the board, the
SEC, and independent auditors;
3. Supervise the Trust's Custodian and Trust Accountants in the
maintenance of the Trust's general ledger and in the
preparation of the Portfolio's financial statements,
including oversight of expense accruals and payments, of the
determination of net asset value of the Trust's net assets
and of the Trust's shares, and of the declaration and
payment of dividends and other distributions to
shareholders;
4. Compute the yield, total return and expense ratio of each
class of each Portfolio, and each Portfolio's portfolio
turnover rate; and
5. Monitor the expense accruals and notify Trust management of
any proposed adjustments.
6. Prepare monthly financial statements, which will include
without limitation the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses
7. Prepare quarterly broker security transaction summaries.
<PAGE>
Page 4
D. Tax Reporting
1. Prepare and file on a timely basis appropriate federal and
state tax returns including, without limitation, Forms
1120/8610 with any necessary schedules
2. Prepare state income breakdowns where relevant
3. File Form 1099 Miscellaneous for payments to trustees and
other service providers
4. Monitor wash losses
5. Calculate eligible dividend income for corporate
shareholders
3. COMPENSATION
The Trust, on behalf of the Portfolio, agrees to pay FMFS for the
performance of the duties listed in this Agreement, the fees and
out-of-pocket expenses as set forth in the attached Exhibit A.
Notwithstanding anything to the contrary, amounts owed by the Trust to
FMFS shall only be paid out of the assets and property of the
particular Portfolio involved.
These fees may be changed from time to time, subject to mutual written
Agreement between the Trust and FMFS.
The Trust agrees to pay all fees and reimbursable expenses within ten
(10) business days following the receipt of the billing notice.
4. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FMFS shall exercise reasonable care in the performance of its
duties under this Agreement. FMFS shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in
connection with matters to which this Agreement relates, including
losses resulting from mechanical breakdowns or the failure of
communication or power supplies beyond FMFS's control, except a loss
arising out of or relating to FMFS's refusal or failure to comply with
the terms of this Agreement or from bad faith, negligence, or willful
misconduct on its part in the performance of its duties under this
Agreement. Notwithstanding any other provision of this Agreement, if
FMFS has exercised reasonable care in the performance of its duties
under this Agreement, the Trust shall indemnify and hold harmless FMFS
from and against any and all claims, demands, losses, expenses, and
liabilities (whether with or without basis in fact or law) of any and
every nature (including reasonable attorneys' fees) which FMFS may
sustain or incur or which may be asserted against FMFS by any person
arising out of any action taken or omitted to be taken by it in
performing the services hereunder, except for any and all claims,
demands, losses, expenses, and liabilities arising out of or relating
to FMFS's refusal or failure to comply with the terms of this Agreement
or from bad faith, negligence or from willful misconduct on its part in
performance of its duties under this Agreement, (i) in accordance with
the foregoing standards, or (ii) in reliance upon any written or oral
instruction provided to FMFS by any duly authorized officer of the
Trust, such duly authorized officer to be included in a list of
<PAGE>
Page 5
authorized officers furnished to FMFS and as amended from time to time
in writing by resolution of the Board of Trustees of the Trust.
FMFS shall indemnify and hold the Trust harmless from and
against any and all claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which the Trust may sustain or
incur or which may be asserted against the Trust by any person arising
out of any action taken or omitted to be taken by FMFS as a result of
FMFS's refusal or failure to comply with the terms of this Agreement,
its bad faith, negligence, or willful misconduct.
In the event of a mechanical breakdown or failure of
communication or power supplies beyond its control, FMFS shall take all
reasonable steps to minimize service interruptions for any period that
such interruption continues beyond FMFS's control. FMFS will make every
reasonable effort to restore any lost or damaged data and correct any
errors resulting from such a breakdown at the expense of FMFS. FMFS
agrees that it shall, at all times, have reasonable contingency plans
with appropriate parties, making reasonable provision for emergency use
of electrical data processing equipment to the extent appropriate
equipment is available. Representatives of the Trust shall be entitled
to inspect FMFS's premises and operating capabilities at any time
during regular business hours of FMFS, upon reasonable notice to FMFS.
Regardless of the above, FMFS reserves the right to
reprocess and correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the
indemnitor may be asked to indemnify or hold the indemnitee harmless,
the indemnitor shall be fully and promptly advised of all pertinent
facts concerning the situation in question, and it is further
understood that the indemnitee will use all reasonable care to notify
the indemnitor promptly concerning any situation which presents or
appears likely to present the probability of a claim for
indemnification. The indemnitor shall have the option to defend the
indemnitee against any claim which may be the subject of this
indemnification. In the event that the indemnitor so elects, it will so
notify the indemnitee and thereupon the indemnitor shall take over
complete defense of the claim, and the indemnitee shall in such
situation initiate no further legal or other expenses for which it
shall seek indemnification under this section. The indemnitee shall in
no case confess any claim or make any compromise in any case in which
the indemnitor will be asked to indemnify the indemnitee except with
the indemnitor's prior written consent.
C. FMFS is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Trust Instrument of the Trust
and agrees that obligations assumed by the Trust pursuant to this
Agreement shall be limited in all cases to the Trust and its assets,
and if the liability relates to one or more series, the obligations
hereunder shall be limited to the respective assets of such series.
<PAGE>
Page 6
FMFS further agrees that it shall not seek satisfaction of any such
obligation from the shareholder or any individual shareholder of a
series of the Trust, nor from the Trustees or any individual Trustee of
the Trust.
5. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and
employees to treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and
prior, present, or potential shareholders of the Trust (and clients of
said shareholders), and not to use such records and information for any
purpose other than the performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing
by the Trust, which approval shall not be unreasonably withheld and may
not be withheld where FMFS may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by
the Trust.
6. DATA NECESSARY TO PERFORM SERVICES
The Trust or its agent, which may be FMFS, shall furnish to FMFS the
data necessary to perform the services described herein at times and in
such form as mutually agreed upon if FMFS is also acting in another
capacity for the Trust, nothing herein shall be deemed to relieve FMFS
of any of its obligations in such capacity.
7. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and, unless
sooner terminated as provided herein, shall continue subject to Board
approval in effect for successive annual periods. The Agreement may be
terminated by either party upon giving ninety (90) days prior written
notice to the other party or such shorter period as is mutually agreed
upon by the parties. However, this Agreement may be amended by mutual
written consent of the parties.
<PAGE>
Page 7
8. NOTICES
Notices of any kind to be given by either party to the other party
shall be in writing and shall be duly given if mailed or delivered as
follows: Notice to FMFS shall be sent to:
Firstar Mutual Fund Services, LLC
Attn.: Jim Tiegs
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Trust shall be sent to:
John McStay Investment Counsel
5949 Sherry Lane, Suite 1600
Dallas, TX 75225
9. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower FMFS
to act as agent for the other party to this Agreement, or to conduct
business in the name of, or for the account of the other party to this
Agreement.
10. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and
employees to treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and
prior, present, or potential shareholders of the Trust (and clients of
said shareholders), and not to use such records and information for any
purpose other than the performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing
by the Trust, which approval shall not be unreasonably withheld and may
not be withheld where FMFS may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by
the Trust.
11. DUTIES IN THE EVENT OF TERMINATION
In the event that, in connection with termination, a successor to any
of FMFS's duties or responsibilities hereunder is designated by the
Trust by written notice to FMFS, FMFS will promptly, upon such
termination and at the expense of the Trust, transfer to such successor
all relevant books, records, correspondence, and other data established
or maintained by FMFS under this Agreement in a form reasonably
acceptable to the Trust (if such form differs from the form in which
FMFS has maintained, the Trust shall pay any expenses associated with
transferring the data to such form), and will cooperate in the transfer
<PAGE>
Page 8
of such duties and responsibilities, including provision for assistance
from FMFS's personnel in the establishment of books, records, and other
data by such successor.
12. GOVERNING LAW
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of
Wisconsin. However, nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or regulation promulgated by
the Securities and Exchange Commission thereunder.
13. RECORDS
FMFS shall keep records relating to the services to be performed
hereunder, in the form and manner, and for such period as it may deem
advisable and is agreeable to the Trust but not inconsistent with the
rules and regulations of appropriate government authorities, in
particular, Section 31 of the 1940 Act and the rules thereunder. FMFS
agrees that all such records prepared or maintained by FMFS relating to
the services to be performed by FMFS hereunder are the property of the
Trust and will be preserved, maintained, and made available in
accordance with such section and rules of the 1940 Act and will be
promptly surrendered to the Trust on and in accordance with its
request.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by a duly authorized officer or one or more counterparts as of the day and year
first written above.
BRAZOS INSURANCE FUNDS FIRSTAR MUTUAL FUND SERVICES, LLC
By:______________________________ By: ________________________________
Attest: __________________________ Attest:_____________________________
<PAGE>
Page 9
PORTFOLIO ADMINISTRATION AND COMPLIANCE
ANNUAL FEE SCHEDULE - DOMESTIC FUNDS
EXHIBIT A
Separate Series of Brazos Insurance Funds
NAME OF SERIES DATE ADDED
Brazos Small Cap Growth Portfolio
Domestic Funds
Annual fee based upon assets per fund or class
7 basis points on the first $200 million
6 basis points on the next $500 million
4 basis points on the balance
Minimum annual fee:
$40,000 first fund
$30,000 / additional funds
Multiple class funds quoted separately
International Funds
Annual fee based upon assets per fund or class
8 basis points on the first $200 million
6 basis points on the next $300 million
5 basis points on the next $500 million
4 basis points on the balance
Minimum annual fee:
$45,000 per fund
Multiple class funds quoted separately
Plus out-of-pocket expense reimbursements, including but not limited to:
Postage
Programming
Stationery
Proxies
Retention of records
Special reports
Federal and state regulatory filing fees
Certain insurance premiums
Expenses from board of trustees meetings
Auditing and legal expenses
Fees and out-of-pocket expense reimbursements are billed monthly
PAGE 1
TRANSFER AGENT SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this ___ day of ______,
2000, by and between Brazos Insurance Funds, a Delaware business trust
(hereinafter referred to as the "Trust") and Firstar Mutual Fund Services, LLC,
a corporation organized under the laws of the State of Wisconsin (hereinafter
referred to as the "FMFS").
WHEREAS, the Trust is an open-end management investment company which is
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust is authorized to create separate series, each with
its own separate investment portfolio;
WHEREAS, FMFS is in the business of providing, among other things,
transfer and dividend disbursing agent functions for the benefit of its
customers; and
WHEREAS, the Trust desires to retain FMFS to provide transfer and
dividend disbursing agent services to the Small Cap Growth Portfolio (the
"Fund") and each additional series of the Trust listed on Exhibit A attached
hereto, as may be amended from time to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and FMFS agree as follows:
1. APPOINTMENT OF TRANSFER AGENT
The Trust hereby appoints FMFS as Transfer Agent of the Trust on the
terms and conditions set forth in this Agreement, and FMFS hereby accepts such
appointment and agrees to perform the services and duties set forth in this
Agreement in consideration of the compensation provided for herein
2. DUTIES AND RESPONSIBILITIES OF FMFS
FMFS shall perform all of the customary services of a transfer agent and
dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to:
A. Receive orders for the purchase of shares;
B. Process purchase orders with prompt delivery, where appropriate,
of payment and supporting documentation to the Trust's custodian,
and issue the appropriate number of uncertificated shares with
<PAGE>
Page 2
such uncertificated shares being held in the appropriate
shareholder account;
C. Arrange for issuance of Shares obtained through transfers of
funds from Shareholders' accounts at financial institutions and
arrange for the exchange of Shares for shares of other eligible
investment companies, when permitted by Prospectus.
D. Process redemption requests received in good order and, where
relevant, deliver appropriate documentation to the Trust's
custodian;
E. Pay monies upon receipt from the Trust's custodian, where
relevant, in accordance with the instructions of redeeming
shareholders;
F. Process transfers of shares in accordance with the shareholder's
instructions;
G. Process exchanges between funds and/or classes of shares of funds
both within the same family of funds and with the Firstar Money
Market Fund, if applicable;
H. Prepare and transmit payments for dividends and distributions
declared by the Trust with respect to the Fund, after deducting
any amount required to be withheld by any applicable laws, rules
and regulations and in accordance with shareholder instructions;
I. Make changes to shareholder records, including, but not limited
to, address changes in plans (i.e., systematic withdrawal,
automatic investment, dividend reinvestment, etc.);
J. Record the issuance of shares of the Fund and maintain, pursuant
to Rule 17ad-10(e) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), a record of the total
number of shares of the Fund which are authorized, issued and
outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail,
receive and tabulate proxies;
L. Mail shareholder reports and prospectuses to current
shareholders;
M. Prepare and file U.S. Treasury Department Forms 1099 and other
appropriate information returns required with respect to
dividends and distributions for all shareholders;
N. Provide shareholder account information upon request and prepare
and mail confirmations and statements of account to shareholders
for all purchases, redemptions and other confirmable transactions
as agreed upon with the Trust;
O. Mail requests for shareholders' certifications under penalties of
perjury and pay on a timely basis to the appropriate Federal
authorities any taxes to be withheld on
<PAGE>
Page 3
dividends and distributions paid by the Trust, all as required by
applicable Federal tax laws and regulations;
P. Provide a Blue Sky System which will enable the Trust to monitor
the total number of shares of the Fund sold in each state. In
addition, the Trust or its agent, including FMFS, shall identify
to FMFS in writing those transactions and assets to be treated as
exempt from the Blue Sky reporting for each state. The
responsibility of FMFS for the Trust's Blue Sky state
registration status is solely limited to the initial compliance
by the Trust and the reporting of such transactions to the Trust
or its agent;
Q. Answer correspondence from shareholders, securities brokers and
others relating to MFS's duties hereunder and such other
correspondence as may from time to time be mutually agreed upon
between FMFS and the Trust.
3. COMPENSATION
The Trust agrees to pay FMFS for the performance of the duties listed in
this agreement as set forth on Exhibit A attached hereto; the fees and
out-of-pocket expenses include, but are not limited to the following: printing,
postage, forms, stationery, record retention (if requested by the Trust),
mailing, insertion, programming (if requested by the Trust), labels, shareholder
lists and proxy expenses.
These fees and reimbursable expenses may be changed from time to time
subject to mutual written agreement between the Trust and FMFS.
The Trust agrees to pay all fees and reimbursable expenses within ten
(10) business days following the receipt of the billing notice.
Notwithstanding anything to the contrary, amounts owed by the Trust to
FMFS shall only be paid out of assets and property of the particular Fund
involved.
4. REPRESENTATIONS OF FMFS
FMFS represents and warrants to the Trust that:
A. It is a trust company duly organized, existing and in good
standing under the laws of Wisconsin;
B. It is a registered transfer agent under the Exchange Act.
C. It is duly qualified to carry on its business in the State of
Wisconsin;
D. It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this Agreement;
<PAGE>
Page 4
E. All requisite corporate proceedings have been taken to authorize
it to enter and perform this Agreement;
F. It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement; and
G. It will comply with all applicable requirements of the Securities
Act of 1933, as amended, and the Exchange Act, the 1940 Act, and
any laws, rules, and regulations of governmental authorities
having jurisdiction.
5. REPRESENTATIONS OF THE TRUST
The Trust represents and warrants to FMFS that:
A. The Trust is an open-ended non diversified investment company
under the 1940 Act;
B. The Trust is a business trust organized, existing, and in good
standing under the laws of Delaware;
C. The Trust is empowered under applicable laws and by its Articles
of Incorporation and Bylaws to enter into and perform this
Agreement;
D. All necessary proceedings required by the Articles of
Incorporation have been taken to authorize it to enter into and
perform this Agreement;
E. The Trust will comply with all applicable requirements of the
Securities Act, the Exchange Act, the 1940 Act, and any laws,
rules and regulations of governmental authorities having
jurisdiction; and
F. A registration statement under the Securities Act will be made
effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be
made, with respect to all shares of the Trust being offered for
sale.
6. COVENANTS OF THE TRUST AND FMFS
The Trust shall furnish the Agent a certified copy of the resolution of
the Board of Trustees of the Fund authorizing the appointment of FMFS and the
execution of this Agreement. The Trust shall provide to the Agent a copy of its
Articles of Incorporation and Bylaws, and all amendments thereto.
FMFS shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the 1940 Act, and the rules thereunder, FMFS agrees
that all such records prepared or maintained by FMFS relating to the services to
be performed by FMFS hereunder are the property of the Trust and will be
<PAGE>
Page 5
preserved, maintained and made available in accordance with such section and
rules and will be surrendered to the Trust on and in accordance with its
request.
7. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
FMFS shall exercise reasonable care in the performance of its duties
under this Agreement. FMFS shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in connection with matters
to which this Agreement relates, including losses resulting from mechanical
breakdowns or the failure of communication or power supplies beyond FMFS's
control, except a loss arising out of or relating to the Agent's refusal or
failure to comply with the terms of this Agreement or from bad faith,
negligence, or willful misconduct on its part in the performance of its duties
under this Agreement. Notwithstanding any other provision of this Agreement, if
FMFS has exercised reasonable care in the performance of its duties under this
Agreement, the Trust shall indemnify and hold harmless FMFS from and against any
and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which FMFS may sustain or incur or which may be asserted
against FMFS by any person arising out of any action taken or omitted to be
taken by it in performing the services hereunder, except for any and all claims,
demands, losses expenses, and liabilities arising out of or relating to FMFS's
refusal or failure to comply with the terms of this Agreement or from bad faith,
negligence or from willful misconduct on its part in performance of its duties
under this Agreement, (i) in accordance with the foregoing standards, or (ii) in
reliance upon any written or oral instruction provided to FMFS by any duly
authorized officer of the Trust, such duly authorized officer to be included in
a list of authorized officers furnished to FMFS and as amended from time to time
in writing by resolution of the Board of Trustees of the Trust.
FMFS shall indemnify and hold the Trust harmless from and against any
and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which the Trust may sustain or incur or which may be asserted
against the Trust by any person arising out of any action taken or omitted to be
taken by FMFS as a result of FMFS's refusal or failure to comply with the terms
of this Agreement, its bad faith, negligence, or willful misconduct.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FMFS shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond FMFS's control. FMFS will make every reasonable effort to restore any
lost or damaged data and correct any errors resulting from such a breakdown at
the expense of FMFS. FMFS agrees that it shall, at all times, have reasonable
contingency plans with appropriate parties, making reasonable provision for
emergency use of electrical data processing equipment to the extent appropriate
equipment is available. Representatives of the Trust shall be entitled to
inspect FMFS's premises and operating capabilities at any time during regular
business hours of FMFS, upon reasonable notice to FMFS.
Regardless of the above, FMFS reserves the right to reprocess and
correct administrative errors at its own expense.
<PAGE>
Page 6
In order that the indemnification provisions contained in this section
shall apply, it is understood that if in any case the indemnitor may be asked to
indemnify or hold the indemnitee harmless, the indemnitor shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the indemnitee will use all reasonable care to
notify the indemnitor promptly concerning any situation which presents or
appears likely to present the probability of a claim for indemnification. The
indemnitor shall have the option to defend the indemnitee against any claim
which may be the subject of this indemnification. In the event that the
indemnitor so elects, it will so notify the indemnitee and thereupon the
indemnitor shall take over complete defense of the claim, and the indemnitee
shall in such situation initiate no further legal or other expenses for which it
shall seek indemnification under this section. The indemnitee shall in no case
confess any claim or make any compromise in any case in which the indemnitor
will be asked to indemnify the indemnitee except with the indemnitor's prior
written consent.
FMFS is hereby expressly put on notice of the limitation of shareholder
liability as set forth in the Trust Instrument of the Trust and agrees that
obligations assumed by the Trust pursuant to this Agreement shall be limited in
all cases to the Trust and its assets, and if the liability relates to one or
more series, the obligations hereunder shall be limited to the respective assets
of such series. FMFS further agrees that it shall not seek satisfaction of any
such obligation from the shareholder or any individual shareholder of a series
of the Trust, nor from the Trustees or any individual Trustee of the Trust.
8. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and prior, present, or
potential shareholders (and clients of said shareholders) and not to use such
records and information for any purpose other than the performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where FMFS may be exposed to civil or criminal
contempt proceedings for failure to comply after being requested to divulge such
information by duly constituted authorities, or when so requested by the Trust.
9. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and, unless
sooner terminated as provided herein, shall continue automatically in effect for
successive annual periods. The Agreement may be terminated by either party upon
giving ninety (90) days prior written notice to the other party or such shorter
period as is mutually agreed upon by the parties. However, this Agreement may be
amended by mutual written consent of the parties.
<PAGE>
Page 7
10. NOTICES
Notices of any kind to be given by either party to the other party
shall be in writing and shall be duly given if mailed or delivered as follows:
Notice to FMFS shall be sent to:
Firstar Mutual Fund Services, LLC
Attn.: Jim Tiegs
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Trust shall be sent to:
John McStay Investment Counsel
5949 Sherry Lane, Suite 1600
Dallas, TX 75225
11. DUTIES IN THE EVENT OF TERMINATION
In the event that, in connection with termination, a successor to any
of FMFS's duties or responsibilities hereunder is designated by the Trust by
written notice to FMFS, FMFS will promptly, upon such termination and at the
expense of the Trust, transfer to such successor all relevant books, records,
correspondence, and other data established or maintained by FMFS under this
Agreement in a form reasonably acceptable to the Trust (if such form differs
from the form in which FMFS has maintained, the Trust shall pay any expenses
associated with transferring the data to such form), and will cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from FMFS's personnel in the establishment of books, records, and other data by
such successor.
12. GOVERNING LAW
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of Wisconsin. However,
nothing herein shall be construed in a manner inconsistent with the 1940 Act or
any rule or regulation promulgated by the Securities and Exchange Commission
thereunder.
13. STOCK CERTIFICATES
If at any time the Trust issues stock certificates, the following
provisions will apply:
(i) In the case of the loss or destruction of any certificate
representing Shares, no new certificate shall be issued in lieu
thereof, unless there shall first have been furnished an
appropriate bond of indemnity issued by the surety company
approved by FMFS.
(ii) Upon receipt of signed stock certificates, which shall be in
proper form for transfer, and upon cancellation or destruction
thereof, FMFS shall countersign, register and issue new
certificates for the same number of Shares and shall deliver them
<PAGE>
Page 8
pursuant to instructions received from the transferor, the rules
and regulations of the SEC, and the laws of the state of Delaware
relating to the transfer of shares of beneficial interest.
(iii) Upon receipt of the stock certificates, which shall be in proper
form for transfer, together with the shareholder's instructions
to hold such stock certificates for safekeeping, FMFS shall
reduce such Shares to uncertificated status, while retaining the
appropriate registration in the name of the shareholder upon the
transfer books.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by a duly authorized officer or one or more counterparts as of the day and year
first written above.
BRAZOS INSURANCE FUNDS FIRSTAR MUTUAL FUND SERVICES, LLC
By:______________________________ By: _______________________________
Attest:__________________________ Attest:____________________________
<PAGE>
Page 9
SCHEDULE A
BRAZOS INSURANCE FUNDS
SERVICE TO BE PERFORMED
FMFS will perform the following functions as transfer agent on an ongoing basis
with respect to each Fund:
(a) furnish state-by-state registration reports;
(b) calculate sales load or compensation payment and provide such
information;
(c) calculate dealer commissions;
(d) provide toll-free lines for direct shareholder use, plus customer liaison
staff with on-line inquiry capacity;
(e) mail duplicate confirmations to dealers of their client's activity,
whether executed through the dealer or directly with FMFS;
(f) provide detail for underwriter or broker confirmations and other
participating dealer shareholder accounting, in accordance with such
procedures as may be agreed upon between the Trust and FMFS;
(g) provide statistical information concerning accounts of each Fund to the
Trust; and
(h) provide timely notification of Fund activity and such other information
as may be agreed upon from time to time between FMFS and each Fund or the
Custodian, to the Trust or the Custodian.
<PAGE>
Page 10
SCHEDULE B
BRAZOS INSURANCE FUNDS
SHAREHOLDER RECORDS
FMFS shall maintain records of the accounts for each shareholder showing the
following information:
(a) name, address and United States Tax Identification or Social Security
number;
(b) number of Shares held and number of Shares for which certificates, if
any, have been issued, including certificate numbers and denominations;
(c) historical information regarding the account of each shareholder,
including dividends and distributions paid and the date and price for all
transactions on a shareholder's account;
(d) any stop or restraining order placed against a shareholder account;
(e) any correspondence relating to the current maintenance of a shareholder's
account;
(f) information with respect to withholdings; and
(g) any information required in order for FMFS to perform any calculations
contemplated or required by this Agreement.
<PAGE>
Page 11
TRANSFER AGENT AND SHAREHOLDER SERVICING
ANNUAL FEE SCHEDULE
EXHIBIT A
Separate Series of Brazos Insurance Funds
NAME OF SERIES DATE ADDED
Brazos Small Cap Growth Portfolio
Shareholder Account Fee (Subject to Minimum)
No-Load - $15.00 per account
Load Fund - $16.00 per account
Money Market - $21.00 per account
Retail Fund Minimum - $24,000 first fund or class; $10,000 each additional
fund/class
<TABLE>
<CAPTION>
Plus Out-of-Pocket Expenses, including but not limited to:
<S> <C> <C>
Telephone - toll-free lines Proxies
Postage Retention of records (with prior approval)
Programming (with prior approval) Microfilm/fiche of records
Stationery/envelopes Special reports
Mailing ACH fees
Insurance NSCC charges
ACH Shareholder Services
$125.00 per month per fund group
$ .50 per account setup and/or change
$ .50 per item for AIP purchases
$ .35 per item for EFT payments and purchases
$3.50 per correction, reversal, return item
Qualified Plan Fees (Billed to Investors)
Annual maintenance fee per account $12.50 / acct. (Cap at $25.00 per SSN)
Transfer to successor trustee $15.00 / trans.
Distribution to participant $15.00 / trans. (Exclusive of SWP)
Refund of excess contribution $15.00 / trans.
Additional Shareholder Fees (Billed to Investors)
Any outgoing wire transfer $12.00 / wire
Telephone Exchange $ 5.00 / exchange transaction
Return check fee $20.00 / item
Stop payment $20.00 / stop
(Liquidation, dividend, draft check)
Research fee $ 5.00 / item
(For requested items of the second calendar year [or previous] to the request)(Cap at $25.00)
</TABLE>
<PAGE>
Page 12
<TABLE>
<CAPTION>
NSCC AND DAZL
OUT-OF-POCKET CHARGES
<S> <C> <C>
NSCC Interfaces
Setup
Fund/SERV, Networking ACATS, Exchanges $5,000 setup (one time)
Commissions $5,000 setup (one time)
Processing
Fund/SERV $ 50 / month
Networking $ 250 / month
CPU Access $ 40 / month
Fund/SERV Transactions $ .35 / trade
Networking - per item $ .025/monthly dividend fund
Networking - per item $ .015/non-mo. dividend fund
First Data $ .10 / next-day Fund/SERV trade
First Data $ .15 / same-day Fund/SERV trade
NSCC Implementation
8 to 10 weeks lead time (target availability 10/1/97)
DAZL (Direct Access Zip Link - Electronic mail interface to financial advisor network)
Setup $5,000 / fund group
Monthly Usage $1,000 / month
Transmission $ .015 / price record
$ .025 / other record
Enhancement $ 125 / hour
</TABLE>
Fees and out-of-pocket expenses are billed to the fund monthly
Page 1
PORTFOLIO ACCOUNTING SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this ___ day of ________,
2000, by and between Brazos Insurance Funds, a Delaware business trust
(hereinafter referred to as the "Trust") and Firstar Mutual Fund Services, LLC,
a corporation organized under the laws of the State of Wisconsin (hereinafter
referred to as "FMFS").
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust is authorized to create separate series, each with
its own separate investment portfolio;
WHEREAS, FMFS is in the business of providing, among other things,
mutual fund accounting services to investment companies; and
WHEREAS, the Trust desires to retain FMFS to provide accounting services
to the Small Cap Growth Portfolio (the "Portfolio") and each additional series
of the Trust listed on Exhibit A attached hereto, as it may be amended from time
to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and FMFS agree as follows:
1. APPOINTMENT OF PORTFOLIO ACCOUNTANT
The Trust hereby appoints FMFS as Portfolio Accountant of the Trust on
the terms and conditions set forth in this Agreement, and FMFS hereby accepts
such appointment and agrees to perform the services and duties set forth in this
Agreement in consideration of the compensation provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FMFS
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date+1 basis
using security trade information communicated from the investment
manager.
(2) For each valuation date, obtain prices from a pricing
source approved by the Board of Trustees of the Trust and apply
those prices to the portfolio positions. For those securities
where market quotations are not readily available, the Board of
Trustees of the Trust shall approve, in good faith, the method
for determining the fair value for such securities.
<PAGE>
Page 2
(3) Identify interest and dividend accrual balances as of
each valuation date and calculate gross earnings on investments
for the accounting period.
(4) Determine gain/loss on security sales and identify
them as, short-term or long-term; account for periodic
distributions of gains or losses to shareholders and maintain
undistributed gain or loss balances as of each valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual
amounts as directed by the Trust as to methodology, rate or
dollar amount.
(2) Record payments for Portfolio expenses upon receipt of
written authorization from the Trust.
(3) Account for Portfolio expenditures and maintain
expense accrual balances at the level of accounting detail, as
agreed upon by FMFS and the Trust.
(4) Provide expense accrual and payment reporting.
C. Portfolio Valuation and Financial Reporting Services:
(1) Account for Portfolio share purchases, sales,
exchanges, transfers, dividend reinvestments, and other Portfolio
share activity as reported by the transfer agent on a timely
basis.
(2) Apply equalization accounting as directed by the
Trust.
(3) Determine net investment income (earnings) for the
Portfolio as of each valuation date. Account for periodic
distributions of earnings to shareholders and maintain
undistributed net investment income balances as of each valuation
date.
(4) Maintain a general ledger and other accounts, books,
and financial records for the Portfolio in the form as agreed
upon.
(5) Determine the net asset value of the Portfolio
according to the accounting policies and procedures set forth in
the Portfolio's Prospectus.
(6) Calculate per share net asset value, per share net
earnings, and other per share amounts reflective of Portfolio
operations at such time as required by the nature and
characteristics of the Portfolio.
(7) Communicate, at an agreed upon time, the per share
price for each valuation date to parties as agreed upon from time
to time.
<PAGE>
Page 3
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the investment
portfolio of the Portfolio to support the tax reporting required
for IRS-defined regulated investment companies.
(2) Maintain tax lot detail for the investment portfolio.
(3) Calculate taxable gain/loss on security sales using
the tax lot relief method designated by the Trust.
(4) Provide the necessary financial information to support
the taxable components of income and capital gains distributions
to the transfer agent to support tax reporting to the
shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support
financial statement preparation by making the Portfolio's
accounting records available to the Trust, the Securities and
Exchange Commission, and the outside auditors.
(2) Maintain accounting records according to the 1940 Act
and regulations provided thereunder
F. FMFS will perform the following accounting functions on a
daily basis:
(1) Reconcile cash and investment balances of each
Portfolio with the Custodian, and provide the Advisor with the
beginning cash balance available for investment purposes;
(2) Update the cash availability throughout the day as
required by the Advisor;
(3) Transmit or mail a copy of the portfolio valuation to
the Advisor;
(4) Review the impact of current day's activity on a per
share basis, review changes in market value of securities, and
review yields for reasonableness.
G. In addition, FMFS will:
(1) Prepare monthly security transactions listings;
<PAGE>
Page 4
(2) Supply various Trust, Portfolio and class statistical
data as requested on an ongoing basis.
3. PRICING OF SECURITIES
For each valuation date, obtain prices from a pricing source selected by FMFS
but approved by the Trust's Board of Trustees and apply those prices to the
portfolio positions of the Portfolio. For those securities where market
quotations are not readily available, the Trust's Board of Trustees shall
approve, in good faith, the method for determining the fair value for such
securities.
If the Trust desires to provide a price which varies from the pricing source,
the Trust shall promptly notify and supply FMFS with the valuation of any such
security on each valuation date. All pricing changes made by the Trust will be
in writing and must specifically identify the securities to be changed by CUSIP,
name of security, new price or rate to be applied, and, if applicable, the time
period for which the new price(s) is/are effective.
4. CHANGES IN ACCOUNTING PROCEDURES
Any resolution passed by the Board of Trustees of the Trust that affects
accounting practices and procedures under this Agreement shall be effective upon
written receipt and acceptance by the FMFS.
5. CHANGES IN EQUIPMENT, SYSTEMS, SERVICE, ETC.
FMFS reserves the right to make changes from time to time, as it deems
advisable, relating to its services, systems, programs, rules, operating
schedules and equipment, so long as such changes do not adversely affect the
service provided to the Trust under this Agreement.
6. COMPENSATION
FMFS shall be compensated for providing the services set forth in this Agreement
in accordance with the Fee Schedule attached hereto as Exhibit A and as mutually
agreed upon and amended from time to time. The Trust agrees to pay all fees and
reimbursable expenses within ten (10) business days following the receipt of the
billing notice. Notwithstanding anything to the contrary, amounts owed by the
Trust to FMFS shall only be paid out of the assets and property of the
particular Portfolio involved.
7. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FMFS shall exercise reasonable care in the performance of its
duties under this Agreement. FMFS shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in
connection with matters to which this Agreement relates, including
losses resulting from mechanical breakdowns or the failure of
<PAGE>
Page 5
communication or power supplies beyond FMFS's control, except a loss
arising out of or relating to FMFS's refusal or failure to comply with
the terms of this Agreement or from bad faith, negligence, or willful
misconduct on its part in the performance of its duties under this
Agreement. Notwithstanding any other provision of this Agreement, if
FMFS has exercised reasonable care in the performance of its duties
under this Agreement, the Trust shall indemnify and hold harmless FMFS
from and against any and all claims, demands, losses, expenses, and
liabilities (whether with or without basis in fact or law) of any and
every nature (including reasonable attorneys' fees) which FMFS may
sustain or incur or which may be asserted against FMFS by any person
arising out of any action taken or omitted to be taken by it in
performing the services hereunder, except for any and all claims,
demands, losses, expenses, and liabilities arising out of or relating
to FMFS's refusal or failure to comply with the terms of this Agreement
or from bad faith, negligence or from willful misconduct on its part in
performance of its duties under this Agreement, (i) in accordance with
the foregoing standards, or (ii) in reliance upon any written or oral
instruction provided to FMFS by any duly authorized officer of the
Trust, such duly authorized officer to be included in a list of
authorized officers furnished to FMFS and as amended from time to time
in writing by resolution of the Board of Trustees of the Trust.
FMFS shall indemnify and hold the Trust harmless from and against
any and all claims, demands, losses, expenses, and liabilities (whether
with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which the Trust may sustain or
incur or which may be asserted against the Trust by any person arising
out of any action taken or omitted to be taken by FMFS as a result of
FMFS's refusal or failure to comply with the terms of this Agreement,
its bad faith, negligence, or willful misconduct.
In the event of a mechanical breakdown or failure of
communication or power supplies beyond its control, FMFS shall take all
reasonable steps to minimize service interruptions for any period that
such interruption continues beyond FMFS's control. FMFS will make every
reasonable effort to restore any lost or damaged data and correct any
errors resulting from such a breakdown at the expense of FMFS. FMFS
agrees that it shall, at all times, have reasonable contingency plans
with appropriate parties, making reasonable provision for emergency use
of electrical data processing equipment to the extent appropriate
equipment is available. Representatives of the Trust shall be entitled
to inspect FMFS's premises and operating capabilities at any time
during regular business hours of FMFS, upon reasonable notice to FMFS.
Regardless of the above, FMFS reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the
indemnitor may be asked to indemnify or hold the indemnitee harmless,
the indemnitor shall be fully and promptly advised of all pertinent
facts concerning the situation in question, and it is further
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Page 6
understood that the indemnitee will use all reasonable care to notify
the indemnitor promptly concerning any situation which presents or
appears likely to present the probability of a claim for
indemnification. The indemnitor shall have the option to defend the
indemnitee against any claim which may be the subject of this
indemnification. In the event that the indemnitor so elects, it will so
notify the indemnitee and thereupon the indemnitor shall take over
complete defense of the claim, and the indemnitee shall in such
situation initiate no further legal or other expenses for which it
shall seek indemnification under this section. Indemnitee shall in no
case confess any claim or make any compromise in any case in which the
indemnitor will be asked to indemnify the indemnitee except with the
indemnitor's prior written consent.
C. FMFS is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Trust Instrument of the Trust
and agrees that obligations assumed by the Trust pursuant to this
Agreement shall be limited in all cases to the Trust and its assets,
and if the liability relates to one or more series, the obligations
hereunder shall be limited to the respective assets of such series.
FMFS further agrees that it shall not seek satisfaction of any such
obligation from the shareholder or any individual shareholder of a
series of the Trust, nor from the Trustees or any individual Trustee of
the Trust.
8. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower FMFS to act as
agent for the other party to this Agreement, or to conduct business in the name
of, or for the account of the other party to this Agreement.
9. RECORDS
FMFS shall keep records relating to the services to be performed hereunder, in
the form and manner, and for such period as it may deem advisable and is
agreeable to the Trust but not inconsistent with the rules and regulations of
appropriate government authorities, in particular, Section 31 of the 1940 Act,
and the rules thereunder. FMFS agrees that all such records prepared or
maintained by FMFS relating to the services to be performed by FMFS hereunder
are the property of the Trust and will be preserved, maintained, and made
available in accordance with such section and rules of the 1940 Act and will be
promptly surrendered to the Trust on and in accordance with its request.
10. DATA NECESSARY TO PERFORM SERVICES
The Trust or its agent, which may be FMFS, shall furnish to FMFS the data
necessary to perform the services described herein at such times and in such
form as mutually agreed upon. If FMFS is also acting in another capacity for the
Trust, nothing herein shall be deemed to relieve FMFS of any of its obligations
in such capacity.
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Page 7
11. NOTIFICATION OF ERROR
The Trust will notify FMFS of any balancing or control error caused by FMFS the
later of: within three (3) business days after receipt of any reports rendered
by FMFS to the Trust; within three (3) business days after discovery of any
error or omission not covered in the balancing or control procedure, or within
three (3) business days of receiving notice from any shareholder.
12. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and employees to
treat confidentially and as proprietary information of the Trust all records and
other information relative to the Trust and prior, present, or potential
shareholders of the Trust (and clients of said shareholders), and not to use
such records and information for any purpose other than the performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where FMFS may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Trust.
13. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and, unless sooner
terminated as provided herein, shall continue automatically in effect for
successive annual periods. This Agreement may be terminated by either party upon
giving ninety (90) days prior written notice to the other party or such shorter
period as is mutually agreed upon by the parties. However, this Agreement may be
replaced or modified by a subsequent agreement between the parties.
14. NOTICES
Notices of any kind to be given by either party to the other party shall be in
writing and shall be duly given if mailed or delivered as follows: Notice to
FMFS shall be sent to:
Firstar Mutual Fund Services, LLC
Attn.: Jim Tiegs
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Trust shall be sent to:
John McStay Investment Counsel
5949 Sherry Lane, Suite 1600
Dallas, TX 75225
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Page 8
15. DUTIES IN THE EVENT OF TERMINATION
In the event that in connection with termination, a successor to any of FMFS's
duties or responsibilities hereunder is designated by the Trust by written
notice to FMFS, FMFS will promptly, upon such termination and at the expense of
the Trust transfer to such successor all relevant books, records, correspondence
and other data established or maintained by FMFS under this Agreement in a form
reasonably acceptable to the Trust (if such form differs from the form in which
FMFS has maintained the same, the Trust shall pay any expenses associated with
transferring the same to such form), and will cooperate in the transfer of such
duties and responsibilities, including provision for assistance from FMFS's
personnel in the establishment of books, records and other data by such
successor.
16. GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State of
Wisconsin. However, nothing herein shall be construed in a manner inconsistent
with the 1940 Act or any rule or regulation promulgated by the SEC thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer on one or more counterparts as of the day
and year first written above.
BRAZOS INSURANCE FUNDS FIRSTAR MUTUAL FUND SERVICES, LLC
By:______________________________ By: _______________________
Attest:__________________________ Attest:____________________
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Page 9
PORTFOLIO ACCOUNTING SERVICES
ANNUAL FEE SCHEDULE
EXHIBIT A
Separate Series of Brazos Insurance Funds
NAME OF SERIES DATE ADDED
Brazos Small Cap Growth Portfolio
Domestic Equity Funds
$30,000 for the first $100 million
1.25 basis point on the next $200 million
.75 basis point on the balance
Domestic Balanced Funds
$33,000 for the first $100 million
1.5 basis points on the next $200 million
1 basis point on the balance
Domestic Fixed Income Funds, Funds of Funds, International Equity Funds, T/E
Money Market Funds
$39,000 for the first $100 million
2 basis points on the next $200 million
1 basis point on the balance
Taxable Money Market Funds
$39,000 for the first $100 million
1 basis point on the next $200 million
1/2 basis point on the balance
International Income Funds
$42,000 for the first $100 million
3 basis points on the next $200 million
1.5 basis points on the balance
Multiple Classes - Each class is an additional 25% of the charge of the initial
class.
Extraordinary services - quoted separately
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Page 10
NOTE - All schedules subject to change depending upon the use of derivatives -
options, futures, short sales, etc.
Plus out-of-pocket expenses, including pricing service:
Domestic and Canadian Equities $.15
Options $.15
Corp/Gov/Agency Bonds $.50
CMO's $.80
International Equities and Bonds $.50
Municipal Bonds $.80
Money Market Instruments $.80
Mutual Funds $125/fund/mo
Factor Services (BondBuyer)
Per CMO $1.50/month
Per Mortgage Backed $0.25/month
Minimum $300/month
Fees and out-of-pocket expenses are billed to the fund monthly
LAW OFFICES
DRINKER BIDDLE & REATH LLP
ONE LOGAN SQUARE
18TH AND CHERRY STREETS
PHILADELPHIA, PENNSYLVANIA 19103-6996
TELEPHONE: (215) 988-2700
FAX: (215) 988-2757
February 9, 2000
Brazos Insurance Funds
5949 Sherry Lane
Suite 1600
Dallas, Texas 75225
RE: REGISTRATION STATEMENT ON FORM N-1A
Ladies and Gentlemen:
We have acted as counsel to Brazos Insurance Funds, a Delaware business
trust (the "Trust"), in connection with the preparation and filing with the
Securities and Exchange Commission of the Trust's Registration Statement on Form
N-1A under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended.
The Trust is authorized to issue an unlimited number of shares of
beneficial interest (the "Shares"), with a par value $0.0001 per share. The
Board of Trustees of the Trust has the power to create and establish one or more
classes of Shares and to classify or reclassify any unissued Shares with respect
to such classes.
We have reviewed the Trust's Agreement and Declaration of Trust,
By-Laws, consent of its initial trustee and resolutions adopted by Board of
Trustees of the Trust and such other legal and factual matters as we have deemed
appropriate. We have assumed that the Shares have been or will be issued against
payment therefor as described in the Trust's Prospectus.
This opinion is based exclusively on the Delaware Business Trust Act
and the federal law of the United States of America.
Based upon the foregoing, it is our opinion that once the Trust's Board
of Trustees has created and established the Small Cap Growth Portfolio (the
"Portfolio") and the classes of shares representing interests therein, and any
necessary filings are made with the State of Delaware, the Shares of the
<PAGE>
Portfolio, when issued as described in the prospectus for this Portfolio, will
be validly issued, fully paid and non-assessable by the Trust, and that the
holders of the Shares of the Portfolio will be entitled to the same limitation
of personal liability extended to stockholders of private corporations for
profit organized under the general corporation law of the State of Delaware
(except that we express no opinion as to such holders who are also trustees of
the Trust).
We hereby consent to the filing of this opinion as an exhibit to the
Trust's initial Registration Statement
Very truly yours,
/s/ DRINKER BIDDLE & REATH
----------------------------------------
DRINKER BIDDLE & REATH LLP
Exhibit j(1)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
Firm under the caption "Counsel" in the Statement of Additional Information that
is included in this Registration Statement on Form N-1A under the Securities Act
of 1933 and the Investment Company Act of 1940, as amended, of Brazos Insurance
Funds. This consent does not constitute a consent under Section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under said Section 7 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/S/ DRINKER BIDDLE & REATH LLP
------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
February 9, 2000
CODE OF ETHICS
OF
BRAZOS INSURANCE FUNDS
PREAMBLE
This Code of Ethics is being adopted in compliance with the
requirements of Rule 17j-1 (the "Rule") adopted by the United States Securities
and Exchange Commission under the Investment Company Act of 1940 (the "Act") to
effectuate the purposes and objectives of that Rule. The Rule makes it unlawful
for certain persons, including any officer or trustee of Brazos Insurance Funds
(the "Fund") in connection with the purchase or sale by such person of a
security held or to be acquired by the Fund:1
(1) To employ a device, scheme or artifice to defraud the
Fund;
(2) To make to the Fund any untrue statement of a material
fact or omit to state to the Fund a material fact necessary in order to make the
statements made, in light of the circumstances in which they are made, not
misleading;
(3) To engage in any act, practice or course of business which
operates or would operate as a fraud or deceit upon the Fund; or
(4) To engage in a manipulative practice with respect to the
Fund.
The Rule also requires that the Fund and its investment adviser, John McStay
Investment Counsel (the "Adviser"), adopt a written code of ethics containing
provisions reasonably necessary to prevent persons from engaging in acts in
violation of the above standard and use reasonable diligence and institute
procedures reasonably necessary, to prevent violations of the Code.
This Code of Ethics is adopted by the Board of Trustees of the
Fund in compliance with the Rule. This Code of Ethics is based upon the
principle that the trustees and officers of the Fund, and certain affiliated
persons of the Fund and its investment adviser, owe a fiduciary duty to, among
others, the shareholders of the Fund to conduct their affairs, including their
personal securities transactions, in such manner to avoid (i) serving their own
personal interests ahead of shareholders; (ii) taking inappropriate advantage of
their position with the Fund; and (iii) any actual or potential conflicts of
interest or any abuse of their position of trust and responsibility. This
fiduciary duty includes the duty of the investment advisers to
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1 A security is deemed to be "held or to be acquired" if within the most recent
fifteen (15) days it (i) is or has been held by the Fund, or (ii) is being or
has been considered by the Fund or its investment adviser for purchase by the
Fund.
<PAGE>
the portfolios of the Fund to report violations of this Code of Ethics to the
Fund's Compliance Officer.
A. DEFINITIONS
(1) "ACCESS PERSON" means any trustee, officer, general
partner or advisory person of the Fund.
(2) "ADVISORY PERSON" means (a) any employee of the Fund who,
in connection with his regular functions or duties, normally makes, participates
in, or obtains cur-rent information regarding the purchase or sale of a security
by the Fund, or whose functions relate to the making of any recommendations with
respect to such purchases or sales; and (b) any natural person in a control
relationship to the Fund who obtains information concerning recommendations made
to the Fund with regard to the purchase or sale of a security by the Fund.
(3) "AFFILIATED COMPANY" means a company which is an
affiliated person.
(4) "AFFILIATED PERSON" of another person means (a) any person
directly or indirectly owning, controlling, or holding with power to vote, 5 per
centum or more of the outstanding voting securities or such other person; (b)
any person 5 per centum or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held with power to vote, by such
other person; (c) any person directly or indirectly controlling, controlled by,
or under common control with, such other person; (d) any officer, director,
partner, copartner, or employee of such other person; (e) if such other person
is an investment company, any investment adviser thereof or any member of an
advisory board thereof; and (f) if such other person is an unincorporated
investment company not having a board of directors, the depositor thereof.
(5) A security is "BEING CONSIDERED FOR PURCHASE OR SALE" or
is "being purchased or sold" when a recommendation to purchase or sell the
security has been made and communicated, which includes when the Fund has a
pending "buy" or "sell" order with respect to a security, and, with respect to
the person making the recommendation, when such person seriously considers
making such a recommendation. "PURCHASE OR SALE OF A SECURITY" includes the
writing of an option to purchase or sell a security.
(6) "BENEFICIAL OWNERSHIP" shall be as defined in, and
interpreted in the same manner as it would be in determining whether a person is
subject to the provisions of, Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder which, generally speaking, encompasses
those situations where the beneficial owner has the right to enjoy some economic
benefit from the ownership of the security. A person is normally regarded as the
beneficial owner of securities held in the name of his or her spouse or minor
children living in his or her household.
(7) "CONTROL" means the power to exercise a controlling
influence over the management or policies of a company, unless such power is
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<PAGE>
solely the result of an official position with such company. Any person who owns
beneficially, either directly or through one or more controlled companies, more
than 25 per centum of the voting securities of a company shall be presumed to
control such company. Any person who does not so own more than 25 per centum of
the voting securities of any company shall be presumed not to control such
company. A natural person shall be presumed not to be a controlled person.
(8) "DISINTERESTED DIRECTOR" means a director who is not: an
affiliated person (as defined above) of the Fund; a member of the immediate
family of any natural person who is an affiliated person of the Fund; an
interested person (as defined below) of the Fund, any investment adviser of the
Fund or any principal underwriter for the Fund.
(9) "INTERESTED PERSON" of another person means--
(a) when used with respect to an investment company--
(i) any affiliated person of such company,
(ii) any member of the immediate family of any natural
person who is an affiliated person of such company,
(iii) any interested person of any investment adviser
of or principal underwriter for such company,
(iv) any person or partner or employee of any person
who at any time since the beginning of the last two completed fiscal years of
such company has acted as legal counsel for such company,
(v) any broker or dealer registered under the
Securities Exchange Act of 1934 or any affiliated person of such a broker or
dealer, and
(vi) any natural person whom the Commission by order
shall have determined to be an interested person by reason of having had, at any
time since the beginning of the last two completed fiscal years of such company,
a material business or professional relationship with such company or with the
principal executive officer of such company or with any other investment company
having the same investment adviser or principal underwriter or with the
principal executive officer of such other investment company:
PROVIDED, That no person shall be deemed to be an interested person of
an investment company solely by reason of (aa) his being a member of its board
of directors or advisory board or an owner of its securities, or (bb) his
membership in the immediate family of any person specified in clause (aa) of
this proviso.
(10) "INVESTMENT PERSONNEL" means (a) any portfolio manager of
the Fund as defined in (12) below; and (b) securities analysts, traders and
other personnel who provide information and advice to the portfolio manager or
who help execute the portfolio manager's decisions.
(11) "PERSON" means a natural person or a company.
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<PAGE>
(12) "PORTFOLIO MANAGER" means an employee of the investment
adviser or sub-investment adviser of the Fund entrusted with the direct
responsibility and authority to make investment decisions affecting an
investment company.
(13) "SECURITY" means any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of interest or participation in
any profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any put, call,
straddle, option, or privilege on any security (including a certificate of
deposit) or on any group or index of securities (including any interest therein
or based on the value thereof), or any put, call, straddle, option, or privilege
entered into on a national securities exchange relating to foreign currency, or,
in general, any interest or instrument commonly known as a "security," or any
certificate of interest or participation in, temporary or interim certificate
for, receipt for, guarantee of, or warrant or right to subscribe to or purchase,
any of the foregoing.
"SECURITY" shall not include securities issued by the
government of the United States or by federal agencies and which are direct
obligations of the United States, bankers' acceptances, bank certificates of
deposit, commercial paper and shares of unaffiliated registered open-end
investment companies (mutual funds).
B. PROHIBITED TRANSACTIONS
(1) ACCESS PERSONS
(a) NO ACCESS PERSON shall engage in any act, practice or
course of conduct, which would violate the provisions of Rule 17j-1 set forth
above.
(b) NO ACCESS PERSON shall:
(i) purchase or sell, directly or indirectly, any
security in which he has or by reason of such
transaction acquires, any direct or indirect
beneficial ownership and which to his or her
ACTUAL KNOWLEDGE at the time of such purchase or
sale:
(ii) is being considered for purchase or sale by the
Fund, or
(iii) is being purchased or sold by any portfolio of
the Fund; or
(iv) disclose to other persons the securities
activities engaged in or contemplated for the
various portfolios of the Fund.
(2) INVESTMENT PERSONNEL
NO INVESTMENT PERSONNEL SHALL:
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<PAGE>
(a) accept any gift or other thing of more than de minimis
value from any person or entity that does business
with or on behalf of the Fund; for the purpose of this
Code, de minimis shall be considered to be the annual
receipt of gifts from the same source valued at $250
or less per individual recipient, when the gifts are
in relation to the conduct of the Fund's business;
(b) acquire securities, other than fixed income
securities, in an initial public offering, in order to
preclude any possibility of such person profiting from
their positions with the Fund;
(c) purchase any securities in a private placement,
without prior approval of the Compliance Officer of
the Adviser or other officer designated by the Board
of Trustees. Any person authorized to purchase
securities in a private placement shall disclose that
investment when they play a part in any Fund's
subsequent consideration of an investment in the
issuer. In such circumstances, the Fund's decision to
purchase securities of the issuer shall be subject to
independent review by investment personnel with no
personal interest in the issuer;
(d) profit in the purchase and sale, or sale and purchase,
of the same (or equivalent) securities within sixty
(60) calendar days. Trades made in violation of this
prohibition should be unwound, if possible. Otherwise,
any profits realized on such short-term trades shall
be subject to disgorgement to the appropriate
portfolio of the investment company.
EXCEPTIONS: The Compliance Officer of the Adviser may allow
exceptions to this policy on a case-by-case basis when
the abusive practices that the policy is designed to
prevent, such as frontrunning or conflicts of
interest, are not present and the equity of the
situation strongly supports an exemption. An example
is the involuntary sale of securities due to
unforeseen corporate activity such as a merger.
[Seess.C below]. The ban on short-term trading profits
is specifically designed to deter potential conflicts
of interest and frontrunning transactions, which
typically involve a quick trading pattern to
capitalize on a short-lived market impact of a trade
by one of the Fund's portfolios. The Adviser shall
consider the policy reasons for the ban on short-term
trades, as stated herein, in determining when an
exception to the prohibition is permissible. The
granting of an exception to this prohibition shall be
permissible if the securities involved in the
transaction are not (i) being considered for purchase
or sale by the portfolio of the Fund that serves as
the basis of the individual's "investment personnel"
-5-
<PAGE>
status or (ii) being purchased or sold by the
portfolio of the Fund that serves as the basis of the
individual's "investment personnel" status and, are
not economically related to such securities;
exceptions granted under this provision are
conditioned upon receipt by a duly authorized officer
of the Adviser of a report (Exhibit D) of the
transaction and certification by the respective
investment personnel that the transaction is in
compliance with this Code of Ethics (see Exhibit D).
(e) serve on the board of directors of any publicly traded
company without prior authorization of the President
or other duly authorized officer of the Fund. Any such
authorization shall be based upon a determination that
the board service would be consistent with the
interests of the Fund and its shareholders.
Authorization of board service shall be subject to the
implementation by the Adviser of "Chinese Wall" or
other procedures to isolate such investment personnel
from the investment personnel making decisions about
trading in that company's securities.
(3) PORTFOLIO MANAGERS
(a) NO PORTFOLIO MANAGER SHALL:
(i) buy or sell a security within seven (7) calendar
days before and within seven (7) calendar days
after any portfolio of the Fund that he or she
manages trades in that security. Any trades made
within the proscribed period shall be unwound,
if possible. Otherwise, any profits realized on
trades within the proscribed period shall be
disgorged to the appropriate portfolio of the
Fund.
C. EXEMPTED TRANSACTIONS
The prohibitions of Sections B(l)(b), B(2)(d) and B(3)(a)
shall not apply to:
(1) purchases or sales effected in any account over which
the access person has no direct or indirect influence
or control;
(2) purchases or sales which are non-volitional on the
part of either the access person or the Fund;
(3) purchases which are part of an automatic dividend
reinvestment plan;
(4) purchases effected upon the exercise of rights issued
by an issuer PRO RATA to all holders of a class of its
securities, to the extent such rights were acquired
from such issuer, and sales of such rights so
acquired;
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<PAGE>
(5) purchases or sales of securities which are not
eligible for purchase by the Fund and which are not
related economically to securities purchased, sold or
held by the Fund;
(6) transactions which appear upon reasonable inquiry and
investigation to present no reasonable likelihood of
harm to the Fund and which are otherwise in accordance
with Rule 17j-1; For example, such transactions would
normally include purchases or sales of:
(a) securities contained in the Standard and Poor's
100 Composite Stock Index;
(b) up to $25,000 principal amount of a fixed income
security or 100 shares of an equity security
within any three-consecutive month period (all
trades within a three-consecutive month period
shall be integrated to determine the
availability of this exemption);
(c) up to 1,000 shares of a security which is being
considered for purchase or sale by a Fund (but
not then being purchased or sold) if the issuer
has a market capitalization of over $1 billion
and if the proposed acquisition or disposition
by the Fund is less than one percent of the
class outstanding as shown by the most recent
report or statement published by the issuer, or
less than one percent of the average weekly
reported volume of trading in such securities on
all national securities exchanges and/or
reported through the automated quotation system
of a registered securities association, during
the four calendar weeks prior to the
individual's personal securities transaction; or
(d) any amount of securities if the proposed
acquisition or disposition by the Fund is in the
amount of 1,000 or less shares and the security
is listed on a national securities exchange or
the National Association of Securities Dealers
Automated Quotation System.
D. COMPLIANCE PROCEDURES
(1) PRE-CLEARANCE
All access persons shall receive prior written approval
(Exhibit E) from the Compliance Officer of the Adviser or other officer
designated by the Board of Trustees before purchasing or selling securities.
Procedures implemented herein to pre-clear the securities
transactions of access persons shall not apply to a trustee of the Fund who is
not an "interested person" of the Fund as defined in this Code, except where
such trustee knew or, in the ordinary course of fulfilling his official duties
as a trustee of the Fund, should have known that during the 15-day period
immediately preceding or after the date of the transaction in a security by the
trustee, such security is or was purchased or sold by the Fund or such purchase
-7-
<PAGE>
or sale by the Fund is or was considered by the Fund.
Purchases or sales by access persons who are employees of
the Adviser are not subject to the pre-clearance procedures set forth herein,
provided that such persons are required to pre-clear proposed transactions in
securities pursuant to a Code of Ethics.
Purchases or sales by access persons who are employees of
the administrator for the Fund, Firstar Mutual Fund Services, LLC, are not
subject to the pre-clearance procedures set forth herein, provided that such
persons are required to pre-clear proposed transactions in securities pursuant
to a Code of Ethics.
Purchases or sales of securities which are not eligible for
purchase or sale by the Fund or any portfolio of the Fund that serves as the
basis of the individual's "access person" status shall be entitled to clearance
automatically from the Compliance Officer of the Fund. This provision shall not
relieve any access person from compliance with pre-clearance procedures.
(2) DISCLOSURE OF PERSONAL HOLDINGS
All investment personnel shall disclose to the Compliance
Officer of the Adviser all personal securities holdings upon the later of
commencement of employment or adoption of this Code of Ethics and thereafter on
an annual basis as of December 31. This initial report shall be made on the form
attached as Exhibit A and shall be delivered to the Compliance Officer of the
Adviser and, upon request, to the Compliance Officer of the Fund.
(3) CERTIFICATION OF COMPLIANCE WITH CODE OF ETHICS
(a) Every access person shall certify annually that:
(i) they have read and understand the Code of
Ethics and recognize that they are subject
thereto;
(ii) they have complied with the requirements
of the Code of Ethics; and
(iii) they have reported all personal securities
transactions required to be reported
pursuant to the requirements of the Code
of Ethics.
The annual report shall be made on the form attached as
Exhibit B and delivered to the Compliance Officers of the Fund and the Adviser.
(4) REPORTING REQUIREMENTS
(a) Every access person shall report to the
Compliance Officer of the Fund and the Adviser
the information described in, Subparagraph
(4)(b) of this Section with respect to
transactions in any security in which
-8-
<PAGE>
such person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership
in the security; provided, however, that an access
person shall not be required to make a report with
respect to transactions effected for any account over
which such person does not have any direct or
indirect influence.
(b) Reports required to be made under this Paragraph (4)
shall be made not later than 10 days after the end of
the calendar quarter in which the transaction to
which the report relates was effected. Every access
person shall be required to submit a report for all
periods, including those periods in which no
securities transactions were effected. A report shall
be made on the form attached hereto as Exhibit C or
on any other form containing the following
information:
(i) the date of the transaction, the title and
the number of shares, and the principal
amount of each security involved;
(ii) the nature of the transaction (i.e.,
purchase, sale or any other type of
acquisition or disposition);
(iii) the price at which the transaction was
effected; and
(iv) the name of the broker, dealer or bank with
or through whom the transaction was
effected.
Duplicate copies of the broker confirmation of all
personal transactions and copies of periodic
statements for all securities accounts may be
appended to Exhibit C to fulfill the reporting
requirement.
(c) Any such report may contain a statement that the
report shall not be construed as an admission by the
person making such report that he or she has any
direct or indirect beneficial ownership in the
security to which the report relates.
(d) The Compliance Officer of the Fund shall notify each
access person that he or she is subject to these
reporting requirements, and shall deliver a copy of
this Code of Ethics to each such person upon request.
(e) Reports submitted to the Fund pursuant to this Code
of Ethics shall be confidential and shall be provided
only to the officers and trustees of the Fund, Fund
counsel or regulatory authorities upon appropriate
request.
-9-
<PAGE>
(f) Each trustee who is not an "interested person" of the
Fund as defined in the Act need only report a
transaction in a security if such trustee, at the
time of that transaction knew, or, in the ordinary
course of fulfilling his official duties as a
trustee, should have known that, during the 15-day
period immediately preceding or after the date of the
transaction by the trustee, such security was
purchased or sold by the Fund or was being considered
for purchase by the Fund or by its investment adviser
or sub-investment adviser. Such reports will include
the information described in Sub-paragraph (4)(b) of
this Section.
(5) CONFLICT OF INTEREST
Every access person, except officers and trustees of the Fund,
shall notify the Compliance Officer of the Adviser of any personal conflict of
interest relationship which may involve the Fund, such as the existence of any
economic relationship between their transactions and securities held or to be
acquired by any portfolio of the Fund. Officers and trustees of the Fund shall
notify the Compliance Officer of the Fund of any personal conflict of interest
relationship which may involve the Fund. Such notification shall occur in the
preclearance process.
E. REPORTING OF VIOLATIONS TO THE BOARD OF TRUSTEES
(1) The Compliance Officer of the Fund shall promptly
report to the Board of Trustees all apparent violations of this Code of Ethics
and the reporting requirements thereunder.
(2) When the Compliance Officer of the Fund finds that a
transaction otherwise reportable to the Board of Trustees under Paragraph (1) of
this Section could not reasonably be found to have resulted in a fraud, deceit
or manipulative practice in violation of Rule 17j-l(a), he may, in his
discretion, lodge a written memorandum of such finding and the reasons therefor
with the reports made pursuant to this Code of Ethics, in lieu of reporting the
transaction to the Board of Trustees.
(3) The Board of Trustees, or a Committee of Trustees
created by the Board of Trustees for that purpose, shall consider reports made
to the Board of Trustees hereunder and shall determine whether or not this Code
of Ethics has been violated and what sanctions, if any, should be imposed.
F. ANNUAL REPORTING TO THE BOARD OF TRUSTEES
(1) The Compliance Officer of the Fund shall prepare an annual
report relating to this Code of Ethics to the Board of Trustees. Such annual
report shall:
(a) summarize existing procedures concerning personal
investing and any changes in the procedures made
during the past year;
-10-
<PAGE>
(b) identify any violations requiring significant
remedial action during the past year; and
(c) identify any recommended changes in the existing
restrictions or procedures based upon the Fund's
experience under its Code of Ethics, evolving
industry practices or developments in applicable
laws or regulations.
G. SANCTIONS
Upon discovering a violation of this Code, the Board of
Trustees may impose such sanctions as they deem appropriate, including, among
other things, a letter of censure or suspension or termination of the employment
of the violator.
H. RETENTION OF RECORDS
The Fund shall maintain the following records as required
under Rule 17j-1; reports received by the Adviser on behalf of the Fund shall be
maintained as required under Rule 17j-1:
(a) a copy of any Code of Ethics in effect within the
most recent five years;
(b) a list of all persons required to make reports
hereunder within the most recent five years, as
shall be updated by the Compliance Officer of the
Fund;
(c) a copy of each report made by an access person
hereunder for a period of five years from the end of
the fiscal year in which it was made;
(d) each memorandum made by the Compliance Officer of
the Fund hereunder, for a period of five years from
the end of the fiscal year in which it was made; and
(e) a record of any violation hereof and any action
taken as a result of such violation, for a period of
five years following the end of the fiscal year in
which the violation occurred.
Dated: January 21, 2000
-11-
<PAGE>
Exhibit A
BRAZOS INSURANCE FUNDS
CODE OF ETHICS
INITIAL REPORT OF INVESTMENT PERSONNEL
To the Compliance Officer of John McStay Investment Counsel on behalf of Brazos
Insurance Funds:
1. I hereby acknowledge receipt of a copy of the Code of Ethics
for Brazos Insurance Funds (the "Fund").
2. I have read and understand the Code and recognize that I am
subject thereto in the capacity of "Investment Personnel."
3. Except as noted below, I hereby certify that I have no
knowledge of the existence of any personal conflict of interest relationship
which may involve the Fund, such as any economic relationship between my
transactions and securities held or to be acquired by the Fund or any of its
portfolios.
4. As of the date below I had a direct or indirect beneficial
ownership in the following securities:
-------------------------------------------------------------------------------
Type of Interest
NAME OF SECURITIES NUMBER OF SHARES (DIRECT OR INDIRECT)
------------------ ---------------- --------------------
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NOTE: Do NOT report transactions in U.S. Government securities, bankers'
acceptances, bank certificates of deposit, commercial paper and unaffiliated
registered open-end investment companies (mutual funds).
Date: Signature:
----------------------
(First date of investment
personnel status) Print Name:
---------------------
Title:
-------------------------
Employer's Name:
----------------
Date: Signature:
---------------------- ------------------------------------
Compliance Officer
<PAGE>
PHTRANS\302337\1
Exhibit B
BRAZOS INSURANCE FUNDS
(THE "FUND")
CODE OF ETHICS
ANNUAL REPORT OF INVESTMENT PERSONNEL
To the Compliance Officer of John McStay Investment Counsel and the Fund:
1. I have read and understand the Code and recognize that I am
subject thereto in the capacity of an "Access Person."
2. I hereby certify that, during the year ended December 31,
20__, I have complied with the requirements of the Code and I have reported all
securities transactions required to be reported pursuant to the Code.
3. Except as noted below, I hereby certify that I have no
knowledge of the existence of any personal conflict of interest relationship
which may involve the Fund, such as any economic relationship between my
transactions and securities held or to be acquired by the Fund or any of its
portfolios.
4. Only access persons who are also investment personnel complete
this item. As of December 31, 20__, 1 had a direct or indirect beneficial
ownership in the following securities:
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Type of Interest
NAME OF SECURITIES NUMBER OF SHARES (DIRECT OR INDIRECT)
------------------ ---------------- --------------------
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NOTE: Do NOT report transactions in U.S. Government securities, bankers'
acceptances, bank certificates of deposit, commercial paper and unaffiliated
registered open-end investment companies (mutual funds).
Trustees who are not "interested persons" of the Fund are required to
complete this form but are not required to make a report of personal securities
holdings except where such trustee knew or should have known that during the
15-day period immediately preceding or after the date of the transaction in a
security by the trustee, such security is or was purchased or sold by the Fund
or such purchase or sale by the Fund is or was considered by the Fund, or an
adviser.
<PAGE>
Date: Signature:
----------------------
(First date of investment
personnel status) Print Name:
---------------------
Title:
-------------------------
Employer's Name:
----------------
Date: Signature:
---------------------- ------------------------------------
Compliance Officer
-2-
<PAGE>
Exhibit C
BRAZOS INSURANCE FUNDS
ACCESS PERSONS
Securities Transactions Report For the Calendar Quarter Ended:
To the Compliance Officer of Brazos Insurance Funds ("the Fund") (with a copy to
the Compliance Officer of John McStay Investment Counsel):
During the quarter referred to above, the following
transactions were effected in securities of which I had, or by reason of such
transaction acquired, direct or indirect beneficial ownership, and which are
required to be reported pursuant to the Code of Ethics adopted by the Fund.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SECURITY DATE OF No. of SHARES DOLLAR AMOUNT OF NATURE OF PRICE BROKER/DEALER OR
TRANSACTION TRANSACTION TRANSACTION BANK THROUGH WHOM
(Purchase, Sale, EFFECTED
Other)
<S> <C> <C> <C> <C> <C> <C>
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- ---------------------------------------------------------------------------------------------------------------------------------
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- ---------------------------------------------------------------------------------------------------------------------------------
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- ---------------------------------------------------------------------------------------------------------------------------------
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- ---------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
This report (i) excludes transactions with respect to which I had no
direct or indirect influence or control, (ii) excludes other transactions not
required to be reported, and (iii) is not an admission that I have or had any
direct or indirect beneficial ownership in the securities listed above.
Except as noted on the reverse side of this report, I hereby certify
that I have no knowledge of the existence of any personal conflict of interest
relationship which may involve the Fund, such as the existence of any economic
relationship between my transactions and securities held or to be acquired by
the Fund or any of its Series.
NOTE: Do NOT report transactions in U.S. Government securities,
bankers' acceptances, bank certificates of deposit, commercial paper and
unaffiliated registered open-end investment companies (mutual funds).
Trustees who are not interested persons of the Fund are not required to
make a report except where such trustee knew or should have known that during
the 15-day period immediately preceding or after the date of the transaction in
a security by the trustee, such security is or was purchased or sold by the Fund
or such purchase or sale by the Fund is or was considered by the Fund or an
adviser.
Date: Signature:
---------------------- --------------------------------
Print Name:
-------------------------------
Title:
----------------------------
Employer's Name:
------------------
Date: Signature:
---------------------- -------------------------------------
Compliance Officer
<PAGE>
Exhibit D
BRAZOS INSURANCE FUNDS
INVESTMENT PERSONNEL
Securities Transactions Report Relating to Short-Term Trading
(see Section B(2)(d), Code of Ethics)
For the Sixty-Day Period from ______________ to __________:
To the Compliance Officer of John McStay Investment Counsel on behalf of Brazos
Insurance Funds ("the Fund"):
During the 60 calendar day period referred to above, the following
purchases and sales, or sales and purchases, of the same (or equivalent)
securities were effected or are proposed to be effected in securities of which I
have, or by reason of such transaction acquired, direct or indirect beneficial
ownership.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SECURITY DATE OF No. of SHARES DOLLAR AMOUNT OF NATURE OF PRICE BROKER/DEALER OR
TRANSACTION TRANSACTION TRANSACTION (OR PROPOSED BANK THROUGH WHOM
(OR PROPOSED (Purchase, Sale, PRICE) EFFECTED
TRANSACTION) Other)
<S> <C> <C> <C> <C> <C> <C>
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</TABLE>
This report (i) excludes transactions with respect to which I have or
had no direct or indirect influence or control, (ii) excludes other transactions
not required to be reported, and (iii) is not an admission that I have or had
any direct or indirect beneficial ownership in the securities listed above.
WITH RESPECT TO THE (1) PORTFOLIO OF THE FUND THAT SERVES AS THE BASIS
FOR MY "INVESTMENT PERSONNEL" STATUS WITH THE FUND (THE "PORTFOLIO"); AND (2)
TRANSACTIONS IN THE SECURITIES SET FORTH IN THE TABLE ABOVE, I HEREBY CERTIFY
THAT:
(a) I have no knowledge of the existence of any personal conflict
of interest relationship which may involve the Portfolio, such
as frontrunning transactions or the existence of any economic
relationship between my transactions and securities held or to
be acquired by the Portfolio;
(b) such securities, including securities that are economically
related to such securities, involved in the transaction are
not (i) being considered for purchase or sale by the
Portfolio, or (ii) being purchased or sold by the Portfolio;
and
<PAGE>
(c) are in compliance with the Code of Ethics of the Fund.
Date: Signature:
---------------------- ------------------------------
Print Name:
-----------------------------
Title:
----------------------------------
Employer's Name:
------------------------
- --------------------------------------------------------------------------------
In accordance with the provisions of Section B(2)(d) of the Code of
Ethics of the Fund, the transaction proposed to be effected as set forth in this
Report is:
Authorized: [ ]
Unauthorized: [ ]
Date: Signature:
---------------------- ------------------------------
Compliance Officer
- --------------------------------------------------------------------------------
-2-
<PAGE>
Exhibit E
BRAZOS INSURANCE FUNDS
ACCESS PERSONS
Personal Securities Transactions Pre-clearance Form
(see Section D(l), Code of Ethics)
To the Compliance Officer of John McStay Investment Counsel:
I hereby request pre-clearance of the following proposed transactions:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SECURITY NO. OF DOLLAR AMOUNT OF PRICE (OR BROKER/DEALER PRICE AUTHORIZED
SHARES TRANSACTION PROPOSED OR BANK
PRICE) THROUGH WHOM
EFFECTED YES NO
<S> <C> <C> <C> <C> <C> <C> <C>
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- ---------------------------------------------------------------------------------------------------------------------------------
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- ---------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
Signature: ----------------
Print Name: Date
-------------------------------------------
Employer:
--------------------------------------------
Signature:
-------------------------------------------- ----------------
Compliance Officer of Date
John McStay Investment Counsel
