As filed with the Securities and Exchange Commission on July 30, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
(File No. 33-11549)
Post-Effective Amendment No. 16
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 _X_
(File No. 811-04995)
Post-Effective Amendment No. 17
SIT U.S. GOVERNMENT SECURITIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
4600 Norwest Center, Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 332-3223
(Registrant's Telephone Number, including Area Code)
Parnell M. Kingsley, Assistant Secretary
SIT Mutual Funds Group
4600 Norwest Center
Minneapolis, Minnesota 55402
(Name and Address of Agent for Service)
Copy to:
Michael J. Radmer, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
___ immediately upon filing pursuant to paragraph (b) of rule 485
_XX_ on August 1, 1996 pursuant to paragraph (b) of rule 485
___ 60 days after filing pursuant to paragraph (a) of rule 485
___ on (specify date) pursuant to paragraph (a) of rule 485
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's most recent fiscal year
was filed with the Securities and Exchange Commission on or about May 28, 1996.
As filed with the Securities and Exchange Commission on July 30, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
(File No. 2-91312)
Post-Effective Amendment No. 20
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 _X_
(File No. 811-04033)
Post-Effective Amendment No. 21
SIT MUTUAL FUNDS II, INC.
(Exact Name of Registrant as Specified in Charter)
4600 Norwest Center, Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 332-3223
(Registrant's Telephone Number, including Area Code)
Parnell M. Kingsley, Assistant Secretary
SIT Mutual Funds Group
4600 Norwest Center
Minneapolis, Minnesota 55402
(Name and Address of Agent for Service)
Copy to:
Michael J. Radmer, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
____ immediately upon filing pursuant to paragraph (b) of rule 485
_XX_ on August 1, 1995 pursuant to paragraph (b) of rule 485
____ 60 days after filing pursuant to paragraph (a) of rule 485
____ on (specify date) pursuant to paragraph (a) of rule 485
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's most recent fiscal year
was filed with the Securities and Exchange Commission on or about May 28, 1996.
As filed with the Securities and Exchange Commission on July 30, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
(File No. 2-91313)
Post-Effective Amendment No. 17
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 _X_
(File No. 811-04032)
Post-Effective Amendment No. 18
SIT MONEY MARKET FUND, INC.
(Exact Name of Registrant as Specified in Charter)
4600 Norwest Center, Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 332-3223
(Registrant's Telephone Number, including Area Code)
Parnell M. Kingsley, Assistant Secretary
SIT Mutual Funds Group
4600 Norwest Center
Minneapolis, Minnesota 55402
(Name and Address of Agent for Service)
Copy to:
Michael J. Radmer, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
____ immediately upon filing pursuant to paragraph (b) of rule 485
_XX_ on August 1, 1996 pursuant to paragraph (b) of rule 485
____ 60 days after filing pursuant to paragraph (a) of rule 485
____ on (specify date) pursuant to paragraph (a) of rule 485
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's most recent fiscal year
was filed with the Securities and Exchange Commission on or about May 28, 1996.
FORM N-1A
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NO CAPTION PROSPECTUS CAPTION
<S> <C> <C>
1 Cover Page Inside Cover of Prospectus
2 Synopsis Prospectus Summary
3 Condensed Financial Information Financial Highlights
4 General Description of Registrant Investment Objectives and Policies; Common
Policies and Information; Capitalization and
Voting Rights; Additional Information
5 Management of the Fund Summary of Fund Expenses; Custodian and
Transfer Agent; Management; Additional Information
6 Capital Stock and Other Dividend Reinvestment; Securities Exchanges;
Capitalization and Voting Rights; Taxes;
Additional Information
7 Purchase of Securities Being How to Purchase Fund Shares; Exchanges; Retirement
Offered Accounts; Computation of Net Asset Value
8 Redemption or Repurchase Redemption of Fund Shares
9 Pending Legal Proceedings Not Applicable
ITEM NO. CAPTION STATEMENT OF ADDITIONAL
INFORMATION CAPTION
10 Cover Page Cover Page of Statment of Additional Information
11 Table of Contents Table of Contents
12 General Information and History Not Applicable
13 Investment Objectives and Policies Additional Investment Restrictions; Securities in
which the Funds May Invest
14 Management of the Fund Management; Investment Adviser
15 Control Persons and Principal Control Persons and Principal Holders
Holders of Securities
16 Investment Advisory and Other Investment Adviser
Services
17 Brokerage Allocation Brokerage
18 Capital Stock and Other Securities Capitalization and Voting Rights (in Prospectus)
19 Purchase, Redemption and Pricing Computation of Net Asset Value
of Securities Being Offered
20 Tax Status Taxes
21 Underwriters SIA Securities Corp.
22 Calculation of Performance Data Calculation of Performance Data
23 Financial Statements Financial Statements
</TABLE>
PROSPECTUS SIT MUTUAL FUNDS
BOND FUNDS
AUGUST 1, 1996
A FAMLY
OF 100%
NO-LOAD FUNDS
* BOND FUND
* MINNESOTA TAX-FREE INCOME FUND
* TAX-FREE INCOME FUND
* U.S. GOVERNMENT SECURITIES FUND
* MONEY MARKET FUND
SIT MUTUAL FUNDS
4600 Norwest Center - Minneapolis, MN 55402
612-334-5888 or 800-332-5580
<TABLE>
<CAPTION>
(CHART)
OUR FAMILY OF FUNDS
<S> <C> <C> <C>
Stability: Income: Growth & Income: Growth:
Safety of principal Increased income Long-term capital Long-term capital
and current income appreciation and appreciation
income
Funds:
Money Market U.S. Govt. Securities Balanced Growth
Tax-Free Income Growth & Income Int'l Growth
MN Tax-Free Income Small Cap Growth
Bond Dev Markets Growth
Principal Stability Growth
& Current Income Potential
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS (AND/OR IN THE
STATEMENT OF ADDITIONAL INFORMATION REFERRED TO ON THE COVER PAGE OF THIS
PROSPECTUS), AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
Not part of the prospectus
PROSPECTUS
August 1, 1996
The Funds have the following investment objectives:
BOND FUND
The objective of the Bond Fund is to maximize total return, consistent with
preservation of capital. The Fund pursues this objective by investing in a
diversified portfolio of fixed-income securities.
MINNESOTA TAX-FREE INCOME FUND
The objective of the Minnesota Tax-Free Income Fund is to provide a high level
of current income exempt from federal regular income tax and Minnesota regular
personal income tax as is consistent with the preservation of capital.
TAX-FREE INCOME FUND
The objective of the Tax-Free Income Fund is to provide a high level of current
income that is exempt from federal income tax, consistent with preservation of
capital, by investing in investment-grade municipal securities.
U.S. GOVERNMENT SECURITIES FUND
The objective of the U.S. Government Securities Fund is to provide high current
income and safety of principal, which it seeks to attain by investing solely in
debt obligations issued, guaranteed or insured by the U.S. government or its
agencies or its instrumentalities.
MONEY MARKET FUND
The objective of the Money Market Fund is to achieve maximum current income to
the extent consistent with the preservation of capital and maintenance of
liquidity. The Fund pursues this objective by investing in short-term debt
instruments which mature in 397 days or less and by maintaining a
dollar-weighted portfolio maturity of 90 days or less. AN INVESTMENT IN THE FUND
IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO
ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
This prospectus concisely sets forth facts about the Funds that you should know
before investing and it should be retained for future reference. You should read
it to decide if any of the Funds are the right investment for you. Additional
facts about each Fund are contained in a Statement of Additional Information
(dated August 1, 1996) which has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. For a free copy, call or
write the Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SIT BOND FUND
SIT MINNESOTA TAX-FREE INCOME FUND
SIT TAX-FREE INCOME FUND
SIT U.S. GOVERNMENT SECURITIES FUND, INC.
SIT MONEY MARKET FUND, INC.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
Summary of Fund Expenses............................. 4 Duration............................... 26
Financial Highlights................................. 5 Portfolio Turnover..................... 27
Performance.......................................... 10 Relationship of Debt Securities &
Investment Objectives and Policies................... 13 Interest Rates .................... 27
Bond Fund....................................... 13 Temporary Defensive Investments........ 27
Minnesota Tax-Free Income Fund.................. 16 Ratings of Debt Securities............. 28
Tax-Free Income Fund............................ 18 Other Investment Restrictions.......... 28
Common Policies of Tax-Free Funds............... 19 Computation of Net Asset Value.............. 29
U.S. Government Fund............................ 20 How to Purchase Fund Shares................. 29
Money Market Fund............................... 22 Redemption of Fund Shares................... 31
Common Policies and Information...................... 24 Exchanges................................... 32
Collateralized Mortgage Obligations............. 24 Checkwriting................................ 33
Zero Coupon Securities.......................... 24 Dividend Reinvestment....................... 33
Futures, Options & Swap Agreements.............. 24 Retirement Accounts......................... 33
When-Issued and Forward Custodian and Transfer Agent ..... 34
Commitment Securities...................... 25 Management.................................. 34
Repurchase Agreements........................... 25 Taxes....................................... 35
Illiquid Securities............................. 26 Capitalization and Voting Rights............ 37
Variable & Floating Rate Notes.................. 26 Additional Information...................... 37
</TABLE>
See the "Investment Objectives and Policies" beginning on page 13, and "Common
Policies and Information" beginning on page 24 for more detailed information.
-2-
PROSPECTUS SUMMARY
THE FUNDS
The Funds are no-load, open-end, diversified (except the Minnesota Tax-Free
Income Fund which is non-diversified), management investment companies (commonly
known as a "mutual funds"), as defined in the Investment Company Act of 1940
(the "1940 Act").
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Funds are set forth on page 1 of this
prospectus. The investment objective of each Fund is "fundamental," which means
that it may not be changed unless approved by a vote of the "majority" of the
shareholders of such Fund (as defined in the 1940 Act). There can be no
assurance that the investment objectives of any of the Funds will be achieved.
INVESTMENT ADVISER
Sit Investment Associates, Inc. (the "Adviser") serves as the investment adviser
to each Fund and receives an annual fee based on a percentage of average daily
net assets. The percentage varies from Fund to Fund.
PRICE OF FUND SHARES
Fund shares are sold at their net asset value ("NAV"). There is no sales charge
or redemption fee. The NAV is based upon the market value of the securities
owned by a Fund and is determined once daily as of the close of the New York
Stock Exchange on each day the Exchange is open for trading.
HOW TO PURCHASE SHARES
You can purchase shares of any Fund with no sales charges at the next determined
NAV by completing the application and mailing it, along with a check to the
Funds at the address as listed on the inside back cover of this prospectus or as
instructed on the application.
100% NO-LOAD
NO SALES COMMISSIONS
NO DEFERRED SALES CHARGES
NO 12b-1 FEES
$2,000 MINIMUM INITIAL PURCHASE -- $100 SUBSEQUENT PURCHASE
NO MINIMUM PURCHASE FOR IRAs or OTHER RETIREMENT ACCOUNTS
ELECTRONIC TRANSFER OF FUNDS FOR PURCHASES AND REDEMPTIONS
AUTOMATIC MONTHLY INVESTMENT PLAN
NO CHARGE CHECKWRITING
NO CHARGE FOR EXCHANGES
-3-
SUMMARY OF FUND EXPENSES
The fund expense summary was developed for use by all mutual funds. You should
consider this expense information as well as other important information in this
prospectus:
<TABLE>
<CAPTION>
Minnesota Tax-Free Money
Bond Tax-Free Income Government Market
Fund Income Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales load on purchases none none none none none
Sales load on reinvested dividends none none none none none
Deferred sales load none none none none none
Redemption fees none none none none none
Exchange fees none none none none none
ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets)
Management fees .80% .80% .80% (1) .80% (1) .50% (1)
12b-1 fees none none none none none
Other expenses none none none none none
---- ---- ---- ---- ----
Total fund operating expenses .80% .80% .80% (1) .80% (1) .50% (1)
---- ---- ---- ---- ----
(1) Net of voluntary fee waiver.
- ---------------------
</TABLE>
Example: You would pay the following expenses on a $1,000 investment, assuming
(a) 5% annual rate of return and (b) redemption at the end of each period.
<TABLE>
<CAPTION>
Minnesota Tax-Free Money
Bond Tax-Free Income Government Market
Fund Income Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 year......................... $ 8 $ 8 $ 8 $ 8 $ 5
3 years........................ 26 26 26 26 16
5 years........................ 44 44 44 44 28
10 years....................... 99 99 99 99 63
</TABLE>
The purpose of the above table is to assist you in understanding the various
costs and expenses that an investor in the Funds will bear directly or
indirectly. No transaction expenses are incurred by you when you buy or sell
shares of the Funds. Management fees and other expenses are reflected in each
Fund's share price and are not charged directly to individual shareholder
accounts.
Each Fund has engaged the Adviser as its investment adviser pursuant to an
Investment Management Agreement. Absent voluntary fee waivers by the Adviser,
Bond Fund, Minnesota Tax-Free Income Fund, Tax-Free Income Fund and Money Market
Fund are obligated under the Funds' Investment Management Agreements to pay the
Adviser annual management fees of .80%, (.60% of assets in excess of $50 million
for the Money Market Fund) per year of the Funds' average daily net assets;
Government Fund is obligated to pay the Adviser an annual management fee of
1.00% (.80% of assets in excess of $50 million) per year of the Fund's average
daily net assets; however, the Adviser is obligated to pay all of each Fund's
other expenses (other than extraordinary expenses, interest, brokerage
commissions and other transaction charges). See "Management - Investment
Adviser."
For the period October 1, 1993 through March 31, 1997, the Adviser has
voluntarily agreed to limit the management fee (and, thereby, all Fund expenses,
except those not payable by the Adviser as set forth above) of Government Fund
and Money Market Fund to .80% and .50% per year, respectively, and of Tax-Free
Income Fund to .70% of assets in excess of $250 million of the Fund's average
daily net assets. After March 31, 1997, this voluntary fee waiver may be
discontinued by the Adviser in its sole discretion.
FINANCIAL HIGHLIGHTS
The following tables show certain important financial information for evaluating
each Fund. This information has been audited by KPMG Peat Marwick LLP,
independent auditors.
-4-
Per share data for a share of capital stock outstanding during the period and
selected information for each period are as follows:
<TABLE>
<CAPTION>
SIT BOND FUND
PERIOD FROM
DECEMBER 1,
1993(1) TO
YEARS ENDED MARCH 31, MARCH 31,
1996 1995 1994
<S> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $9.48 $9.69 $10.00
OPERATIONS:
Net investment income .64 .62 .19
Net realized and unrealized
gains (losses) on investments .35 (.21) (.31)
Total from operations .99 .41 (.12)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.64) (.62) (.19)
NET ASSET VALUE:
End of period $9.83 $9.48 $9.69
Total investment return (2) 10.57% 4.51% (1.22%)
Net assets at end of period (000's omitted) $5,222 $3,533 $3,403
RATIOS (%):
Expenses to average daily net assets 0.80 0.80 0.80 (3)
Net investment income to average daily net assets 6.49 6.63 6.24 (3)
Portfolio turnover rate (excluding short-term securities) 159.45 41.25 43.49
</TABLE>
(1) Commencement of operations.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(3) Adjusted to an annual rate.
-5-
SIT MINNESOTA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 1,
YEARS ENDED 1993(1) TO
MARCH 31, MARCH 31,
1996 1995 1994
<S> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $9.96 $9.79 $10.00
OPERATIONS:
Net investment income .57 .56 .17
Net realized and unrealized gains
(losses) on investments .13 .17 (.21)
Total from operations .70 .73 (.04)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.57) (.56) (.17)
NET ASSET VALUE:
End of period $10.09 $9.96 $9.79
Total investment return (2) 7.12% 7.68% (0.80%)
Net assets at end of period (000's omitted) $62,980 $43,881 $18,105
RATIOS (%) :
Expenses to average daily net assets 0.80 0.80 0.80 (3)
Net investment income to average daily net assets 5.62 5.72 5.23 (3)
Portfolio turnover rate (excluding short-term securities) 15.85 34.20 12.23
</TABLE>
(1) Commencement of operations.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(3) Adjusted to an annual rate.
-6-
SIT TAX-FREE INCOME FUND
As of September 15, 1988, the Fund's name was changed to Sit "New
Beginning" Tax-Free Income Fund, Inc. from Sit "New Beginning" Yield Fund, Inc.
Effective September 28, 1988, the Fund's primary investment objectives and
policies were changed from earning current income (taxable) to providing a high
level of federally tax-exempt income. The securities in which the Fund now
invests are not the same as those in which it could previously invest. The
information below has been presented in separate columns for the periods before
and after the change in investment objectives and policies.
<TABLE>
<CAPTION>
Tax-Free Income Fund Yield Fund
------------------------------------------------------------------------ ----------------
Period Period Period Year
YEARS ENDED 7/1/93 to YEARS ENDED 9/29/88 to 7/1/88 to Ended
MARCH 31, 3/31/94 JUNE 30, 6/30/89 9/28/88 6/30
------------- ------- -------------------------------- --------- -------- -----
1996 1995 1994(1) 1993 1992 1991 1990 1989(2) 1988(3) 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $9.70 $9.63 $10.02 $9.74 $9.59 $9.61 $9.69 $9.65 $10.29 $10.69
OPERATIONS:
Net investment income .56 .56 .43 .60 .69 .74 .78 .57 .24 .98
Net realized and unrealized gains
(losses) on investments .18 .09 (.30) .32 .15 (.02) (.08) .04 (.42) (.39)
Total from operations .74 .65 .13 .92 .84 .72 .70 .61 (.18) .59
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.56) (.56) (.43) (.60) (.69) (.74) (.78) (.57) (.46) (.99)
From realized gains ---- (.02) (.09) (.04) ---- ---- ---- ---- ----
Total distributions (.56) (.58) (.52) (.64) (.69) (.74) (.78) (.57) (.46) (.99)
NET ASSET VALUE:
End of period $9.88 $9.70 $9.63 $10.02 $9.74 $9.59 $9.61 $9.69 $9.65 $10.29
Total investment return (4) 7.73% 7.00% 1.19% 9.81% 9.09% 7.76% 7.53% 6.52% 0.39% 6.02%
Net assets at end of period
(000's omitted) $279,769 $255,157 $324,691 $338,977 $192,808 $86,997 $30,800 $12,901 $1,758 $6,111
RATIOS (%):
Expenses to average daily
net assets 0.80(6) 0.79(6) 0.77(6,7) 0.80 0.80 0.80 0.80 0.80(7) 1.00(5,7) 1.00(5)
Net investment income to average
daily net assets 5.65(6) 5.84(6) 5.68(6,7) 6.17 7.02 7.62 8.16 8.08(7) 7.62(5,7) 8.80 (5)
Portfolio turnover rate
(excluding short-term securities) 25.50 13.13 47.56 58.29 80.27 74.48 86.72 32.48 -- 88.12
</TABLE>
(1) Nine month period from July 1, 1993 through March 31, 1994 due to fiscal
year end change.
(2) Period from September 29, 1988 (commencement of operations of Tax-Free
Income Fund) to June 30, 1989.
(3) Period from July 1, 1988 to September 28, 1988 (termination of operations
of Yield Fund).
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(5) Prior to September 29, 1988, expenses were contractually limited to 1.50%
of average daily net assets for the first $30 million of Fund net assets.
However, during the period from July 1, 1988 to September 28, 1988 and the
year ended June 30, 1988, the investment adviser voluntarily absorbed an
additional $5,400 and $34,434 in expenses, respectively, that were
otherwise payable by the Fund. Had the Fund incurred these expenses, the
ratio of expenses to average daily net assets would have been 1.50% for
these periods and the ratio of net investment income to average daily net
assets would have been 7.12% and 8.30% respectively.
(6) Total Fund expenses are contractually limited to .80% of average daily net
assets. However, during the periods ended March 31, 1996, 1995 and 1994 the
investment adviser voluntarily absorbed $15,540, $24,991 and 77,029,
respectively, in expenses that were otherwise payable by the Fund. Had the
Fund incurred these expenses, the ratio of expenses to average daily net
assets would have been .80% for the periods ended March 31, 1996, 1995 and
1994 and the ratio of net investment income to average daily net assets
would have been 5.65%, 5.83% and 5.65%, respectively.
(7) Adjusted to an annual rate.
<TABLE>
<CAPTION>
SIT U.S. GOVERNMENT SECURITIES FUND
Period
Period 6/2/87
YEARS ENDED 7/1/93 to YEARS ENDED to
MARCH 31, 3/31/94 JUNE 30, 6/30/87
-------------- ------- ----------------------------------------------------- -------
1996 1995 1994(1) 1993 1992 1991 1990 1989 1988 1987(2)
---- ---- ------- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $10.28 $10.50 $10.73 $10.81 $10.54 $10.31 $10.24 $10.24 $10.10 $10.00
OPERATIONS:
Net investment income .70 .67 .47 .71 .77 .79 .82 .85 .90 .07
Net realized and unrealized
gains(losses) on investments .19 (.22) (.18) .07 .44 .23 .07 -- .14 .10
Total from operations .89 .45 .29 .78 1.21 1.02 .89 .85 1.04 .17
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.70) (.67) (.47) (.71) (.77) (.79) (.82) (.84) (.90) (.07)
From realized gain -- -- (.05) (.15) (.17) -- -- (.01) --
Total distributions (.70) (.67) (.52) (.86) (.94) (.79) (.82) (.85) (.90) (.07)
NET ASSET VALUE:
End of period $10.47 $10.28 $10.50 $10.73 $10.81 $10.54 $10.31 $10.24 $10.24 $10.10
Total investment return (3) $8.87% 4.47% 2.70% 7.50% 11.87% 10.19% 9.07% 8.69% 10.70% 1.00%
Net assets at end of period
(000's omitted) $52,450 $37,454 $38,683 $31,538 $35,353 $30,153 $13,290 $11,721 $10,748 $202
RATIOS (%) :
Expenses to average daily
net assets 0.80(5) 0.80(5) 0.86(5,6) 0.89(4) 0.80(4) 0.90(4) 1.25 1.25 1.25 1.25(6)
Net investment income to
average daily net assets 6.72(5) 6.48(5) 5.79(5,6) 6.60(4) 7.28(4) 7.60(4) 8.02 8.33 8.27 9.10(6)
Portfolio turnover rate
(excluding short-term
securities) 51.37 38.51 73.87 76.66 133.86 118.27 126.34 138.79 136.12 --
</TABLE>
(1) Nine month period from July 1, 1993 through March 31, 1994 due to fiscal
year end change.
(2) Period from June 2, 1987 (commencement of operations) to June 30, 1987. The
inception of the Fund was December 29, 1986. However, operations did not
commence until June 2, 1987, when the Fund's shares were effectively
registered under the Securities Act of 1933. Financial Highlight
information is not presented for the period from December 29, 1986 to June
2, 1987 as the Fund's shares were not registered during that period.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(4) Prior to January 1, 1993, total Fund expenses were contractually limited to
1.25% of average daily net assets for the first $30 million of Fund average
daily net assets and 1.00% of average daily net assets exceeding $30
million. However, during the years ended June 30, 1993, 1992, and 1991, the
investment adviser voluntarily absorbed an additional $72,628, $134,559,
and $67,810 of expenses that were otherwise payable by the Fund. Had the
Fund incurred these expenses, the ratio of expenses to average daily net
assets would have been 1.11%, 1.21%, and 1.25%, respectively for these
periods, and the ratio of net investment income to average daily net assets
would have been 6.38%, 6.87%, and 7.25%, respectively.
(5) Total Fund expenses are contractually limited to 1.00% of average daily net
assets for the first $50 million in Fund net assets and .80% of average
daily net assets for Fund net assets exceeding $50 million. However, during
the periods ended March 31, 1996, 1995 and 1994 the investment adviser
voluntarily absorbed $88,625, $73,460 and $39,324, respectively, of
expenses that were otherwise payable by the Fund. Had the Fund incurred
these expenses, the ratio of expenses to average daily net assets would
have been 1.00% for each of these periods and the ratio of net investment
income to average daily net assets would have been 6.52%, 6.28% and 5.65%,
respectively.
(6) Adjusted to an annual rate.
-8-
SIT MONEY MARKET FUND
As of November 1, 1993, the Fund's name was changed to SIT Money Market Fund,
Inc. from Sit "New Beginning" Investment Reserve Fund, Inc. Effective on this
date, the Fund's primary investment policy was amended to comply with Rule 2a-7
of the Investment Company Act of 1940 governing money market funds. The Fund's
investment objective, however, remains the achievement of maximum current income
to the extent consistent with the preservation of capital and maintenance of
liquidity. Per share amounts prior to November 1, 1993 have been restated to
reflect the 9.98 to 1 stock split.
<TABLE>
<CAPTION>
Money Market Fund Investment Reserve Fund
----------------- -----------------------
Period Period
YEARS ENDED 11/1/93 to 7/1/93 to YEARS ENDED JUNE 30,
MARCH 31, 3/31/94 10/31/93 -------------------------------------------------
1996 1995 1994(1) 1993(2) 1993 1992 1991 1990 1989 1988
---- ---- ------- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
OPERATIONS:
Net investment income .05 .04 .01 .01 .03 .05 .07 .08 .07 .06
Total from operations .05 .04 .01 .01 .03 .05 .07 .08 .07 .06
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.05) (.04) (.01) (.01) (.03) (.05) (.07) (.08) (.07) (.06)
NET ASSET VALUE:
End of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total investment return (3) 5.44% 4.57% 1.14% 0.92% 3.02% 5.03% 7.14% 7.94% 7.79% 6.54%
Net assets at end of period
(000's omitted) $21,260 $29,882 $17,864 $12,626 $10,869 $16,234 $7,729 $4,764 $6,427 $10,954
RATIOS (%):
Expenses to average daily
net assets 0.50(5) 0.50(5) 0.50(5,6) 0.72(5,6) 0.80(4) 0.80(4) 0.86(4) 1.00 1.00 1.00
Net investment income to
average daily net assets 5.35(5) 4.63(5) 2.76(5,6) 2.67(5,6) 2.98(4) 4.74(4) 6.87(4) 7.61 7.24 6.43
</TABLE>
(1) Period from November 1, 1993 through March 31, 1994 due to fiscal year end
change.
(2) Period from July 1, 1993 to October 31, 1993.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(4) Prior to January 1, 1993, total Fund expenses were contractually limited to
1.00% of average daily net assets for the first $30 million of Fund net
assets. Subsequent to January 1, 1993, total Fund expenses are
contractually limited to .80% of the first $50 million of Fund net assets.
However, during the years ended June 30, 1993, 1992 and 1991, the
investment adviser voluntarily absorbed $16,480, $20,635 and $8,824 of
expenses that were otherwise payable by the Fund. Had the Fund incurred
these expenses, the ratio of expenses to daily net assets would have been
.91% for the year ended June 30, 1993 and 1.00% for the years ended June
30, 1992 and 1991 and the ratio of net investment income to average daily
net assets would have been 2.87%, 4.54% and 6.73%, respectively.
(5) Total Fund expenses are contractually limited to .80% of average daily net
assets for the first $50 million in Fund net assets and .60% of average
daily net assets for Fund net assets exceeding $50 million. However, during
the periods ended March 31, 1996, 1995, , and 1994, and October 31, 1993,
the investment adviser voluntarily absorbed $66,862, $63,828, $17,565 and
$3,224, respectively, in expenses that were otherwise payable by the Fund.
Had the Fund incurred these expenses, the ratio of expenses to average
daily net assets would have been .80% for each of these periods and the
ratio of net investment income to average daily net assets would have been
5.05%, 4.33%, 2.46% and 2.59%, respectively.
(6) Adjusted to an annual rate.
-9-
PERFORMANCE
From time to time the Funds (other than Money Market Fund) may refer to monthly,
quarterly, yearly or cumulative total return and average annual total return in
advertisements or other sales literature. All such figures are based on
historical performance data and are not intended to be indicative of future
performance. The investment return on and principal value of an investment in
the Funds will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
Monthly, quarterly, yearly and cumulative total returns are computed by finding
the rates of return over the indicated periods that would equate the initial
amount invested to the ending redeemable value. Average annual total return is
computed by finding the average annual compounded rates of return over the
indicated periods that would equate the initial amount invested to the ending
redeemable value. In calculating ending redeemable value, all income and capital
gains distributions are assumed to be reinvested in additional Fund shares.
Because average annual returns tend to smooth out variations in a Fund's return,
you should recognize that they are not the same as actual year-by-year results.
To illustrate the components of overall performance, a Fund may separate its
cumulative and average annual returns into income results and capital gain or
loss.
In advertising and sales literature the Funds may compare performance with that
of other mutual funds, indices and other competing investment and deposit
products. The composition of these indices or products differs from that of the
Funds. The comparison of the Funds to an alternative investment should be made
with consideration of differences in features and expected performance. The
Funds may also be mentioned in newspapers, magazines, or other media from time
to time. The Funds assume no responsibility for the accuracy of such data. For
additional information on the types of indices, averages and periodicals that
might be utilized by the Funds in advertising and sales literature, see the
section "Calculation of Performance Data" in the Statement of Additional
Information.
The Lehman Brothers Bond indices include fixed rate debt issues rated investment
grade or higher by Moody's Investors Service, Standard and Poor's Corporation,
or Fitch Investor's Service, in that order. All issues have at least one year to
maturity and an outstanding par value of at least $100 million. Intermediate
indices include bonds with maturities of up to ten years, and long term indices
include those with maturities of ten years or longer. All returns are market
value weighted inclusive of accrued interest. The Aggregate Bond Index is made
up of the Government/Corporate Index, the Mortgage-Backed Securities Index, and
the Asset-Backed Securities Index. The Government/Corporate Bond Index includes
the Government and Corporate Bond Indices. The Government Bond Index is made up
of the Treasury Bond Index (all public obligations of the U.S. Treasury,
excluding flower bonds and foreign-targeted issues) and the Agency Bond Index
(all publicly issued debt of U.S. Government agencies and quasi-federal
corporations, and corporate debt guaranteed by the U.S. Government). The
Corporate Bond Index includes all publicly issued, fixed rate, nonconvertible
investment grade dollar-denominated, SEC-registered corporate debt. The
Mortgage-Backed Securities Index includes 15- and 30-year fixed rate securities
backed by mortgage pools of the Government National Mortgage Association (GNMA),
Federal Home Loan Mortgage Corporation (FHLMC), and Federal National Mortgage
Association (FNMA). The Asset-Backed Securities Index is composed of credit
card, auto, and home equity loans. Included in the index are pass-through,
bullet (noncallable), and controlled amortization structures; no subordinated
tranches are included. All securities have an average life of at least one year.
The Lehman Municipal Bond Index is a total return performance benchmark for the
long-term, investment-grade tax-exempt bond market. Returns and attributes for
the Index are calculated semi-monthly using approximately 25,000 municipal
bonds. Bonds included in the Index are selected to be representative of the
market and are classified into four main sectors: General Obligation (state and
local), Revenue Bonds (excluded insured revenue bonds), Insured Bonds (includes
all bond insurers with Aaa/AAA ratings), and Prerefunded Bonds. The Lehman
Intermediate Government Bond Index includes fixed rate investment grade issues
with a maturities from one to ten years.
The following tables illustrate each Fund's average annual total returns and
cumulative total returns as of March 31, 1996, and annual total returns for the
periods shown.
-10-
<TABLE>
<CAPTION>
Average Annual Total Returns and Cumulative Total Returns Annual Total Returns
--------------------------------------------------------- --------------------
Lehman
Aggregate Lehman
BOND FUND Bond Index Year Aggreg.
Period in Average Average Ended Bond Bond
Years Annual Cumulative Annual Cumulative March 31, Fund Index
- ----- ------ ---------- ------ ---------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
2.3 years* + 5.9% + 14.1% + 5.6% + 13.6% 1996 +10.6% + 10.8%
2 years + 7.5 + 15.6 + 7.9 + 16.3 1995 + 4.5 + 4.9
1 year + 10.6 + 10.6 + 10.8 + 10.8 1994 - 1.2 - 2.3
* Since Inception on 12/1/93
Lehman
MN TAX-FREE Lehman 5-Year MN 5-Year
INCOME FUND Muni Bond Index Year Tax-Free Muni
Period in Average Average Ended Income Bond
Years Annual Cumulative Annual Cumulative March 31, Fund Index
- ----- ------ ---------- ------ ---------- --------- ---- -----
2.3 years* + 6.0 % + 14.4% + 4.9% +11.8% 1996 7.1% +7.3%
2 years + 7.4 + 15.4 + 6.5 +13.4 1995 +7.7 +5.7
1 year + 7.1 + 7.1 + 7.3 + 7.3 1994 -0.8 -1.4
* Since Inception on 12/1/93
Lehman
TAX-FREE Lehman 5-Year 5-Year
INCOME FUND Muni Bond Index Year Tax-Free Muni
Period in Average Average Ended Income Bond
Years Annual Cumulative Annual Cumulative March 31, Fund Index
- ----- ------ ---------- ------ ---------- --------- ---- -----
7.5 years* + 7.5% +72.5% +7.3% +70.1% 1996 + 7.7% + 7.3%
7 years + 7.5 +66.2 +7.8 +68.9 1995 + 7.0 + 5.7
6 years + 7.4 +53.3 +7.4 +53.8 1994 + 4.0 + 3.0
5 years + 7.4 +42.8 +7.1 +40.6 1993 +10.0 +10.4
4 years + 7.2 +31.9 +6.6 +28.9 1992 + 8.2 + 9.1
3 years + 6.2 +19.9 +5.3 +16.8 1991 + 7.3 + 9.4
2 years + 7.4 +15.3 +6.5 +13.4 1990 + 8.5 + 9.8
1 year + 7.7 + 7.7 +7.3 + 7.3 1989 + 3.8 + 0.72
* Since Inception on 9/29/88
Lehman
U.S. GOVT. Lehman Inter. U.S. Inter.
SECURITIES FUND Govt. Bond Index Year Govt. Govt.
Period in Average Average Ended Securities Bond
Years Annual Cumulative Annual Cumulative March 31, Fund Index
- ----- ------ ---------- ------ ---------- --------- ---- -----
-11-
8.8 years* + 8.5% +105.2% +8.3% +102.2% 1996 + 8.9% + 9.1%
8 years + 8.1 + 85.8 +8.2 + 87.8% 1995 + 4.5 + 4.3
7 years + 8.5 + 76.8 +8.8 + 80.1 1994 + 4.7 + 2.3
6 years + 8.3 + 61.0 +8.3 + 61.7 1993 + 9.2 +12.1
5 years + 7.3 + 42.0 +7.6 + 44.2 1992 + 9.2 +10.5
4 years + 6.8 + 30.0 +6.9 + 30.5 1991 +13.4 +12.1
3 years + 6.0 + 19.0 +5.2 + 16.4 1990 + 9.8 +11.4
2 years + 6.7 + 13.7 +6.7 + 13.8 1989 + 5.1 + 4.2
1 year + 8.9 + 8.9 +9.1 + 9.1 1988 +10.4 + 7.7
</TABLE>
* Since Inception on 6/2/87
In addition to the investment performance information discussed above, the Funds
also may quote a YIELD. A Fund's yield illustrates the rate of income the Fund
earns on its investments as a percentage of the Fund's share price. Yield is
calculated by dividing the net investment income per share earned during a
30-day period by the Fund's net asset value per share on the last day of the
period. The result will then be annualized using a formula which provides for
semi-annual compounding of income.
The Money Market Fund may refer to current yield and effective yield in
advertisements or other sales literature. The current yield is based on a
seven-day period and the effective yield is computed by calculating the effect
of annualized compounding.
The Funds (except Money Market Fund) also may quote their DISTRIBUTION RATE
which reflects the actual net investment income distributed to shareholders for
a given period divided by the Fund's average net asset value per share for that
period. If the period is less than a year, the distribution rate is annualized
on a 365-day basis.
The Tax-Free Income Fund and Minnesota Tax-Free Income Fund may quote a TAXABLE
EQUIVALENT YIELD which is the taxable yield an investor would have to earn to
equal an after-tax yield equivalent to the Fund's tax-exempt yield. A taxable
equivalent yield is calculated by dividing the Fund's tax-exempt portion of its
yield by one minus a stated income tax rate, e.g., 1-28% = 72%. The result is
then added to that portion of the yield, if any, that is not tax exempt.
The following tables show the yield that taxable investments would have to earn
to equal tax-exempt income earned by an investment in the Tax-Free Income Fund
or the Minnesota Tax-Free Income Fund. The tax-exempt yields shown are for
illustrative purposes only and are not indicative of the Funds' yields.
<TABLE>
<CAPTION>
Tax-Free Income Fund
Tax-Exempt Yields
Federal Taxable 4.00% 5.00% 6.00% 7.00% 8.00%
Income Bracket
Joint Returns Single Returns Federal Tax Rate Taxable Equivalent Yields
------------- -------------- ---------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - $40,100 $0 - $24,000 15% 4.71% 5.88% 7.06% 8.24% 9.41%
40,100 - 96,900 24,000 - 58,150 28 5.56 6.94 8.33 9.72 11.11
96,900 - 147,700 58,150 - 121,300 31 5.80 7.25 8.70 10.14 11.59
147,700 - 263,750 121,300 - 263,750 36 6.25 7.81 9.38 10.94 12.50
Over 263,750 Over 263,750 39.6 6.62 8.28 9.93 11.59 13.25
</TABLE>
The tax rates shown above are based on federal tax rates in effect in 1996.
Minnesota Tax-Free Income Fund
<TABLE>
<CAPTION>
Tax-Exempt Yields
4.00% 5.00% 6.00% 7.00% 8.00%
Federal Taxable Approximate Combined
Income Bracket State & Federal
Joint Returns Single Returns Tax Rate Taxable Equivalent Yields
------------- -------------- -------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - $22,080 $0 - $15,100 20.1% 5.01% 6.26% 7.51% 8.76% 10.01%
22,080 - 40,100 15,100 - 24,000 21.8 5.12 6.39 7.67 8.95 10.23
40,100 - 86,340 24,000 - 48,890 33.8 6.04 7.55 9.06 10.57 12.08
-12-
86,340 - 96,900 48,890 - 58,150 34.1 6.07 7.59 9.10 10.62 12.14
96,900 - 147,700 58,150 - 121,300 36.9 6.44 7.92 9.50 11.09 12.68
147,700 - 263,750 121,300 - 263,750 41.4 6.83 8.53 10.24 11.95 13.65
Over 263,750 Over 263,750 44.7 7.23 9.04 10.85 12.66 14.47
</TABLE>
The tax rates shown above are based on federal and Minnesota tax rates in effect
in 1996. The tables do not reflect the federal and state rules for the phase-out
of personal elxemptions and deductions. For years after 1996, the federal tax
bracketk amounts will be adjusted for inflation. If these scheduled chanages
take effect, they will result in slightly different taxable equivalent yields
for 1997 and later yeares than thaose shown in the tables.
Yield information may be helpful in considering whether to invest in a Fund.
However, because yield accounting methods differ from the methods used for other
accounting purposes, a Fund's yield may not equal its distribution rate, the
income credited to your account or the income reported in the Fund's financial
statements. A Fund's yield will vary from day to day and past yields should not
be considered a representation of future yields.
For additional information regarding the calculation of return figures and
yields, see "Calculation of Performance Data" in the Statement of Additional
Information.
Additional performance information regarding each Fund is included in the Funds'
combined annual report, which will be mailed to shareholders without charge upon
request.
INVESTMENT OBJECTIVES & POLICIES
The investment objective of each Fund is set forth on page 1 of this Prospectus.
The investment objective of each Fund is "fundamental," which means that it may
not be changed unless approved by a vote of the "majority" of the shareholders
of such Fund (as defined in the 1940 Act). There can be no assurance that the
investment objective of any of the Funds will be achieved.
In seeking their investment objectives, the Funds will be subject to the
following policies and limitations. Except as indicated, these policies are not
fundamental and may be changed by the Boards of Directors without shareholder
approval.
BOND FUND
During normal market conditions the Fund will invest at least 65% of its total
assets in the following types of fixed income securities: mortgage and other
asset-backed securities; U.S. government securities; corporate debt securities;
corporate commercial paper; municipal securities; variable and floating rate
debt securities; bank certificates of deposit, fixed time deposits and bankers
acceptances; repurchase agreements; obligations of foreign governments or their
subdivisions, agencies and instrumentalities, or of international agencies or
supernational entities; and foreign currency exchange-related securities,
including foreign currency warrants.
The Fund primarily invests in fixed-income securities with maturities of 2 to 30
years. Maturity is usually an accurate indication of the outstanding term,
however, pass-through securities including mortgage pass-through securities
which receive regular principal payments have an average life less than the
maturity. The average life of mortgage pass-through investments will typically
vary from 1 to 18 years. The average maturity of the portfolio will generally
vary between 3 and 30 years.
The Fund may invest up to 25% of its assets in debt securities that are rated
below investment grade, i.e. rated below Baa by Moody's Investors Services
("Moody's) or BBB by Standard & Poor's Corporation ("S&P"), Fitch Investors
Service, Inc. ("Fitch"), or Duff & Phelps Credit Rating Co. ("Duff & Phelps") or
comparable unrated securities. The Fund will not invest in securities rated
below B-3 by Moody's or B- by S&P, Fitch, or Duff & Phelps, at the time of
investment. Securities rated below investment grade are considered predominately
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness. DEBT SECURITIES RATED BELOW INVESTMENT GRADE
ARE COMMONLY KNOWN AS JUNK BONDS. Lower ratings may reflect a greater
possibility that the financial condition of the issuer, or adverse changes in
general economic conditions, or both, may impair the ability of the issuer to
make payments of interest and principal. The prices and yields of lower rated
securities generally fluctuate more than higher quality securities, and such
prices may decline significantly in periods of general economic difficulty or
rising interest rates. For more information on the various rating categories and
on the percentage of Fund assets in each such
-13-
category, see "Common Policies and Information - Ratings of Debt Securities."
For a description of the ratings used by Moody's, S&P, Fitch, and Duff & Phelps,
see the Statement of Additional Information.
The Fund may invest up to 20% of its assets in unrated securities that in the
opinion of the Adviser are at least similar in quality at the time of purchase
to the rated bonds the Fund purchases.
RISKS OF INVESTING IN HIGH YIELD SECURITIES. Investment in junk bonds or high
yield securities involves special risks in addition to the risks associated with
investments in higher rated debt securities. High yield securities may be
regarded as predominately speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Analysis of the
creditworthiness of issuers of high yield securities may be more complex than
for issuers of higher quality debt securities, and the ability of the Fund to
achieve its investment objective may, to the extent of its investments in high
yield securities, be more dependent upon such analysis than would be the case if
the Fund were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to
interest-rate changes than more highly rated investments, but more sensitive to
adverse economic downturns or individual corporate developments.
For more information on the risks of investing in high yield securities, see the
Statement of Additional Information.
MORTGAGE BACKED SECURITIES. The Fund may invest in pass-through securities which
are sold by various private, governmental and government-related organizations.
Pass-through securities are formed when mortgages and other debt instruments are
pooled together and undivided interests in the pool are sold to investors such
as the Fund. The cash flow from the underlying debt instruments is "passed
through" to the holders of the securities in the form of periodic (generally
monthly) payments of interest, principal and prepayments. Prepayments occur when
the holder of an individual debt instrument prepays the remaining principal and
interest before the final scheduled payment month. Therefore, the Fund may be
subject to a higher rate of prepayments during periods of declining interest
rates when mortgages and other debt instruments may be more frequently prepaid.
Mortgage pass-through securities include (1) obligations of U.S. government
agencies and instrumentalities which are secured by the full faith and credit of
the U.S. Treasury such as Government National Mortgage Association ("GNMA")
pass-through certificates; (2) obligations which are secured by the right of the
issuer to borrow from the Treasury, such as securities issued by the Federal
Financing Bank, the Federal Home Loan Banks and the United States Postal
Service; and (3) obligations which have the principal and interest payments
guaranteed by the government agency or instrumentality itself (but are not
backed by the full faith and credit of the U.S. government), such as securities
of the Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC"); and (4) obligations of private corporations.
U.S. GOVERNMENT SECURITIES. The Fund may invest in securities issued, guaranteed
or insured by the U.S. government, its agencies or instrumentalities whether or
not backed by the "full faith and credit" pledge of the U.S. government.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of such securities nor do they extend to the value of the
Fund's shares. U.S. Treasury securities are bonds, notes and bills which are
issued by the U.S. government and which differ in their interest rates,
maturities and dates of issuance. See the Statement of Additional Information
for further information.
Other instrumentalities of the U.S. government which issue or guarantee
securities which the Fund may purchase include, for example, the Federal Farm
Credit System, Federal Land Banks, the Federal Intermediate Credit Bank, the
Bank for Cooperatives, Federal Home Loan Banks, and the Student Loan Marketing
Association. The U.S. Treasury is not obligated by law to provide support to all
U.S. government instrumentalities and agencies, and the Fund will invest in
securities which are not backed by the full faith and credit of the U.S.
Treasury issued by such instrumentalities and agencies only when the Fund's
Adviser determines that the credit risk with respect to the instrumentality or
agency issuing such securities does not make its securities unsuitable
investments for the Fund. See the Statement of Additional Information for
further information.
OTHER ASSET-BACKED SECURITIES. In addition to mortgage-backed securities, the
Fund may invest in other types of asset-backed securities which represent other
forms of consumer credit such as automobile and credit card receivables,
manufactured (mobile) home loans, home improvement loans and home equity loans.
Asset-backed securities are generally privately issued and, similar to
mortgage-backed securities, pass through cash flows to investors. Generally,
asset-backed securities include many of the risks ssociated with
mortgage-related securities. In general, however, the collateral supporting
asset-backed securities is of shorter maturity than mortage loans and is less
likely to experience substantial prepayments. Asset-backed securities involve
certain risks that are not posed by mortgage-backed securities, resulting mainly
from the fact that asset-backed securities do not usually contain
-14-
the complete benefit of a security interest in the related collateral. For
example, credit card receivables generally are unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, including the bankruptcy laws, some of which may reduce the abilty to
obtain full payment. In the case of automobile receivables, due to various legal
and economic actors, proceeds for repossessed collateral may not always be
sufficient to support payments on these securities.
CORPORATE DEBT SECURITIES. The Fund may invest in corporate debt securities
(corporate bonds, debentures, notes and other similar corporate debt
instruments, including convertible securities) which meet the minimum ratings
criteria set forth by the Fund, or, if unrated, are in the Adviser's opinion of
comparable quality to corporate debt securities in which the Fund may invest.
CORPORATE COMMERCIAL PAPER. The commercial paper purchased by the Fund will
consist only of direct obligations which, at the time of purchase, are (a) rated
Prime-1 by Moody's or A-1 or A-1+ by S&P, or (b) if not rated, issued by
companies having an outstanding unsecured debt issue which at the time of
purchase is rated A or higher by Moody's or S&P.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS). The Fund may invest in CMOs. See the
discussion regarding CMOs under the section entitled "Common Policies and
Information" below.
FUTURES, OPTIONS & SWAP AGREEMENTS. The Fund may invest up to 10% of its assets
in futures, options, options on futures and may enter into swap agreements for
hedging purposes or as part of its investment strategy. For additional
information about these investments, see section entitled "Common Policies and
Information" below and the Statement of Additional Information.
FOREIGN CORPORATE DEBT SECURITIES. The Fund may invest up to 20% of its assets
in debt securities of foreign governments or foreign corporate debt securities
denominated in foreign currencies which are rated at least A by Moody's, S&P,
Fitch or Duff & Phelps or, if unrated, are in the Adviser's opinion of
comparable quality. All trades involving foreign debt securities will be
transacted through U.S. based brokerage firms or commercial banks. Foreign
investments are subject to certain unique risks, such as fluctuations in the
value of the currencies, and potential adverse political and economic
developments. There also may be less publicly available information about
foreign issuers, and foreign issuers generally are not subject to the uniform
accounting, auditing, and financial reporting standards and practices applicable
to domestic issuers. Delays may be encountered in settling securities
transactions in foreign markets. Custody charges are generally higher for
foreign securities. The income from foreign securities may be subject to foreign
taxes.
FOREIGN CURRENCIES AND CURRENCY EXCHANGE TRANSACTIONS. The Fund may engage in
foreign currency exchange transactions by means of buying or selling foreign
currencies on a spot basis, entering into foreign currency forward contracts,
and buying and selling foreign currency options, foreign currency futures, and
options on foreign currency futures. Foreign currency exchange transactions may
be entered into for the purpose of hedging against foreign currency exchange
risk arising from the Fund's investment or anticipated investment in securities
denominated in foreign securities. Foreign currency exchange transactions will
be limited to the total value of securities denominated in foreign currencies.
For more information on foreign currency exchange transactions, see the
Statement of Additional Information.
INVESTMENT IN SIT MONEY MARKET FUND. The Fund may invest up to the greater of 5%
of its total net assets or $2.5 million in Sit Money Market Fund ("Money Market
Fund"), which also is advised by the Adviser, subject to the conditions
contained in an exemptive order (the "Exemptive Order") issued to the Fund and
the Adviser by the Securities and Exchange Commission. Such investments may be
made in lieu of direct investments in short term money market instruments if the
Adviser believes that they are in the best interest of the Fund. The Exemptive
Order requires the Adviser and its affiliates, in their capacities as service
providers for the Money Market Fund, to remit to the Fund, or waive, an amount
equal to all fees otherwise due to them under their advisory and other
agreements with Money Market Fund to the extent such fees are based upon the
Fund's assets invested in shares of Money Market Fund. This requirement is
intended to prevent shareholders of the Fund from being subjected to double
management and other asset-based fees as a result of the Fund's investments in
Money Market Fund.
MINNESOTA TAX-FREE INCOME FUND
In normal market conditions, the Fund will endeavor to invest 100% of its assets
in tax-exempt municipal securities. Such securities generate interest income
that, in the opinion of bond counsel, is exempt from federal regular income tax
and Minnesota regular personal income tax. The Fund anticipates that
substantially all of its distributions to its shareholders will be exempt from
federal regular income tax and Minnesota regular personal income tax. For
investors subject to the alternative minimum tax ("AMT"), up to 20% of the
Fund's income may be treated as an item of tax preference that is included in
the alternative minimum taxable income.
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As a fundamental policy, during normal market conditions at least 80% of the
Fund's net assets will be invested in municipal securities, the income from
which is exempt from federal regular income tax. The Fund will invest at least
65% of its total assets in Minnesota tax-exempt obligations.
The Fund may invest without percentage limitation, in investment grade municipal
securities. A security is considered investment grade if, at the time of
purchase, it is rated within the four highest grades of either Moody's, S&P,
Fitch, or Duff & Phelps ratings for municipal securities, or for securities
which are unrated, if such securities are judged by the Adviser to be of
comparable quality to securities rated within such four highest grades. It
should be noted that securities in the fourth highest grade are considered
medium grade and contain certain speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds.
Although the Fund will primarily invest in investment grade securities, the Fund
may invest up to 30% of its assets in municipal securities rated below Baa-3 by
Moody's or below BBB- by S&P, Fitch, or Duff & Phelps or, if unrated, are
determined by the Adviser to be of comparable quality. The minimum grade of
municipal securities in which the Fund may invest is rated B-3 by Moody's or B-
by S&P, Fitch, or Duff & Phelps. Securities rated below investment grade are
considered predominately speculative and involve greater risk of default or
price changes due to changes in the issuer's creditworthiness. DEBT SECURITIES
RATED BELOW INVESTMENT GRADE ARE COMMONLY KNOWN AS JUNK BONDS. Lower ratings may
reflect a greater possibility that the financial condition of the issuer, or
adverse changes in general economic conditions, or both, may impair the ability
of the issuer to make payments of interest and principal. The prices and yields
of lower rated securities generally fluctuate more than higher quality
securities, and such prices may decline significantly in periods of general
economic difficulty or rising interest rates. For more information on the
various rating categories and on the percentage of Fund assets in each such
category, see "Common Policies and Information - Ratings of Debt Securities."
For more information on the risks of investing in junk bonds, see "Bond Fund
Risks of Investing in High Yield Securities" above.
As a fundamental policy, the Fund may not invest more than 20% of its assets in
taxable obligations, however, during periods of abnormal market conditions, the
Fund may invest all of its assets in high-grade taxable obligations on a
temporary basis for defensive purposes. Such taxable obligations may include
obligations of the U.S. government, its agencies or instrumentalities; corporate
bonds rated within the two highest grades by either Moody's or S&P; commercial
paper rated in the highest grade by either of such rating services (Prime-1 by
Moody's, A-1+ or A-1 by S&P, F-1+ by Fitch, or Duff1+ or Duff1 or Duff1- by Duff
& Phelps); certificates of deposit and banker's acceptances of domestic banks
(subject to the Fund's approved list of banks recommended by the Adviser); and
high-grade taxable municipal bonds. The Fund may also hold its assets in cash.
DIVERSIFICATION. The Minnesota Tax-Free Fund is a non-diversified fund, as
defined by the 1940 Act, but intends to conduct its operations so as to qualify
as a regulated investment company for purposes of the Internal Revenue Code of
1986, as amended, (the "Code"). Pursuant to the Code at least 50% of the value
of the Fund's total assets must be represented by one or more of the following:
1) cash and cash items, including receivables, Government securities and
securities of other regulated investment companies; and 2) other securities,
limited in respect of the securities of any one issuer as follows: (a) the
entire amount of the securities of any one issuer may not have a value of more
than 5% of the value of the Fund's total assets; and (b) the entire amount of
the securities of any one issuer may not represent more than 10% of the
outstanding voting securities of the issuer. Since a relatively high percentage
of the assets of the Fund may be invested in obligations of a limited number of
issuers, some of which may be within the same economic sector, the Fund's
portfolio securities may be more susceptible to any single economic, political
or regulatory occurrence than the portfolio securities of diversified investment
companies.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN MINNESOTA TAX-EXEMPT OBLIGATIONS.
The value of tax-exempt securities owned by the Fund may be adversely affected
by local political and economic conditions and developments within a particular
state. Adverse conditions in an industry significant to a local economy could
have a correspondingly adverse effect on the financial condition of local
issuers. Other factors that could affect tax-exempt securities include a change
in the local, state or national economy, demographic factors, ecological or
environmental concerns, statutory limitations on the issuer's ability to
increase taxes and other developments generally affecting the revenues of
issuers (for example, legislation or court decisions reducing state aid to local
governments or mandatory additional services).
As described herein, except during temporary defensive periods, the Fund will
invest primarily in Minnesota tax-exempt obligations which include obligations
of the State of Minnesota or a political governmental subdivision, municipality,
or governmental agency or instrumentality of the State of Minnesota. The Fund is
therefore susceptible to political, economic or regulatory factors affecting
issuers of Minnesota tax-exempt obligations. The following information provides
only a brief summary of the complex factors
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affecting the financial situation in Minnesota. This information is derived from
sources that are generally available to investors and consists in part of
information obtained from various state and local agencies in Minnesota. It
should be noted that the creditworthiness of obligations issued by local
Minnesota issuers may be unrelated to the creditworthiness of obligations issued
by the State of Minnesota, and that there is no obligation on the part of the
State to make payment on such local obligations in the event of default. For
further information, see "Special Considerations Regarding Investment in
Minnesota Tax-Exempt Obligations" in the Statement of Additional Information.
Minnesota operates on a biennial budget basis. Legislative appropriations for
each biennium are prepared and adopted during the final legislative session of
the immediately preceding biennium. Prior to each fiscal year of the biennium,
the State's Department of Finance allots a portion of the applicable biennial
appropriation to each agency or other entity for which an appropriation has been
made. An agency or other entity may not expend monies in excess of its
allotment. If revenues are insufficient to balance total available resources and
expenditures, the State's Commissioner of Finance, with the approval of the
Governor, is required to reduce allotments to the extent necessary to balance
expenditures and forecasted available resources for the current biennium. The
Governor may prefer legislative action when a large reduction in expenditures
appears necessary, and if the State's legislature is not in session the Governor
is empowered to convene a special legislative session.
1995 Minnesota tax legislation could have an adverse effect on the value of
Minnesota tax-exempt obligations and of the Fund's shares. See the section
entitled "Taxes" below.
See the section entitled "Common Policies for Minnesota Tax-Free Income Fund and
Tax-Free Income Fund" below and "Securities in which the Minnesota Tax-Free
Income Fund Might Invest" in the Statement of Additional Information for
additional information.
TAX-FREE INCOME FUND
In normal market conditions, the Tax-Free Income Fund will endeavor to invest
100% of its assets in tax-exempt municipal securities. Such securities generate
interest that, in the opinion of bond counsel, is exempt from regular federal
income taxes (and, as discussed below, the federal alternative minimum tax).
Such municipal securities may include securities that are issued by states,
territories and possessions of the United States and the District of Columbia
and their agencies, instrumentalities and political subdivisions. See the
Statement of Additional Information for more details. As a fundamental policy,
in normal market conditions, the Fund may not invest more than 20% of its net
assets in taxable obligations or municipal securities that are subject to the
alternative minimum tax.
Of the municipal securities in which the Fund invests, 100% will be rated
investment grade at the time of purchase or, if unrated, are judged by the
Adviser to be of comparable quality to securities rated as investment grade. A
security is considered investment grade if it is rated within the four highest
grades of either Moody's, S&P, Fitch, or Duff & Phelps. Securities in which the
Fund will invest may not yield as high a level of current income as securities
of lower quality. The Fund does not invest in lower quality securities because
they generally have less liquidity, greater market risk and higher default risk.
The lowest investment grade category involves some speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than the case with
higher-grade bonds.
During periods of abnormal market conditions, the Fund may invest all of its
assets in taxable obligations on a temporary basis for defensive purposes. Such
taxable obligations may include obligations of the U.S. government, its agencies
or instrumentalities; corporate bonds rated within the four highest grades by
either Moody's, S&P, Fitch, or Duff & Phelps; commercial paper rated in the
highest grades by either of such rating services (Prime-1 by Moody's or A-1+ or
A-1 by S&P, F-1 by Fitch, or Duff1+, Duff1, or Duff1- by Duff & Phelps);
certificates of deposit and banker's acceptances of domestic banks; taxable
municipal bonds; and repurchase agreements with respect to any of the foregoing
investments. The Fund may also hold its assets in cash.
The Fund has no restriction on portfolio maturity. The dollar-weighted average
maturity is currently expected to range between 5 and 22 years. The Adviser will
shorten or lengthen the maturity based on its judgment of interest rate trends.
Generally, the Fund's average maturity will be shorter when interest rates are
expected to rise and longer when interest rates are expected to fall.
Longer-term bonds generally offer a higher current yield than are offered by
short-term securities, but also generally involve greater volatility of price
and risk of capital than shorter-term securities.
The Fund expects that new types of tax-exempt securities, futures contracts,
options thereon, and put and call options on municipal securities and indexes
may be developed in the future. As new types of tax-exempt instruments are
developed and offered to
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investors, the Adviser will be permitted to invest in them provided that the
Adviser believes their quality is equivalent to the Fund's quality standards.
COMMON POLICIES FOR MINNESOTA TAX-FREE INCOME FUND AND TAX-FREE INCOME FUND
MUNICIPAL SECURITIES. The yields on municipal securities are dependent on a
variety of factors, including the general level of interest rates, the financial
condition of the issuer, general conditions of the tax-exempt securities market,
the size of the issue, the maturity of the obligation and the rating of the
issue. Ratings are general, and not absolute, standards of quality.
Consequently, securities of the same maturity, interest rate and rating may have
different yields, while securities of the same maturity and interest rate with
different ratings may have the same yield.
Certain types of municipal bonds are issued to obtain funding for privately
operated facilities ("private activity" bonds). Under current tax law, interest
income earned by the Funds from certain private activity bonds is an item of
"tax preference" which is subject to the alternative minimum tax when received
by a shareholder in a tax year during which the shareholder is subject to the
alternative minimum tax.
Municipal securities in which the Funds invest include securities that are
issued by a state or its agencies, instrumentalities, municipalities and
political subdivisions, territories and possessions of the United States.
Tax-exempt municipal securities include municipal bonds, municipal notes and
municipal commercial paper. MUNICIPAL BONDS generally have maturities at the
time of issuance ranging from one to thirty years, or more. MUNICIPAL NOTES are
short-term and generally mature in three months to three years. Municipal
commercial paper matures in one year or less.
Municipal bonds are issued to raise money for various public purposes. The two
principal types of municipal bonds are general obligation bonds and revenue
bonds. The Funds may invest in both in any proportion. General obligation bonds
are secured by the full faith, credit and taxing power of the issuing
municipality and not from any particular fund or revenue source. Revenue bonds
are backed only from the revenues derived from a facility or class of facilities
or, in some cases, from the proceeds of a special excise or other specific
revenue source and not from the general taxing power.
FUTURES AND OPTIONS. The Funds may purchase exchange traded put and call options
on debt securities equaling up to 5% of its net assets for the purpose of
hedging. The Funds may invest in interest rate futures contracts and index
futures contracts and may buy options on such contracts for the purpose of
hedging its portfolio of fixed income securities (and not for speculative
purposes) against the adverse effects of anticipated movements in interest
rates. For additional information about these investments, see the Section
entitled "Common Policies and Information" below and the Statement of Additional
Information.
HOUSING AUTHORITY BONDS. The Funds may invest without limitation in obligations
of municipal housing authorities which include both single-family and
multi-family mortgage revenue bonds. Weaknesses in federal housing subsidy
programs and their administration may result in a decrease of subsidies
available for payment of principal and interest on multi-family housing
authority bonds. Economic developments, including fluctuations in interest rates
and increasing construction and operating costs, may also adversely impact
revenues of housing authorities. In the case of some housing authorities,
inability to obtain additional financing could also reduce revenues available to
pay existing obligations. Mortgage revenue bonds are subject to extraordinary
mandatory redemption at par in whole or in part from the proceeds derived from
prepayments of underlying mortgage loans and also from the unused proceeds of
the issue within a stated period of time.
The exclusion from gross income for federal income tax purposes of certain
housing authority bonds depends on qualification under relevant provisions of
the Code and on other provisions of federal law. These provisions of federal law
contain certain ongoing requirements relating to the cost and location of the
residences financed with the proceeds of the single family mortgage bonds and
the income levels of occupants of the housing units financed with the proceeds
of the single and multi-family housing bonds. While the issuers of the bonds,
and other parties, including the originators and servicers of the single family
mortgages and the owners of the rental projects financed with the multi-family
housing bonds, covenant to meet these ongoing requirements and generally agree
to institute procedures designed to insure that these requirements are met,
there can be no assurance that these ongoing requirements will be consistently
met. The failure to meet these requirements could cause the interest on the
bonds to become taxable, possibly retroactively from the date of issuance,
thereby reducing the value of the bonds, subjecting shareholders to
unanticipated tax liabilities and possibly requiring the Fund to sell the bonds
at the reduced value. Furthermore, any failure to meet these ongoing
requirements might not constitute an event of default under the applicable
mortgage which might otherwise permit the holder to accelerate payment of the
bond or require the issuer to redeem the bond. In any event, where the mortgage
is insured by the Federal
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Housing Administration ("FHA"), the consent of the FHA may be required before
insurance proceeds would become payable to redeem the mortgage subsidy bonds.
INDUSTRIAL DEVELOPMENT REVENUE BONDS. Industrial development revenue bonds are
backed by the user of the facilities and the specific revenues of the project to
be financed. The credit quality of industrial development bonds is usually
directly related to the credit standing of the user of the facilities or the
credit standing of a third-party guarantor or other credit enhancement
participant, if any.
STATE OR MUNICIPAL LEASE OBLIGATIONS. Each Fund may invest up to 25% of its net
assets in municipal lease obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities.
Traditionally, municipal lease obligations have been viewed by the SEC staff as
illiquid investments. However, subject to Board consideration similar to the
approval applicable to restricted securities, the Adviser may treat certain
municipal lease obligations as liquid investments and not subject to the policy
limiting investments in illiquid investments. The Funds' Adviser will be
responsible for determining the credit quality of such leases, on an ongoing
basis, including the assessment of the likelihood that the lease will not be
cancelled. Although municipal lease obligations do not constitute general
obligations of the issuer for which such issuer's taxing power is pledged, a
municipal lease obligation is ordinarily backed by the issuer's covenant to
budget for, appropriate and make the payments due under the obligation. However,
certain municipal lease obligations contain "non-appropriation" clauses which
provide that the issuer has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In the case of a "non-appropriation" lease, the Fund's ability to
recover under the lease in the event of non-appropriation or default will be
limited solely to the repossession of the leased property, without recourse to
the general credit of the lessee, and disposition of the property in the event
of foreclosure might prove difficult. See the Statement of Additional
Information for further information.
CONCENTRATION POLICY. As a fundamental policy, each Fund will not invest more
than 25% of its assets in revenue bonds payable only from revenues derived from
facilities or projects within a single industry, however, because other
appropriate available investments may be in limited supply, the industry
limitation does not apply to housing authority obligations or securities issued
by governments or political subdivisions of governments. Appropriate available
investments may be in limited supply from time to time in the opinion of the
Adviser due to the Funds' investment policy of investing primarily in
"investment grade" securities. The Tax-Free Income Fund does not intend to
invest more than 25% of its net assets in securities of governmental units or
issuers located in the same state, territory or possession of the U.S.
U.S. GOVERNMENT SECURITIES FUND
The Fund invests solely in securities issued, guaranteed or insured by the U.S.
government, its agencies or instrumentalities whether or not backed by the "full
faith and credit" pledge of the U.S. government. Guarantees as to the timely
payment of principal and interest do not extend to the value or yield of such
securities nor do they extend to the value of the Fund's shares. There are no
percentage limitations with regard to the purchase of any of the Fund's
allowable investments. The Fund's holdings may be comprised substantially of a
limited number of certain types of securities such as pass-through securities
backed by mortgages and other debt securities. Pass-through securities and U.S.
Treasury securities will be the principal holdings in the Fund, although this
may change. Securities in which the Fund may invest may not yield as high a
level of current income as securities of lower quality. These lower quality
securities in which the Fund does not invest generally have less liquidity,
greater default risk and are subject to grater fluctuation in market value.
MORTGAGE-BACKED SECURITIES. The Fund may invest in pass-through securities which
are sold by various private, governmental and government-related organizations.
Pass-through securities are formed when mortgages and other debt instruments are
pooled together and undivided interests in the pool are sold to investors such
as the Fund. The cash flow from the underlying debt instruments is "passed
through" to the holders of the securities in the form of periodic (generally
monthly) payments of interest, principal and prepayments. Prepayments occur when
the holder of an individual debt instrument prepays the remaining principal and
interest before the final scheduled payment month. The Fund may be subject to a
higher rate of prepayments during periods of declining interest rates when
mortgages and other debt instruments may be more frequently prepaid.
Pass-through securities that the Fund will purchase are issued by Government
National Mortgage Association (GNMA), Federal National Mortgage Association
(FNMA), and Federal Home Loan Mortgage Corporation (FHLMC). GNMA is the
principal governmental guarantor of mortgage-related securities. Timely payment
of the principal and interest on these securities is guaranteed and is backed by
the full faith and credit of the U.S. government. FNMA issues mortgage
securities and guarantees them as to timely payment of principal and interest.
FHLMC issues participation certificates that represent an interest in mortgages
from
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FHLMC's portfolio and guarantees the timely payment of interest and the ultimate
payment (within one year) of principal. Securities guaranteed by FNMA and FHLMC
are not backed by the full faith and credit of the United States.
The average life of mortgages which compose a mortgage pool will vary widely and
the expected average life of pools may vary from as short as one year to as long
as eighteen years. If mortgage interest rates decrease, the value of the Fund's
mortgage securities is not likely to increase on a comparable basis with other
debt securities because of the prepayment feature which results in the average
life of the mortgages in the pool decreasing as borrowers refinance and prepay
mortgages in order to take advantage of lower rates. The proceeds to the Fund
from prepayments will have to be invested at the then prevailing lower interest
rates. On the other hand, if interest rates increase, the value of the Fund's
mortgage securities may decrease, and since it is anticipated that borrowers
will not refinance, the average life of the mortgages in a pool will be longer.
If a mortgage security is purchased at a premium because its fixed level of
interest exceeds prevailing yields, the premium is not guaranteed and a decrease
in value to par may result in a loss of the premium, especially in the event of
prepayment. See the Statement of Additional Information for more information
about the characteristics of these instruments.
MANUFACTURED HOME LOANS. The Fund invests in GNMA manufactured home pass-through
securities. Manufactured home loans are fixed-rate loans secured by a
manufactured home unit. In certain instances the loan may be collateralized by a
combination of a manufactured home unit and a developed lot of land upon which
the unit can be placed. Manufactured home loans are generally not considered
mortgages, however, because of the structural and operational similarities with
mortgage-backed pass-through securities and the role of GNMA, industry practice
often groups the securities within the spectrum of GNMA mortgage-backed
pass-through securities for listing purposes. Manufactured home loans have key
characteristics different from mortgage backed securities including different
prepayment rates. Prepayment rates tend to fluctuate with interest rates and
other economic variables. Manufactured home prepayment rates generally tend to
be less volatile than the prepayment rates experienced by mortgage backed
securities. See the above discussion regarding mortgage-backed securities.
Currently, a substantial portion of the Fund's assets are invested in
pass-through securities and the Adviser intends to continue this investment
strategy during the near future. As of June 30, 1996, pass-through securities
comprised 73.6% of the Fund's net assets.
U.S. TREASURY SECURITIES. U.S. Treasury securities are bonds, notes and bills
which are issued by the U.S. government and which differ in their interest
rates, maturities and dates of issuance. For example, Treasury bills have a
maturity of one year or less, Treasury notes have maturities of one to ten years
and Treasury bonds generally have maturities of greater than ten years at the
date of issuance.
The Fund invests in securities with maturities of one day to forty years. The
Fund generally emphasizes investments of intermediate to longer term maturities
(5 to 30 years). For defensive purposes, the Fund may invest solely in short
term maturities (1 to 90 days). With regard to investments in bonds, notes and
bills, the maturity is usually an accurate indication of the outstanding term;
however, mortgage-backed pass-through securities which receive regular principal
payments have an average life less than the maturity. The average life of
mortgage pass-through investments will typically vary from 1 to 18 years. The
average life of all investments in the Fund will generally vary between 2 and 20
years.
Various other securities are issued, guaranteed or insured by agencies of the
U.S. government and various instrumentalities which have been established or
sponsored by the U.S. government. These securities, even when guaranteed by
federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the U.S. government.
In addition to Treasury obligations, the Fund may invest in the following: (1)
obligations of U.S. government agencies and instrumentalities which are secured
by the full faith and credit of the U.S. Treasury such as GNMA pass-through
certificates; (2) obligations which are secured by the right of the issuer to
borrow from the Treasury, such as securities issued by the Federal Financing
Bank or the United States Postal Service; and (3) obligations which have the
principal and interest payments guaranteed by the government agency or
instrumentality itself (but are not backed by the full faith and credit of the
U.S. government), such as securities of the Federal Home Loan Bank or FNMA.
FUTURES AND OPTIONS. The Fund may purchase and sell exchange traded put and call
options on debt securities and options on futures contracts equaling up to 5% of
its net assets for the purpose of hedging. for addidtional information about
these investments, see the Section entitled "Common Policies and Information"
below and the Statement of Additional Information.
MONEY MARKET FUND
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The Fund intends to achieve its objective by investing primarily in a
diversified portfolio of high quality short-term debt instruments maturing in
397 days or less and maintaining an average dollar-weighted portfolio maturity
of 90 days or less. THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE. HOWEVER, THERE IS NO ASSURANCE OF A CONSTANT SHARE PRICE. All
securities in the portfolio will be denominated in U.S. dollars and will present
minimal credit risk.
The Fund may invest in:
(1) marketable securities issued or guaranteed by the United States or its
agencies or instrumentalities;
(2) corporate debt instruments, such as commercial paper and
nonconvertible corporate debt securities which are rated in the
highest rating category by at least two nationally recognized
statistical rating organizations ("NRSRO"), or if not rated, is issued
by a company having outstanding comparable debt rated in one of the
two highest rating categories by at least two NRSROs or, if only one
NRSRO has rated the security, that NRSRO;
(3) U. S. dollar denominated bank money instruments such as certificates
of deposit (including variable rate certificates of deposit), time
deposits and bankers' acceptances; provided such instruments are a)
rated in the highest rating category of at least two NRSROs or, if
only rated by one NRSRO, that NRSRO; or b) issued or guaranteed by a
company which at the date of investment has outstanding a comparable
debt issue rated in the highest rating category by at least two NRSROs
or, if only rated by one NRSRO, that NRSRO;
(4) repurchase agreements
(5) asset-backed securities (including, but not limited to, interests in
pools of assets such as motor vehicle installment purchase obligations
and credit card receivables) which are determined to be of high
quality by the Adviser pursuant to criteria approved by the Board of
Directors.
The bank money instruments in which the Fund invests may be issued by U.S.
commercial banks, foreign branches of U.S. commercial banks, foreign banks, and
U.S. and foreign branches of foreign banks. The Fund's investments in bank money
instruments will be restricted to an approved list of banks recommended by the
Adviser based upon credit quality.
The Fund may not invest 1) more than 5% of its total assets in the securities of
any one issuer (except as provided in Rule 2a-7 that the Fund may invest more
than five percent of its total assets in first tier securities of a single
issuer for a period of up to three business days after the purchase); 2) more
than 5% of its total assets in securities of issuers not in the highest rating
category as determined by the requisite number of NRSROs or, if unrated, or
comparable quality; and 3) more than the greater of 1% of its total assets or $1
million in securities of any one issuer not in the highest rating category as
determined by the requisite number of NRSROs or, if unrated, of comparable
quality.
The Fund may invest in time deposits which must mature in seven days or less.
Time deposits are deposits held in foreign branches of U.S. banks which have a
specified term or maturity. Time deposits are similar to certificates of
deposit, except they are not transferable, and are, therefore, illiquid prior to
their maturity.
The Fund may invest in Eurodollar certificates of deposit subject to the 25%
limitation for concentration in any one industry. Eurodollar certificates of
deposit are negotiable deposits denominated in U.S. dollars on deposit with
foreign branches of U.S. banks which have a specified maturity.
The Fund may invest in instruments which bear rates of interest that are
adjusted periodically or which "float" continuously according to formulas
intended to minimize fluctuation in values of the instruments ("variable rate
securities"). The interest rate of such securities is ordinarily determined by
reference to, or is a percentage of, an objective standard such as a bank's
prime rate, the 90-day U.S. Treasury bill rate, or the rate of return on
commercial paper or bank certificates of deposit. Generally, changes in the
interest rate on variable rate securities reduce the fluctuation in the market
value of such securities. Accordingly, as interest rates decrease or increase,
the potential for capital appreciation or depreciation is less than for
fixed-rate obligations. Some variable rate securities ("variable rate demand
securities") have a demand feature entitling the purchaser to resell the
securities to the issuer at an amount approximately equal to amortized cost or
the principal amount thereof plus accrued interest. As is the case for other
variable rate securities, the interest rate on variable rate demand securities
varies according to some objective standard intended to minimize fluctuation in
the values of the instruments. The Fund determines the maturity of variable rate
securities in accordance with Securities and Exchange Commission rules which
allow the Fund to consider certain of such instruments as having maturities that
are less than the maturity date on the face of the instrument. Under such rules,
the maturity date may be considered to be the longer of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand.
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The Fund may invest up to 20% of its assets in U.S. dollar denominated debt
securities of foreign corporations and foreign governments if rated in one of
the two highest categories by an NRSRO. Debt securities of foreign governments
may include securities of the governments of Canada, Japan and members of the
European Economic Community. All trades involving foreign debt securities will
be transacted through U.S. based brokerage firms or commercial banks. Canadian
investments will be made through the Toronto Stock Exchange member firms in U.S.
dollars. There also may be less publicly available information about foreign
issuers, and foreign issuers generally are not subject to the uniform
accounting, auditing, and financial reporting standards and practices applicable
to domestic issuers. Delays may be encountered in settling securities
transactions in foreign markets. Custody charges are generally higher for
foreign securities. The income from foreign securities may be subject to foreign
taxes.
COMMON POLICIES & INFORMATION
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
The Funds, except for the Money Market Fund, may invest in CMOs. CMOs are hybrid
instruments with characteristics of both mortgage-backed bonds and mortgage
pass-through securities. Similar to a bond, interest and prepaid principal on a
CMO are paid, in most cases, monthly. CMOs may be collateralized by whole
mortgage loans, but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. Since CMOs derive
their return from underlying mortgages, they are commonly referred to as
derivative securities. CMOs are structured into multiple classes, with each
class bearing a different stated maturity. Monthly payments of principal,
including prepayments, are first returned to investors holding the shortest
maturity class; investors holding the longer maturity classes receive principal
only after the earlier classes have been retired. CMOs that are issued or
guaranteed by the U.S. Government or by any of its agencies or instrumentalities
will be considered U.S. Government securities by the U.S. Government Fund, while
other CMOs, even if collateralized by U.S. Government securities, will have the
same status as other privately issued securities for purposes of applying the
Funds' diversification tests. For a discussion of prepayment risks see "Mortgage
and Other Asset-Backed Securities" within the Bond Fund's Investment Objectives
and Policies section above.
ZERO COUPON SECURITIES
The Funds are permitted to invest in zero coupon securities. Such securities are
debt obligations which do not entitle the holder to periodic interest payments
prior to maturity and are issued and traded at a discount from their face
amounts. The discount varies depending on the time remaining until maturity,
prevailing interest rates, liquidity of the security and the perceived credit
quality of the issuer. The discount, in the absence of financial difficulties of
the issuer, decreases as the final maturity of the security approaches and this
accretion (adjusted for amortization) is recognized as interest income. Zero
coupon securities can be sold prior to their due date in the secondary market at
the then-prevailing market value which depends primarily on the time remaining
to maturity, prevailing levels of interest rates and the perceived credit
quality of the issuer. The market prices of zero coupon securities are more
volatile than the market prices of securities of comparable quality and similar
maturity that pay interest periodically and may respond to a greater degree of
fluctuation in interest rates than do such non-zero coupon securities.
FUTURES, OPTIONS & SWAP AGREEMENTS
Use of these instruments may involve certain costs and risks, including the risk
that the Funds may not be able to close out a futures or option position when it
might be most advantageous to do so, and the risk of an imperfect correlation
between the value of the security being hedged and the value of the particular
instrument. Since such instruments derive their return from underlying
securities, they are commonly referred to as derivative securities.
FUTURES CONTRACTS. An interest rate futures contract is an agreement to purchase
or deliver a debt security in the future for a specified price on a certain
date. The Funds, except the Money Market Fund and the Government Fund, may buy
or sell interest rate futures contracts, and the Funds, except the Money Market
Fund, may buy or sell options on interest rate futures contracts for the purpose
of hedging against changes in the value of securities which the Funds own or
anticipate purchasing due to changes in interest rates. See the Statement of
Additional Information for further information.
OPTIONS - PUTS AND CALLS. Each Fund, except the Money Market Fund, may buy and
sell options on debt securities for the purpose of hedging against changes in
the value of securities which the Funds own or anticipate purchasing due to
changes in interest rates. A put option gives the purchaser the option, in
return for a premium paid, the right to sell the underlying security at a
specified price during the term of the option. A call option gives the purchaser
of the option, in return for a premium, the right to buy the security underlying
the option at a specified exercise price at any time during the term of the
option. While the Funds do not anticipate utilizing puts and calls on a regular
basis, the Funds may from time to time write exchange-traded call options on
debt securities, for which they will receive a purchase premium from the buyer,
and may purchase and sell exchange-traded call and put options on debt
-22-
securities written by others or combinations thereof. The Funds will not write
put options. The aggregate cost of all outstanding options purchased and held by
the Funds will at no time exceed 5% of a Fund's assets (10% of the Bond Fund's
net assets).
SWAP AGREEMENTS. Swap agreements are two party contracts entered into primarily
by institutional investors in which two parties agree to exchange the returns
(or differential rates of return) earned or realized on particular predetermined
investments or instruments. The Funds, except the Money Market Fund, may enter
into swap agreements for purposes of attempting to obtain a particular
investment return at a lower cost to the Funds than if the Funds had invested
directly in an instrument that provided that desired return. The Funds bear the
risk of default by its swap counterpart and may not be able to terminate its
obligations under the agreement when it is most advantageous to do so. In
addition, certain tax aspects of swap agreements are not entirely clear and
their use, therefore, may be limited by the requirements relating to the
qualification of a Fund as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code").
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
The Funds may purchase securities on an "when-issued" basis and may purchase or
sell securities on a "forward commitment" basis. When such transactions are
negotiated, the price is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date, which can be a month
or more after the date of the transaction. The Funds will not accrue income in
respect of a security purchased on a forward commitment basis prior to its
stated delivery date. At the time the Funds make the commitment to purchase
securities on a when-issued or forward commitment basis, they will record the
transaction and thereafter reflect the value of such securities in determining
their net asset value. At the time the Funds enter into a transaction on a
when-issued or forward commitment basis, a segregated account consisting of cash
and liquid high grade debt obligations equal to the value of the when-issued or
forward commitment securities will be established and maintained with the
custodian and will be marked to the market daily. On the delivery date, the
Funds will meet their obligations from securities that are then maturing or
sales of the securities held in the segregated asset account and/or from then
available cash flow. If the Funds dispose of the right to acquire a when-issued
security prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it can incur a gain or loss due to market
fluctuation.
There is always a risk that the securities may not be delivered and that the
Funds may incur a loss or will have lost the opportunity to invest the amount
set aside for such transaction in the segregated asset account. Settlements in
the ordinary course of business, which may take substantially more than five
business days for non-U.S. securities, are not treated by the Funds as
when-issued or forward commitment transactions and, accordingly, are not subject
to the foregoing limitations even though some of the risks described above may
be present in such transactions.
REPURCHASE AGREEMENTS
Each Fund, except Government Fund, is permitted to invest in repurchase
agreements. A repurchase agreement is a contract by which a Fund acquires the
security ("collateral") subject to the obligation of the seller to repurchase
the security at a fixed price and date (within seven days). A repurchase
agreement may be construed as a loan pursuant to the 1940 Act. The Funds may
enter into repurchase agreements with respect to any securities which it may
acquire consistent with its investment policies and restrictions. The Funds'
custodian will hold the securities underlying any repurchase agreement in a
segregated account. In investing in repurchase agreements, the Funds' risk is
limited to the ability of the seller to pay the agreed-upon price at the
maturity of the repurchase agreement. In the opinion of the Adviser, such risk
is not material, since in the event of default, barring extraordinary
circumstances, the Funds would be entitled to sell the underlying securities or
otherwise receive adequate protection under federal bankruptcy laws for its
interest in such securities. However, to the extent that proceeds from any sale
upon a default are less than the repurchase price, the Funds could suffer a
loss. In addition, the Funds may incur certain delays in obtaining direct
ownership of the collateral. The Adviser will continually monitor the value of
the underlying securities to ensure that their value always equals or exceeds
the repurchase price. The Adviser will submit a list of recommended issuers of
repurchase agreements and other short-term securities which it has reviewed for
credit worthiness to the Funds' directors at least quarterly for their approval.
ILLIQUID SECURITIES
Each Fund, except the Government Fund and Money Market Fund, may invest up to
15% of its net assets in all forms of "illiquid securities." As a fundamental
policy, the Government Fund is prohibited from investing any of its assets in
any form of restricted or illiquid securities. The Money Market may invest up to
10% of its assets in "illiquid securities."
An investment is generally deemed to be "illiquid" if it cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which such securities are valued by the Fund. Restricted securities are
securities which were originally sold in private placements and which have not
been registered under the Securities Act of 1933 (the "1933 Act"). Such
securities generally have been considered illiquid by the staff of the
Securities and Exchange Commission (the "SEC"), since such securities
-23-
may be resold only subject to statutory restsrictions and delays or if
registered under the 1933 Act. However, the SEC has recently acknowledged that a
market exists for certain restricted securities (for example, securities
quaifying for resale to certain "quailfied institutional buyers" pursuant to
Rule 144A under the 1933 Act). Additionally, a similar market exists for
commercial paper issued pursuant to the private placement exemption of Section
4(2) of the 1933 Act. As a fundamental policy, the Funds may invest without
limitation in these forms of restricted securities if such securities are
determined by the Adviser to be liquid in accordance with standards established
by the Funds' Board of Directors. Under these standards, the Adviser must
consider (a) the frequency of trades and quotes for the security, (b) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers, (c) dealer undertakings to make a market in the security,
and (d) the nature of the security and the nature of the marketplace trades (for
example, the time needed to dispose of the secuity, the method of soliciting
offers and the mechanics of transfer).
At the present time, it is not possible to predict with accuracy how the markets
for certain restricted securities will develop. Investing in restricted
securities could have the effect of increasing the level of a Fund's illiquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these securities.
VARIABLE AND FLOATING RATE NOTES
The Funds may purchase floating and variable rate notes. The interest rate is
adjusted either at predesignated periodic intervals (variable rate) or when
there is a change in the index rate on which the interest rate on the obligation
is based (floating rate). These notes normally have a demand feature which
permit the holder to demand payment of principal plus accrued interest upon a
specified number of days' notice. The issuer of floating and variable rate
demand notes normally has a corresponding right, after a given period, to prepay
at its discretion the outstanding principal amount of the note plus accrued
interest upon a specified number of days' notice to the noteholders.
DURATION
Duration is a measure of the expected life of a fixed income security on a
present value basis. Duration incorporates a bond's yield, coupon interest
payments, final principal at maturity and call features into one measure. It
measures the expected price sensitivity of a fixed income security (or
portfolio) for a given change in interest rates. For example, if interest rates
rise by one percent, the market value of a security (or portfolio) having a
duration of two years generally will fall by approximately two percent. Duration
is one of the fundamental tools used by the Adviser in its portfolio selection
process for the Funds. The Adviser uses several methods to compute various
duration estimates appropriate for particular securities held in portfolios.
Duration incorporates payments prior to maturity and therefore it is considered
a more precise measure of interest rate risk than "term to maturity." "Term to
maturity" measures only the time until a debt security provides its final
payment, and does not account for pre-maturity payments. Most debt securities
provide coupon interest payments in addition to a final ("par") payment at
maturity, and some securities have call provisions which allow the issuer to
repay the instrument in part or in full before maturity date. Each of these may
affect the security's price sensitivity to interest rate changes.
For bonds that are not subject to calls prior to their maturity, Macauley's
duration is an effective measure of price sensitivity to changing interest
rates. However, it does not properly reflect certain types of interest rate risk
as bonds may be subject to optional or special mandatory redemption provisions
that affect the timing of principal repayment and thus, the duration of the debt
security. These provisions include refunding calls, special, extraordinary,
optional, and sinking fund calls and prepayment calls. For example, while the
stated final maturity of mortgage "pass-through" securities is generally 30
years, expected prepayment rates are more important in determining duration.
Municipal bonds may also be subject to special redemption from unexpended
proceeds, excess revenues, sale proceeds or other sources of funds, and
municipal bonds may be advance refunded. Floating and variable rate debt
securities may have final maturities of ten or more years, yet their interest
rate risk corresponds to the frequency and benchmark index of the coupon reset.
In such situations, the Adviser uses more sophisticated analytical techniques
that incorporate these additional variables to arrive at a modified, effective,
implied or average life duration to reflect interest rate risk. These techniques
may involve the portfolio manager's expectations of future economic conditions,
and these assumptions may vary from actual future conditions. The various
methods used to compute appropriate duration estimates for certain bond issues,
particularly those that are traded infrequently and have a low amount of
outstanding debt such as municipal bonds, may require greater reliance on the
use of such assumptions by the Adviser., Therefore, for those issues, the
effective duration may be a less accurate estimate of interest rate risk than it
is for other types of bond issues.
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PORTFOLIO TURNOVER
Generally, the Funds will not trade in securities for short-term profits, but if
circumstances warrant, securities may be sold without regard to length of time
held. Debt securities may be sold in anticipation of a market decline (a rise in
interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold.
Increased turnover results in increased brokerage costs and higher transaction
costs for the Funds and may affect the taxes shareholders pay. If a security
that has been held for less than the holding period set by law is sold, any
resulting gains will be taxed in the same manner as ordinary income as opposed
to long-term capital gain. Each Fund's turnover rate may vary from year to year.
For additional information, refer to the prospectus section entitled "Taxes" and
the Statement of Additional Information sections entitled "Taxes" and
"Brokerage." The portfolio turnover rates for each of the Funds are contained in
the Financial Highlights tables in this prospectus.
RELATIONSHIP OF DEBT SECURITIES AND INTEREST RATES
The value of debt securities purchased by the Funds may be affected by changes
in interest rates. There is normally an inverse relationship between the market
value of securities sensitive to prevailing interest rates and actual changes in
interest rates. When interest rates decline, the value of debt securities
generally increases and when interest rates rise, the value of debt securities
generally decreases. Therefore, changes in interest rates may affect the Funds'
net asset values.
TEMPORARY DEFENSIVE INVESTMENTS
For temporary defensive purposes, the Funds may invest all or a portion of their
assets in cash, short-term debt securities including certificates of deposit,
bankers' acceptances and other bank obligations, corporate and direct U.S.
obligation bonds, notes, bills, commercial paper and repurchase agreements.
RATINGS OF DEBT SECURITIES
Investment grade debt securities are rated AAA, AA, A or BBB by Standard &
Poor's Corporation ("S&P"), Fitch Investors Service, Inc. ("Fitch"), and Duff &
Phelps Credit Rating Co. ("Duff & Phelps"); or Aaa, Aa, A or Baa by Moody's
Investors Services ("Moody's"). Investment grade municipal notes are rated MIG
1, MIG 2, MIG 3 or MIG 4 (VMIG 1, VMIG 2, VMIG 3 or VMIG 4 for notes with a
demand feature) by Moody's or SP-1 or SP-2 by S&P. Securities rated Baa, MIG 4,
VMIG 4 or BBB are medium grade, involve some speculative elements and are the
lowest investment grade available. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. These securities
generally have less certain protection of principal and interest payments than
higher rated securities. Securities rated Ba or BB are judged to have some
speculative elements with regard to capacity to pay interest and repay
principal. Securities rated B by Moody's are considered to generally lack
characteristics of a desirable investment and the assurance of interest and
principal payments over any long period of time may be small. S&P considers
securities rated B to have greater vulnerability to default than other
speculative grade securities. Adverse economic conditions will likely impair
capacity or willingness to pay interest and principal. DEBT SECURITIES RATED
BELOW INVESTMENT GRADE ARE COMMONLY KNOWN AS JUNK BONDS. See the Statement of
Additional Information for further information about ratings.
The commercial paper purchased by the Funds will consist only of direct
obligations which, at the time of purchase, are (a) rated Prime-1 by Moody's or
A-1 by S&P, or (b) if not rated, issued by companies having an outstanding
unsecured debt issue which at the time of purchase is rated Aa or higher by
Moody's or AA or higher by S&P.
Subsequent to their purchase, particular securities or other investments may
cease to be rated or their ratings may be reduced below the minimum rating
required for purchase by the Fund. Neither event will require the elimination of
an investment from a Funds' portfolio, but the Adviser will consider such an
event in its determination of whether the Fund should continue to hold the
security.
With respect to the Bond Fund, Minnesota Tax-Free Income Fund, and the Tax-Free
Income Fund, the weighted average percentage during the year ended March 31,
1996 of each Fund's long-term securities in each rating category assigned by
Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corporation
(S&P), as well as in unrated securities, is set forth in the following table:
MN
Tax-Free Tax-Free
Moody's Rating Bond Income Income
(S&P Equivalent) Fund Fund Fund
- ---------------- ---- ---- ----
Govt & Agency....................... 21.4
Mtge-Backed & CMOs.................. 55.9
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Aaa (AAA)........................... 8.3 20.0 8.2
Aa (AA)............................ 3.6 20.0 9.5
A (A).............................. 4.1 14.6 37.0
Baa (BBB).......................... 4.0 7.5 40.0
Ba (BB)............................. 0.6
Unrated............................. 36.5*
Cash & Equivalents.................. 2.7 1.4 4.7
---- ---- ----
TOTALS (%):......................... 100.0 100.0 100.0
* Detail of the Adviser's implied ratings (36.5%):
AA 1.2% BBB 26.7%
A 1.5 BB 7.1
OTHER INVESTMENT RESTRICTIONS
In addition to the investment policies and restrictions referred to above, each
Fund is subject to various other investment restrictions. These restrictions,
which are set forth in more detail in the Statement of Additional Information,
include, but are not limited to, restrictions whereby the Funds may (a) not
invest more than 25% of the value of its assets in any particular industry,
except with regard to the purchase of obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities; and (b) except as part of a
merger, consolidation, acquisition, or reorganization, not invest more than 5%
of the value of its total assets in the securities of any one investment company
or more than 10% of the value of its total assets, in the aggregate, in the
securities of two or more investment companies, or acquire more than 3% of the
total outstanding voting securities of any one investment company. Since the
Adviser does not waive its fees if and to the extent a Fund invests in the
securities of one or more other investment companies (except to the extent the
Bond Fund invests in shares of Money Market Fund), the Funds indirectly pay
duplicate advisory fees with respect to such investments. However, the Adviser
believes that the return and liquidity features of investment company securities
may, from time to time, be more beneficial to the Funds than alternative
short-term, liquid investments, and that the duplicate fees and expenses will
have a relatively small impact on overall Fund expenses.
COMPUTATION OF NET ASSET VALUE
Net asset value per share (the value of an individual share in a Fund) is
determined as of the close of the New York Stock Exchange (NYSE) on each day
that the exchange is open for business. Normally the NYSE closes at 3:00 p.m.
Central time. The net asset value is calculated by dividing the total value of a
Fund's investments and other assets (including accrued income), less any
liabilities, by the number of shares outstanding. The net asset value per share
of each Fund will fluctuate. However, the Money Market Fund seeks to maintain a
stable net asset value.
Debt securities may be valued on the basis of prices furnished by a pricing
service when the Adviser believes such prices accurately reflect the fair market
value of such securities. Such a pricing service utilizes electronic data
processing techniques to determine prices for normal institutional-size trading
units of debt securities without regard to sale or bid prices. When prices are
not readily available from a pricing service, or when restricted or illiquid
securities are being valued, securities may be valued at fair value using
methods selected in good faith by the Boards of Directors. Short-term
investments in debt securities with maturities of less than 60 days when
acquired, or which subsequently are within 60 days of maturity, are valued by
using the amortized cost method of valuation. The amortized cost method of
valuation will be used only if the Boards of Directors, in good faith, determine
that the fair value of the securities shall be their amortized cost value,
unless the particular circumstances dictate otherwise.
Any assets or liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the official exchange rate or, alternatively, at
the mean of the current bid and ask prices of such currencies against the U.S.
dollar last quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks. If neither of these
alternatives is available or both are deemed not to provide a suitable
methodology for converting a foreign currency into U.S. dollars, the Board of
Directors in good faith will establish a conversion rate for such currency.
HOW TO PURCHASE FUND SHARES
Shares of the Funds may be purchased without a sales commission at the net asset
value per share (see "Computation of Net Asset Value") next determined after
receipt of a purchase order in proper form. The minimum initial investment is
$2,000 for each Fund and additional investments must be at least $100. Accounts
may be established with a $500 minimum initial purchase if an Automatic
Investment Plan for at least $100 per month is also established. The minimum
purchase requirements do not apply to retirement accounts (see "Retirement
Accounts").
SEE THE INSIDE BACK COVER OF THIS PROSPECTUS FOR THE FUNDS' MAILING ADDRESS,
TELEPHONE NUMBERS, AND WIRE INSTRUCTIONS.
INITIAL INVESTMENT
BY MAIL. To open an account, complete and sign an application and mail it with a
check to the Funds as instructed on the application.
BY WIRE. Shares of the Funds may be purchased by wiring Federal Funds from your
bank, which may charge you a fee. Before money is wired for an initial purchase
(new account), you must call the Funds and provide the following information:
name or names of the account registration; address; social security or tax
identification number; the amount being wired; the name of the wiring bank; and
the name and telephone number of the person at your bank. The Funds will provide
you with an account number and your bank must then wire the specified amount
(minimum $2,000 if non-retirement account) to your account.
YOU MUST MAIL A COMPLETED APPLICATION TO THE FUNDS AFTER OPENING AN ACCOUNT BY
WIRE TRANSFER. IF A COMPLETED APPLICATION IS NOT RECEIVED OR YOUR SOCIAL
SECURITY OR TAX IDENTIFICATION NUMBER IS NOT CERTIFIED WITH A FORM W-9, YOUR
ACCOUNT WILL BE SUBJECT TO BACK-UP WITHHOLDING WITHIN 60 DAYS.
Wire orders will be accepted only on a day on which the Funds and the Funds'
Transfer Agent are open for business. A wire purchase will not be considered
made until the wired money is received and the purchase is accepted by the
Funds. Any delays which may occur in wiring money, including delays which may
occur in processing by the banks, are not the responsibility of the Funds or the
Funds' Transfer Agent.
WHEN ORDERS ARE EFFECTIVE
Purchases made by mail will be effective at the net asset value per share next
determined after receipt of the purchase order in proper form.
Purchases transmitted by wire to the Funds and received prior to the close of
the New York Stock Exchange (NYSE), normally 3:00 p.m. Central time, will be
invested at the net asset value per share calculated for that day. If received
after this deadline, the purchase will be made at the net asset value next
calculated. You become a shareholder after declaration of any dividend on the
day on which the order is effective. Dividends begin to accrue after you become
a shareholder.
ADDITIONAL INVESTMENTS
BY MAIL. You may make subsequent purchases (minimum $100) by mailing the
reinvestment stub attached to your account confirmation statement or a letter of
instruction (providing your account number and the name(s) on the account)
together with a check made payable to the Fund.
BY WIRE. You may purchase additional shares by wiring funds. For wire
instructions, see the inside back cover of this prospectus. After you have
initiated the wire purchase through your bank, please notify the Funds that a
wire purchase is being made to your account.
BY ACH. You may purchase shares for non-IRA accounts via electronic transfer of
funds if you have selected this option in Step 4 of the application. If you call
the Funds prior to the close of the NYSE, normally 3:00 p.m. Central time, your
purchase will be effective at the net asset value on the first business day
after your telephone call and your bank account will be debited within 1-2
business days.
BY AUTOMATIC INVESTMENT PLAN. After your initial investment of $2,000 or more,
you can make automatic monthly purchases (on any day of the month) of $100 or
more. To use this option, you must complete the Automatic Investment Plan
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section of the application or if adding this option to an existing account,
complete the Change of Account Options form. You can change the amount or
terminate this option by written notice to the Funds at any time.
OTHER PURCHASE INFORMATION
All purchases are subject to acceptance by authorized officers of the Funds and
are not binding until accepted. The Funds reserve the right to reject purchase
orders when, in the judgment of management, such rejection is in the best
interests of the Funds. At their discretion, the Funds may accept telephone
purchases and redemptions from a broker and/or a broker-dealer. Investors who
purchase or redeem shares through a broker and/or a broker-dealer may be charged
a transaction fee.
REDEMPTION OF FUND SHARES
You may redeem (sell) all or a portion of your shares at any time that the net
asset value is calculated. Shares will be redeemed at the net asset value per
share next determined after the request is received. A redemption may be more or
less than your cost depending on the market value of the Fund's securities. IF
YOU REQUEST A REDEMPTION (WHICH INCLUDES WRITING A DRAFT ON YOUR ACCOUNT) AFTER
A PURCHASE BY PERSONAL CHECK, E.G., NONGUARANTEED FUNDS, THE FUND MAY DELAY
SENDING YOUR REDEMPTION PROCEEDS (OR MAY RETURN YOUR DRAFT) UNTIL YOUR CHECK HAS
CLEARED (GOOD PAYMENT HAS BEEN COLLECTED), WHICH MAY TAKE UP TO TEN DAYS. YOU
MAY AVOID THIS DELAY BY PURCHASING SHARES WITH A CERTIFIED CHECK OR BANK WIRE OF
FEDERAL FUNDS.
Each Fund may suspend redemption privileges or postpone the date of payment (1)
during any period that the New York Stock Exchange is closed other than
customary weekend or holiday closings, or when trading is restricted, as
determined by the Securities and Exchange Commission, (2) during any period when
an emergency exists, as determined by the Securities and Exchange Commission, as
a result of which it is not reasonably practical for the Fund to dispose of
securities owned by it or to fairly determine the value of its assets, and (3)
for such other periods as the Securities and Exchange Commission may permit.
BY MAIL. You may request a redemption by sending a written request in "good
order" to the Funds. "Good order" means that the request for redemption must
include the following:
1. A letter of instruction specifying the name of the Fund, account number and
number of shares or dollar amount to be redeemed, signed by all registered
owners exactly as their names appear on the account.
2. Other supporting legal documents as required for estates, trusts,
guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations.
Payment will generally be made within 7 days after receipt of a redemption
request in "good order". A request for redemption cannot be canceled or revoked.
A signature guarantee is required if you request a redemption to be made payable
to someone other than the registered owners and/or if you request the proceeds
to be sent to an address other than the registered address.
If you are uncertain of the requirements for redemption, write or call the Funds
at 800-332-5580 or 612-334-5888.
BY WIRE. If you desire to make a redemption by wire of Federal Funds, a written
request in "good order" must first be received by the Funds. Your request should
contain specific wire instructions including the bank to which the proceeds are
to be wired, its address and your account number. Shares will be redeemed at the
net asset value next determined after the redemption request is received in good
order. If the proceeds are wired to your account at a bank which is not a member
of the Federal Reserve System, there could be a delay in crediting the funds to
your bank account. You may be required to pay a charge for the wiring cost which
will be deducted from the balance of your account or from the amount being wired
if your account has been completely redeemed.
TELEPHONE REDEMPTION
You may redeem up to $50,000 per day by telephone if you have authorized this
option for your account. This limitation does not apply to omnibus accounts. For
purposes of this limitation, accounts with the same registration in different
Funds will be aggregated.
If you call the Funds prior to the close of the NYSE, normally 3:00 p.m. Central
time, your redemption will be effective at the net asset value that same day.
You must complete the Telephone Redemption Authorization section of the
application to establish this option for each account for which you want this
option. You must obtain a signature guarantee(s) to add this option to an
existing
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account. The Fund will employ reasonable procedures to confirm that
telephone instructions are genuine, and including that payments be made only to
the shareholder's address of record or the bank account designated on the
application and requiring certain means of telephonic identification. If the
Fund fails to employ such procedures, it may be liable for any losses suffered
by Fund shareholders as a result of unauthorized or fraudulent instructions.
During times of chaotic economic or market circumstances, a shareholder may have
difficulty reaching the Funds by telephone. Consequently, an exchange or
redemption by telephone may be difficult to implement at those times.
BY MAIL. Telephone redemption proceeds can be mailed to your address of record.
If you wish to change your address or bank information and you have elected the
telephone redemption option, a signature guarantee is necessary to make these
changes.
BY WIRE. Telephone redemption proceeds can be wired to your bank. Proceeds will
be wired to your bank account the next business day after you request a
telephone redemption.
BY ACH. Electronic transfer of funds via Automated Clearing House (ACH) is
available for redemption of shares for non-IRA accounts. Your bank account will
be credited within 1-2 business days after you request a telephone redemption.
To establish this option, complete Step 4 of the application.
SYSTEMATIC WITHDRAWAL PLAN
You may establish a Systematic Withdrawal Plan to receive periodic redemptions
of at least $100 on a monthly, quarterly, semi-annual or annual basis.
Systematic withdrawals may eventually exhaust your account. Each withdrawal
constitutes a redemption and any gain or loss realized must be recognized for
federal income tax purposes.
OTHER REDEMPTION INFORMATION
At the discretion of the Board of Directors, each Fund may involuntarily redeem
accounts which have a balance less than $2,000. Such accounts may be redeemed
after giving written notice to the registered owner of the account. If the
shareholder does not increase the amount of the account above $2,000 within 30
days, the Fund may send the shareholder a check for the redemption proceeds as
determined at the next calculated net asset value.
EXCHANGES
An exchange is made by redeeming shares of one Fund and using the proceeds to
buy shares of another Sit Fund. There is no charge for this service, but the
Funds reserve the right to charge a fee in the future. An exchange results in a
sale of shares for federal income tax purposes and therefore you may realize
either a long-term or short-term capital gain or loss on the shares redeemed.
Before making an exchange, you should read the prospectus and consider the
investment objective of the Fund to be purchased.
An exchange may be done by telephone (subject to the same procedures for
telephone identification as telephone redemption above) or by written request to
the Funds. A written request must be signed by all registered owners of the
account. There is no charge for this service, but the Fund reserves the right to
charge a fee in the future. When you establish your account, the exchange
privilege will automatically be established unless you indicate that you do not
want it. If your exchange creates a new account, the new account ownership must
be identical and you must satisfy the minimum initial purchase requirement. You
may make an exchange to a new account or an existing account. There is a limit
of four exchanges out of each Fund per year per account.
Exchanges may be made only in states where allowed by law.
In addition, each Fund reserves the right to refuse exchanges if, in the
Adviser's judgment, the Fund would be unable to invest effectively in accordance
with its investment objectives and policies, or would otherwise potentially be
adversely affected. Exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of the Fund's
assets. Although the Fund will attempt to give prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time. The
Funds reserve the right to terminate or modify the exchange privilege in the
future.
SYSTEMATIC EXCHANGE PLAN
If you wish to exchange fixed periodic amounts between Funds, you may establish
the Systematic Exchange Plan. You may exchange a predetermined amount from one
Fund to another Fund on any business day of the month. An exchange may be done
monthly, or you may choose which months you wish to have the exchange made.
Systematic exchanges are subject to the same requirements as other exchanges.
-30-
CHECKWRITING
Checkwriting is available on the Funds. You may redeem shares by writing checks
in amounts of $250 or more. To use this option, you must complete the
checkwriting section of the application. You will be provided with free checks
and you may order additional checks as needed. The checkwriting privilege is
subject to the Funds' procedures and rules. The check writing privilege may be
terminated or suspended and/or a fee may be imposed for this service. There is
currently no charge for the checkwriting privilege.
A check that you write will be treated as a redemption of shares equal to the
amount of the check. You will receive a confirmation of the redemption and your
cancelled check will be returned. You will be entitled to distributions paid on
your shares until the check is presented to the Fund for payment.
YOU CANNOT LIQUIDATE YOUR ACCOUNT BY USING THE CHECKWRITING PRIVILEGE BECAUSE
YOUR ACCOUNT BALANCE WILL CHANGE EACH DAY AS A RESULT OF DAILY DIVIDENDS AND
DAILY FLUCTUATION OF THE NET ASSET VALUE PER SHARE. If you wish to make a total
redemption, see "Redemption of Fund Shares."
DIVIDEND REINVESTMENT
Each day on which the Funds determine the offering price of their shares, the
Funds declares a dividend of substantially all of their net investment income to
shareholders of record; such dividends are declared daily and paid monthly (on
the last business day of the month). Net investment income includes dividends on
stocks and interest earned on bonds or other debt securities less operating
expenses.
When a Fund sells portfolio securities, it may realize a gain or loss, depending
on whether it sells them for more or less than its cost. Net realized capital
gain, if any, will be distributed annually by each Fund.
Income dividends and capital gain distributions are automatically reinvested in
additional shares at the net asset value per share on the distribution date.
Dividends may be automatically directed from one Fund to another Fund. You may
request a cash payment of dividends and/or capital gain distributions on the
application or by separate written notice to the Funds. Shareholders will
receive a confirmation statement reflecting the payment and reinvestment of
dividends. If cash payment is requested, a check normally will be mailed within
five business days after the payable date. If you withdraw your entire account,
all dividends accrued to the time of withdrawal, including the day of
withdrawal, will be paid at that time.
RETIREMENT ACCOUNTS
Taxes on current income can be deferred by investing in Keogh plans, Individual
Retirement Accounts (IRAs), Simplified Employee Pensions (SEPs), 401(k),
pension, profit-sharing, employee benefit, deferred compensation and other
qualified retirement plans. The federal tax law governing these tax-deferred
retirement plans must be complied with to avoid adverse tax consequences.
The Funds are available for your tax-deferred retirement plan with no minimum
investment requirements for initial or additional contributions. Such retirement
plans must have a qualified plan sponsor or trustee. The Adviser sponsors
prototype 401(k), profit sharing, and money purchase plans as well as IRA,
SEP-IRA and Keogh plans. You should contact the Adviser for specific plan
documentation. You should also consult your tax adviser before investing.
CUSTODIAN AND TRANSFER AGENT
The Northern Trust Company, 50 South LaSalle Street, Chicacgo, IL 60675, acts as
Custodian for each Fund pursuant to the terms of a Custodian Agreement. The
Custodian holds all securities and cash, receives and pays for securities
purchased, delivers against payment for securities sold, receives and collects
income from investments and performs other administrative duties, all under the
supervision of officers of the Funds or the Adviser.
-30-
Pursuant to the terms of a Transfer Agency and Services Agreement and the
Accounting Services Agreement with each Fund, First Data Ianvestor Services
Group, Inc., 4400 Computer Drive, B215, Westborough, MA 01581 is the transfer
agent, dividend disbursing agent and accounting services agent for each Fund.
First Data Investor Services processes purchase orders, redemption orders and
all related shareholder accounting services.
MANAGEMENT
BOARD OF DIRECTORS
The Funds or its corporate issuer have corporate officers and Boards of
Directors. Pursuant to Minnesota law, the Boards of Directors are responsible
for the management of the Funds and the establishment of the Fund policies. The
officers of the Funds manage the day-to-day operation of the Funds.
INVESTMENT ADVISER
Sit Investment Associates, Inc. (the Adviser") was incorporated in Minnesota on
July 14, 1981 and serves as the Funds' Investment Adviser pursuant to Investment
Management Agreements (the "Agreements"). In addition to the Funds, the Adviser
together with its affiliates currently manage public and private accounts with
combined assets of approximately $4 billion. The address of the Adviser is 4600
Norwest Center, Minneapolis, Minnesota 55402.
Under the Investment Management Agreement, each Fund is obligated to pay the
Adviser a flat monthly fee based on the average daily net assets ("net assets")
on an annual basis as follows:
Bond Fund .80% of net assets
Minnesota Tax-Free Income Fund .80% of net assets
Tax-Free Income Fund .80% of net assets
Government Fund 1.00% of net assets
Money Market Fund .80% of net assets
Under each Funds' Agreements, the Adviser has agreed to bear all of the Funds'
expenses, except for extraordinary expenses (as designated by a majority of the
Funds' disinterested directors), interest, brokerage commissions and other
transaction charges relating to the investing activities of the Fund. Investment
advisory fees in excess of .75% per year of a fund's average daily net assets
are considered to be higher than investment advisory fees paid by most other
investment companies; however, the Adviser has either agreed to pay or reimburse
each Fund for all or certain of their other operating expenses as more fully set
forth above.
For the period October 1, 1993 through March 31, 1997, the Adviser has
voluntarily agreed to limit the management fee (and, thereby, all Fund expenses,
except those not payable by the Adviser as set forth above) of Government Fund
and Money Market Fund to .80% and .50% per year, respectively, of the Fund's
average daily net assets. For the period July 1, 1993 through March 31, 1997,
the Adviser has voluntary agreed to limit the management fee (and, thereby, all
Fund expenses, except those not payable by the Adviser as set forth above) of
the Tax-Free Income Fund to .70% of net assets in excess of $250 million, and
.60% of net assets in excess of $500 million. After March 31, 1997, these
voluntary fee waivers may be discontinued by the Adviser in its sole discretion.
PORTFOLIO MANAGEMENT
All investment decisions of all Funds are made by committee. Michael C. Brilley
oversees all day-to-day investment decisions for the Funds. He is Senior
Portfolio Manager for all Funds. Mr. Brilley is currently Senior Vice President
of the Adviser, and from 1984-1993 was Vice President and Senior Fixed Income
Officer of the Adviser.
DISTRIBUTOR
The Funds have entered into Underwriting and Distribution Agreements with SIA
Securities Corp. ("Securities"), an affiliate of the Adviser, pursuant to which
Securities will act as the Funds' principal underwriter. Securities will market
the Funds' shares only to certain institutional investors and all other sales of
the Funds' shares will be made by each Fund. The Adviser will pay all expenses
of Securities in connection with such services and Securities is otherwise not
entitled to any other compensation under the Underwriting and Distribution
Agreement. The Funds will incur no additional fees or expenses in connection
with the Underwriting and Distribution Agreement.
-32-
TAXES
Each Fund qualified as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), during its last taxable
year and intends to continue to do so during the current taxable year in order
to be relieved of payment of federal income taxes on amounts distributed to
shareholders (both net investment income and net realized capital gains).
FEDERAL INCOME TAXATION
Dividends distributed from interest earned by the Minnesota Tax-Free Income Fund
and the Tax-Free Income Fund on tax-exempt securities are exempt from federal
regular income taxes but may be subject to state and local taxes. However, see
discussion of Minnesota Income Taxation below. The Funds generally intend to
purchase only securities whose interest is exempt from federal taxes although
they may invest in taxable obligations under certain circumstances. Dividends
distributed from taxable investments, if any, net realized short-term gains, and
gains realized on the disposition of tax-exempt securities to the extent of the
accrued market discount will be taxable as ordinary income. Distributions from
net realized long-term gains will be taxable as long-term capital gains for
federal income tax purposes whether or not the shareholder elects to have such
dividends automatically reinvested in additional shares. Dividends paid by the
Funds will not be eligible for the 70% reduction for dividends received by
corporations if, as expected, none of those Funds' income consists of dividends
paid by U.S. corporations.
Each Fund distributes annually any net realized capital gains. Dividends paid
from the net capital gains of each Fund and designated as capital gain dividends
will be taxable to shareholders as long-term capital dividends, regardless of
the length of time for which they have held their shares in the Fund.
Gain or loss realized upon the sale of shares in each Fund will be treated as
capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. Such gain or loss will be long-term gain or loss
if the shares were held for more than one year.
Income dividends are accrued daily and paid monthly and do not affect the value
per share; however, the value of a share in these Funds drops by the amount of
the distribution when these Funds distribute capital gains, generally once per
year. If you purchase shares shortly before the record date of a dividend or
capital gain distribution, you will pay the full price for the shares ("buying a
dividend") and then receive some portion of the price back as a taxable dividend
or capital gain distribution. After every capital gain distribution, if any,
from each of the Funds, the value of a share drops by the amount of the
distribution.
Pursuant to the Code, distributions of net investment income by the Funds to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate) Withholding will not apply if a dividend
paid by the Funds to a foreign shareholder is "effectively connected" with a
U.S. trade or business of such shareholder, in which case the reporting and
withholding requirements applicable to U.S. citizens or domestic corporations
will apply. Distributions of net long-term capital gains are not subject to tax
withholding but, in the case of a foreign shareholder who is a nonresident alien
individual, such distributions ordinarily will be subject to U.S. income tax at
a rate of 30% if the individual is physically present in the U.S. for more than
182 days during the taxable year. The Funds will report annually to its
shareholders the amount of any withholding.
Each Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to certain accounts whose owners have not complied with IRS regulations. In
connection with this withholding requirement, you will be asked to certify on
your account application that the social security or taxpayer identification
number you provide is correct and that you are not subject to 31% backup
withholding for previous underreporting to the IRS.
ALTERNATIVE MINIMUM TAX
For federal income tax purposes, an alternative minimum tax ("AMT") is imposed
on taxpayers to the extent that such tax exceeds a taxpayer's regular income tax
liability (with certain adjustments). Exempt-interest dividends attributable to
interest income on certain tax-exempt obligations issued after August 7, 1986 to
finance certain private activities are treated as an item of tax preference that
is included in alternative minimum taxable income for purposes of computing the
federal AMT for all taxpayers and the federal environmental tax on corporations.
The Minnesota Tax-Free Fund may invest in securities that generate interest that
is treated as an item of tax preference. In addition, all other tax-exempt
interest received by a corporation, including exempt-interest dividends, will be
included in adjusted current earnings and in earnings and profits for purposes
of determining the federal corporate AMT, the
-33-
environmental tax imposed on corporations by Section 59A of the Code, and the
branch profits tax imposed on foreign corporations under Section 884 of the
Code.
Because liability for the AMT will depend upon the regular tax liability and tax
preference items of a specific taxpayer, the extent, if any, to which any tax
preference items resulting from investment in the Fund would be subject to the
tax will depend upon each shareholder's individual situation. Each shareholder
is advised to consult his or her tax adviser with respect to the possible
effects of such tax preference items.
MINNESOTA INCOME TAXATION
Minnesota taxable net income is based generally on federal taxable income. The
portion of exempt-interest dividends that is derived by the Minnesota Tax-Free
Fund from interest on Minnesota tax exempt obligations is excluded from the
Minnesota taxable net income of individuals, estates and trusts, provided that
the portion of the exempt-interest dividends from such Minnesota sources paid to
all shareholders represents 95% or more of the exempt-interest dividends paid by
the Fund. The remaining portion of such dividends, and dividends that are not
exempt-interest dividends or capital gain dividends, are included in the
Minnesota taxable net income of individuals, estates and trusts, except for
dividends directly attributable to interest on obligations of the U.S.
government or its possessions and territories. Exempt-interest dividends are not
excluded from the Minnesota taxable income of corporations and financial
institutions. Dividends qualifying for federal income tax purposes as capital
gain dividends are to be treated by shareholders as long-term capital gains for
Minnesota income tax purposes. Minnesota has repealed the favorable treatment of
long-term capital gains, while retaining restrictions on the deductibility of
capital losses. Exempt-interest dividends attributable to interest on certain
private activity bonds issued after August 7, 1986 will be included in Minnesota
alternative minimum taxable income of individuals, estates and trusts for
purposes of computing Minnesota's alternative minimum tax. Dividends generally
will not qualify for the dividends-received deduction for corporations and
financial institutions.
The 1995 Minnesota Legislature enacted a statement of intent that interest on
obligations of Minnesota governmental units and Indian tribes be included in net
income of individuals, estates and trusts for Minnesota income tax purposes if a
court determines that Minnesota's exemption of such interest unlawfully
discriminates against interstate commerce because interest on obligations of
governmental issuers located in other states is so included. This provision
applies to taxable years that begin during or after the calendar year in which
any such court decision becomes final, irrespective of the date on which the
obligations were issued. The Adviser is not aware of any decision in which a
court has held that a state's exemption of interest on its own bonds or those of
its political subdivisions or Indian tribes, but not of interest on the bonds of
other states or their political subdivisions or Indian tribes, unlawfully
discriminates against interstate commerce or otherwise contravenes the United
States Constitution. Nevertheless, the Adviser cananot predict the likelihood
that interest on the Minnesota bonds held by the Fund would become taxable under
this Minnesota statutory provision.
This is a general summary of the federal and Minnesota tax law in effect as of
the date of this prospectus. See the Statement of Additional Information for
further details. You may also be subject to local taxes, depending on the laws
of your locality. Distributions may also be subject to local taxes, even if all
or a substantial part of such distributions are derived from interest on U.S.
government obligations which, if you received them directly, would be exempt
from state income tax. Information about the tax status of each year's dividends
and distribution will be mailed to shareholders annually. Because some states
exempt their own municipal obligations from tax, you will receive tax
information each year showing the percentage of the Tax-Free Income Fund's
dividends attributable to each state.
CAPITALIZATION AND VOTING RIGHTS
Each of the Funds (or the corporate issuer of their shares) is organized as a
Minnesota corporation. Each of the Funds (or its corporate issuer) has only one
class of shares -- common shares. The Government Fund and Money Market Fund,
each have one series of common shares consisting of ten billion shares with a
par value of one-tenth of one cent per share. The corporate issuer of Tax-Free
Income Fund, Minnesota Tax-Free Income Fund, and Bond Fund (SIT Mutual Funds II,
Inc.) is organized as a series fund with one trillion shares of common stock
authorized and a par value of one tenth of one cent per share. Ten billion of
these shares have been designated by the Board of Directors for each series:
Series A Common Shares, which represent shares of Tax-Free Income Fund; Series B
Common Shares, which represent shares of Minnesota Tax-Free Income Fund; Series
C Common Shares which represent shares of Bond Fund. The Board of Directors of
SIT Mutual Funds II, Inc. is empowered to issue other series of common stock
without shareholder approval.
-33-
The shares of each Fund are nonassessable, can be redeemed or transferred and
have no preemptive or conversion rights. All shares have equal, noncumulative
voting rights which means that the holders of more than 50% of the shares voting
for the election of Directors can elect all of the Directors if they choose to
do so. A shareholder is entitled to one vote for each full share (and a
fractional vote for each fractional share) then registered in his/her name on
the books of each Fund. The shares of each Fund are of equal value and each
share is entitled to a pro rata portion of the income dividends and any capital
gain distributions.
ADDITIONAL INFORMATION
Under Minnesota law, the Board of Directors of each Fund has overall
responsibility for managing the Funds, in good faith, in a manner reasonably
believed to be in the best interests of each Fund, and with the care an ordinary
prudent person would exercise in similar circumstances.
This prospectus omits certain of the information contained in the Registration
Statements filed with the Securities and Exchange Commission, Washington, D.C.
20549. Items of information which are omitted may be obtained from the
Securities and Exchange Commission upon payment of the fees prescribed by the
rules and regulations of the Commission.
In the opinion of the staff of the Securities and Exchange Commission, the use
of this combined Prospectus may possibly subject all Funds to a certain amount
of liability for any losses arising out of any statement or omission in this
prospectus regarding a particular Fund. In the opinion of the Funds' management,
however, the risk of such liability is not materially increased by the use of a
combined prospectus.
-34-
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
Michael C. Brilley
William E. Frenzel
John E. Hulse
Sidney L. Jones
Donald W. Phillips
Director Emeritus:
Melvin C. Bahle
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Michael C. Brilley Senior Vice President
Mary K. Stern President
Debra A. Sit, CFA (1) Vice President - Investments
Paul E. Rasmussen Vice President & Treasurer
Michael P. Eckert Vice President
Michael J. Radmer Secretary
Parnell M. Kingsley Assistant Secretary
Carla J. Rose Assistant Secretary
(1) Assistant Treasurer of all Funds, Vice President - Investments of the
Tax-Free Income and Minnesota Tax-Free Income Funds only
-35-
Address and Telephone Reference:
Regular Mail Express or Certified Mail
Sit Funds Sit Funds
P. O. Box 9763 One American Express Plaza
Providence, RI 02940-9763 Providence, RI 02903-1135
SIT INVESTOR SERVICES
To speak with a Client Service Representative:
1-800-332-5580 or 612-334-5888
WIRE INSTRUCTIONS To wire money for a purchase:
Boston Safe Deposit and Trust
ABA #011-001234
Sit (name of Fund)
DDA #056146
Attn: Liz Martinelli
For Further Credit: (Shareholder name)
Account Number: (Shareholder account number)
-36-
Not part of the prospectus
PART B
STATEMENT OF ADDITIONAL INFORMATION
SIT BOND FUND
SIT MINNESOTA TAX-FREE INCOME FUND
SIT TAX-FREE INCOME FUND
SIT U.S. GOVERNMENT SECURITIES FUND, INC.
SIT MONEY MARKET FUND, INC.
4600 Norwest Center, 90 So. 7th Street
Minneapolis, Minnesota 55402-4130
612-334-5888
800-332-5580
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Funds' prospectus which may be obtained from the Funds
without charge by contacting the Funds at 4600 Norwest Center, 90 S. 7th
Street, Minneapolis, Minnesota 55402-4130. Telephone: (612) 334-5888 or (800)
332-5580. The date of this Statement of Additional Information is August 1,
1996, and it is to be used with the Funds' prospectus dated August 1, 1996.
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT RESTRICTIONS
Bond Fund............................................................ 2
Minnesota Tax-Free Income Fund....................................... 3
Tax-Free Income Fund................................................. 3
U.S. Government Securities Fund (Government Fund).................... 4
Money Market Fund ................................................... 4
All Funds............................................................ 5
DIVERSIFICATION........................................................... 6
SECURITIES IN WHICH THE BOND FUND MIGHT INVEST............................ 6
SECURITIES IN WHICH THE MINNESOTA TAX-FREE INCOME FUND MIGHT INVEST....... 7
SECURITIES IN WHICH THE MONEY MARKET FUND MIGHT INVEST.................... 8
COMMON INVESTMENTS........................................................ 9
COMPUTATION OF NET ASSET VALUE............................................ 16
CALCULATION OF PERFORMANCE DATA........................................... 17
MANAGEMENT................................................................ 18
INVESTMENT ADVISER........................................................ 20
SIA SECURITIES CORP....................................................... 21
BROKERAGE................................................................. 22
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES....................... 23
TAXES ................................................................. 24
FINANCIAL STATEMENTS...................................................... 26
OTHER INFORMATION......................................................... 26
LIMITATION OF DIRECTOR LIABILITY.......................................... 26
APPENDIX A - BOND AND COMMERCIAL PAPER RATINGS............................ 28
APPENDIX B - MUNICIPAL BOND RATINGS....................................... 30
-1-
ADDITIONAL INVESTMENT RESTRICTIONS
The investment objectives, policies and restrictions of the Funds are set forth
in the Prospectus. Certain additional investment information is set forth below.
All capitalized terms not defined herein have the same meanings as set forth in
the Prospectus. In addition to the restrictions in the prospectus, each Fund is
subject to other restrictions which are fundamental and may not be changed
without shareholder approval. Shareholder approval, as defined in the Investment
Company Act of 1940, means the lesser of the vote of (a) 67% of the shares of a
Fund at a meeting where more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (b) more than 50% of the outstanding shares of
a Fund. A percentage limitation must be met at the time of investment and a
later deviation resulting from a change in values or net assets will not be a
violation.
BOND FUND
The Fund is subject to the following restrictions which are fundamental. The
Fund will not:
1. Invest in real estate (including real estate limited partnerships),
although it may invest in securities which are secured by or represent
interests in real estate;
2. Purchase or sell commodities or commodity contracts, provided that this
restriction does not apply to financial futures contracts or options
thereon;
3. Make loans except by purchase of debt obligations (including repurchase
agreements) in which it may invest consistent with its investment policies;
4. Underwrite securities of other issuers except to the extent that, in
connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws;
5. Borrow money, except for temporary or emergency purposes but not for the
purchase of investments, and then not in excess of 5% of the Fund's net
assets; or pledge, mortgage or hypothecate the Fund's assets, transfer,
assign or otherwise encumber them in an amount exceeding the amount of the
borrowing secured thereby;
6. Issue senior securities as defined in the Investment Company Act of 1940;
or
7. Invest more than 25% of its assets in a single industry except with regard
to the purchase of obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities;
The following investment restrictions of the Fund are not fundamental and may be
changed by the Board of Directors of the Fund. The Fund will not:
1. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Except as part of a merger, consolidation, acquisition or reorganization,
invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company;
3. Purchase or retain securities of any issuer if to the knowledge of the
Fund, officers and directors of either the Fund or its investment adviser
beneficially owning more than 0.5% of such securities together own more
than 5% of such securities;
4. Invest more than 10% of its net assets in securities of issuers which, with
their predecessors have a record of less than three years continuous
operation. Securities of such issuers will not be deemed to fall within
this limitation if they are guaranteed by an entity in continuous operation
for more than three years;
5. Invest for the purpose of exercising control or management;
6. Write put options;
7. Enter into reverse repurchase agreements;
8. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
9. Invest in more than 10% of the outstanding voting securities of any one
issuer; or
10. Invest in oil, gas or other mineral leases, rights or royalty contracts,
although it may invest in securities of companies investing in the
foregoing.
-2-
MINNESOTA TAX-FREE INCOMEFUND
The Fund is subject to the following restrictions which are fundamental. The
Fund will not:
1. Invest in real estate, although it may invest in securities which are
secured by or represent interests in real estate;
2. Purchase or sell commodities or commodity contracts, provided that this
restriction does not apply to index futures contracts, interest rate
futures contracts or options on interest rate futures contracts for
hedging;
3. Make loans except by purchase of debt obligations (including repurchase
agreements) in which it may invest consistent with its investment policies;
4. Underwrite securities of other issuers except to the extent that, in
connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws;
5. Borrow money, except for temporary or emergency purposes but not for the
purchase of investments, and then not in excess of 5% of the Fund's net
assets; or pledge, mortgage or hypothecate the Fund's assets, transfer,
assign or otherwise encumber them in an amount exceeding the amount of the
borrowing secured thereby;
6. Issue senior securities as defined in the Investment Company Act of 1940.
7. Invest more than 25% of its assets in the securities of issuers in any
single industry, except that the Fund may invest without limitation in
housing.
The following investment restrictions of the Fund are not fundamental and may be
changed by the Board of Directors of the Fund. The Fund will not:
1. Purchase on margin or sell short, except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Except as part of a merger, consolidation, acquisition or reorganization,
invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company;
3. Purchase or retain securities of any issuer if, to the knowledge of the
Fund, officers and directors of either the Fund or its investment adviser
beneficially own more than 0.5% individually, or together own more than 5%
of such securities;
4. Invest for the purpose of exercising control or management;
5. Write put options;
6. Invest more than 5% of its net assets in foreign securities, provided that
the Fund may invest without limitation in tax-exempt securities issued by
U.S. territorial possessions;
7. Enter into reverse repurchase agreements;
8. Invest more than 15% of its net assets collectively in all types of
illiquid securities; or
9. Invest in oil, gas or other mineral leases, rights or royalty contracts,
although it may invest in securities of companies investing in the
foregoing.
TAX-FREE INCOME FUND
The Tax-Free Income Fund is subject to the following restrictions which are
fundamental. The Fund will not:
1. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Invest in real estate, although it may invest in securities which are
secured by or represent interests in real estate;
3. Purchase or sell commodities or commodity contracts, provided that this
restriction does not apply to index futures contracts, interest rate
futures contracts or options on interest rate futures contracts for
hedging;
4. Make loans except by purchase of debt obligations (including repurchase
agreements) in which it may invest consistent with its investment policies;
5. Underwrite securities of other issuers except to the extent that, in
connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws;
6. Write put or call options;
7. Mortgage, pledge or hypothecate its assets except in an amount not
exceeding 10% of its net assets to secure temporary or emergency borrowing;
-3-
8. Issue senior securities as defined in the Investment Company Act of 1940;
9. Invest in more than 10% of the outstanding voting securities of any one
issuer;
10. Invest more than 15% of its net assets collectively in all types of
illiquid securities.
The following investment restrictions of the Tax-Free Income Fund are not
fundamental and may be changed by the Board of Directors of the Fund. The Fund
will not:
1. Invest in oil, gas or other mineral leases, rights or royalty contracts,
although it may invest in securities of companies investing in the
foregoing;
2. Except as part of a merger, consolidation, acquisition or reorganization,
invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company;
3. Purchase or retain securities of any issuer if to the knowledge of the
Fund, officers and directors of the Fund or officers and directors of its
investment adviser who beneficially own more than 0.5% of such securities
together own more than 5% of such securities;
4. Invest more than 10% of its net assets in securities of issuers which, with
their predecessors have a record of less than three years continuous
operation. Securities of such issuers will not be deemed to fall within
this limitation if they are guaranteed by an entity in continuous operation
for more than three years;
5. Invest for the purpose of exercising control or management;
6. Invest more than 5% of its net assets in foreign securities, provided that
the Fund may invest without limitation in tax-exempt securities issued by
U.S. territorial possessions;
7. Enter into reverse repurchase agreements.
GOVERNMENT FUND
The Government Fund is subject to the following restrictions which are
fundamental. The Fund will not:
1. Purchase securities of any issuer except securities issued, guaranteed or
insured by the U.S. government, its agencies or instrumentalities;
2. Have any limitation with regard to concentration for the purchase of
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
3. Invest in commodities, commodity contracts or interest rate future
contracts; or purchase or sell real estate, 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;
4. Make loans except by purchasing publicly distributed debt securities such
as bonds, debentures and similar obligations;
5. Purchase on margin or sell short except to obtain short term credit as may
be necessary for the clearance of transactions;
6. Invest in repurchase agreements;
7. Borrow money;
8. Underwrite the securities of other issuers;
9. Invest in securities subject to legal or contractual restrictions on resale
or securities which are otherwise illiquid;
10. Except as part of a merger, consolidation, acquisition, or reorganization,
invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company;
11. Invest in exploration or development for oil, gas or other minerals;
12. Issue senior securities as defined in the Investment Company Act of 1940.
MONEY MARKET FUND
The Money Market Fund is subject to the following restrictions which are
fundamental. The Fund will not:
1. Concentrate more than 25% of the value of its net assets in any one
industry. Water, communications, electric and gas utilities shall each be
considered a separate industry. Banks shall be categorized as commercial
banks and savings and loan institutions, and each category shall be
considered a separate industry. As to finance companies, the following
-4-
categories will be considered separate industries: 1) captive automobile
finance companies; 2) captive equipment finance companies; 3) captive
retail finance companies; 4) consumer loan companies; 5) diversified
finance companies; and 6) captive oil finance companies. This limitation
does not apply to obligations issued by the U.S. government or its agencies
or instrumentalities;
2. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government or its agencies or instrumentalities), if, as a
result, more than 5% of the Fund's net assets would be invested in
securities of such issuer. This restriction is limited to 75% of the Fund's
net assets.
3. Purchase more than 10% of any voting class of securities of any issuer;
4. Invest more than 10% of the Fund's net assets in securities of companies
which have (with their predecessors) a record of less than five years of
continuous operations;
5. Purchase or retain the securities of any issuer if, in total, the holdings
of all officers and directors of the Fund and of its investment adviser,
who individually own beneficially more than 0.5% of such securities,
represent more than 5% of the issuer's securities;
6. Borrow money, except from banks for temporary or emergency purposes but not
for the purpose of purchase of investments, and then, not in excess of 5%
of the Fund's net assets;
7. Lend money to others except through the purchase of debt obligations
(including repurchase agreements) of the type which the Fund is permitted
to purchase;
8. Except as part of a merger, consolidation, acquisition or reorganization,
invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company;
9. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions;
10. Invest for the purpose of controlling management of any company;
11. Underwrite the securities of other issuers;
12. Invest in commodities or commodity futures contracts or in real estate,
although it may invest in securities which are secured by real estate and
securities of issuers which invest or deal in real estate;
13. Invest in exploration or development for oil, gas or other minerals,
although it may invest in the securities of issuers which invest in or
sponsor such programs;
14. Purchase common stocks, preferred stocks, warrants, other equity
securities, state bonds, municipal bonds, or industrial revenue bonds;
15. Issue senior securities as defined in the Investment Company Act of 1940;
16. Invest more than 15% of its net assets collectively in all types of
illiquid securities.
The following investment restrictions of the Money Market Fund are not
fundamental and may be changed by the Board of Directors of the Fund. The Fund
will:
1. Not invest more than 10% of its net assets collectively in all types of
illiquid securities;
2. Comply with all requirements of Rule 2a-7 under the Investment Company Act
of 1940, as such rule may be amended from time to time;
3. Not invest more than 5% of its net assets in any one issuer other than as
permitted pursuant to Rule 2a-7 under the Investment Company Act of 1940,
as such rule may be amended from time to time.
ALL FUNDS
In October 1995 the shareholders of each Fund approved a change to each Fund's
fundamental investment restrictions and authorized each Fund to lend portfolio
securities to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. To date, the Funds have not
loaned securities, and neither the Funds nor the Adviser intend to lend
securities in the immediate future.
-5-
DIVERSIFICATION
As a fundamental policy (in addition to the fundamental policies and
restrictions set forth in the Prospectus and this Statement of Additional
Information), each Fund (except Minnesota Tax-Free Income Fund) intends to
operate as a "diversified" management investment company, as defined in the
Investment Company Act of 1940, as amended. A "diversified" investment company
means a company which meets the following requirements: At least 75% of the
value of the company's total assets is represented by cash and cash items
(including receivables), "Government Securities", securities of other investment
companies, and other securities for the purposes of this calculation limited in
respect of any one issuer to an amount not greater in value than 5% of the value
of the total assets of such management company and to not more than 10% of the
outstanding voting securities of such issuer. "Government Securities" means
securities issued or guaranteed as to principal or interest by the United
States, or by a person controlled or supervised by and acting as an
instrumentality of the Government of the United States pursuant to authority
granted by the Congress of the United States; or certificates of deposit for any
of the foregoing. Additionally, as set forth above, each of the Funds has
adopted certain restrictions that are more restrictive than the policies set
forth in this paragraph.
The Minnesota Tax-Free Income Fund is a nondiversified investment company as
defined in the 1940 Act which means that the Fund is not restricted by the
provisions of the 1940 Act with respect to diversification of its investments.
However, the Fund intends to comply with the diversification requirements
contained in the Internal Revenue Code of 1986. Accordingly, at the end of each
quarter of the Fund's taxable year (a) at least 50% of the market value of the
Fund's assets must be invested in cash, U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and not more than 10% of the outstanding voting securities of the issuer,
and (b) not more than 25% of the value of the Fund's total assets can be
invested in the securities of any one issuer (other than U.S. Government
securities). Since a relatively high percentage of the Fund's assets may be
invested in the obligations of a limited number of issuers, some of which may be
within the same economic sector, the Fund's portfolio securities may be more
susceptible to any single economic, political or regulatory occurrence than the
portfolio securities of diversified investment companies.
For purposes of such diversification, the identification of the issuer of
tax-exempt securities depends on the terms and conditions of the security. If a
State or a political subdivision thereof pledges its full faith and credit to
payment of a security, the State or the political subdivision, respectively, is
deemed the sole issuer of the security. If the assets and revenues of an agency,
authority or instrumentality of a State or a political subdivision thereof are
separate from those of the State or political subdivision and the security is
backed only by the assets and revenues of the agency, authority or
instrumentality, such agency, authority or instrumentality is deemed to be the
sole issuer. Moreover, if the security is backed only by revenues of an
enterprise of specific projects of the state, a political subdivision or agency,
authority or instrumentality, such as utility revenue bonds, and the full faith
and credit of the governmental unit is not pledged to the payment thereof, such
enterprise or specific project is deemed the sole issuer. If, however, in any of
the above cases, a state, political subdivision or some other entity guarantees
a security and the value of all securities issued or guaranteed by the guarantor
and owned by the Fund exceeds 10% of the value of the Fund's total assets, the
guarantee is considered a separate security and is treated as an issue of the
guarantor.
SECURITIES IN WHICH THE BOND FUND MIGHT INVEST
FOREIGN CURRENCY TRANSACTIONS
As discussed in the Prospectus, the Bond Fund may engage in foreign currency
exchange transactions in connection with the purchase and sale of its
investments. A forward foreign currency exchange contract involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract as agreed by the parties, at a
price set at the time of the contract. In the case of a cancelable forward
contract, the holder has the unilateral right to cancel the contract at maturity
by paying a specified fee. The contracts are traded in the interbank market
-6-
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
Forward foreign currency exchange contracts differ from foreign currency futures
contracts in certain respects. For example, the maturity date of a forward
contract may be any fixed number of days from the date of the contract agreed
upon by the parties, rather than a predetermined date in any given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or
make delivery of the currency specified in the contract, or, at or prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are affected on
a commodities exchange: a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Options on foreign currencies operate similarly to options on securities and are
traded primarily on the over-the-counter market, although options on foreign
currencies have recently been listed on several exchanges. Options traded on the
over-the-counter market are illiquid and it may not be possible for the Fund to
dispose of an option it has purchased or terminate its obligations under an
option it has written at a time when the Adviser believes it would be
advantageous to do so. Options on foreign currencies are affected by all of
those factors which influence foreign exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar and may have no relationship to the
investment merits of a foreign debt security. Because foreign currency
transactions occurring in the interbank market involve substantially larger
amounts than those that may be involved in the use of foreign currency options,
investors may be disadvantaged by having to deal in an odd-lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots. There is no
systematic reporting of last sale information for foreign currencies and there
is no regulatory requirement that quotations available through dealers or other
market sources be provided on a timely basis. Available quotation information is
generally representative of very large transactions in the interbank market and
thus may not reflect relatively smaller transactions (less than $1 million)
where rates may be less favorable. The interbank market in foreign currencies in
a global, around-the-clock market. To the extent that the U.S. options markets
are closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying markets
that cannot be reflected in the options markets.
Although foreign exchange dealers do not charge a fee for currency conversions,
they do realize a profit based upon the difference between prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Bond Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.
SECURITIES IN WHICH THE MINNESOTA TAX-FREE INCOME FUND MIGHT INVEST
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN MINNESOTA TAX-EXEMPT OBLIGATIONS
The following information is a brief summary of Minnesota factors affecting the
Minnesota Tax-Free Income Fund and does not purport to be a complete description
of such factors. The financial condition of Minnesota, its public authorities
and local governments could affect the market values and marketability of, and
therefore the net asset value per share and the interest income of the Minnesota
Tax-Free Income Fund, or result in the default of existing obligations,
including obligations which may be held by the Minnesota Tax-Free Income Fund.
Further, Minnesota faces numerous forms of litigaiton seeking significant
damages which, if awarded, could adversely affect the financial situation of
Minnesota or issuers located therein. It should be noted that the
creditworthiness of obligations issued by local issuers may be unrelated to the
creditworthiness of Minnesota, and that there is no obligation on the part of
Minnesota to make payment on such local obligations in the event of default in
the absence of a special guarantee or pledge provided by Minnesota. The
following information is based primarily upon information derived from public
documents relating to securities offerings of issuers of such states and other
historically reliable sources, but has not been independently verified by the
Fund. The Minnesota Tax-Free Income Fund makes no representation or warranty
regarding the completeness or accuracy of such information. The market value of
the shares of the Minnesota Tax-Free Income Fund may fluctuate due to factors
such as changes in interest rates, matters affecting Minnesota or for other
reasons.
General Economic Conditions. Diversity and a significant natural resource base
are two important characteristics of the Minnesota economy. Generally, the
structure of the State's economy parallels the structure of the United States
economy as a whole. There are, however, employment concentrations in durable
goods and non-durable goods manufacturing, particularly industrial machinery,
instruments and miscellaneous, food, paper and related industries, and printing
and
-8-
publishing. During the period from 1980 to 1990, overall employment growth
in Minnesota lagged behind national employment growth, in large part due to
declining agricultural employment. The rate of non-farm employment growth in
Minnesota exceeded the rate of national growth, however, in the period of 1990
to 1994. Since 1980, Minnesota per capita income generally has remained above
the national average, but tightness in local labor markets may reduce the rate
of personal income growth below that of the national average in the future.
During 1993, 1994 andd 1995, the State's monthly unemployment rate generally was
less than the national unemployment rate.
Revenue and Expenditures. The State relies heavily on a progressive individual
income tax and a retail sales tax for revenue, which results in a fiscal system
that is sensitive to economic conditions. Frequently in recent years,
legislation has been required to eliminate projected budget deficits by raising
additional revenue, reducing expenditures, including aids to political
subdivisions and higher education, reducing the State's budget reserve, imposing
a sales tax on purchases by local governmental units, and making other budgetary
adjustment. The Minnesota Department of Finance February 1996 Forecast has
projected that, under current laws, the State will complete its current biennium
June 30, 1997 with a $15 million surplus, plus a $350 million cash flow account
balance, plus a $220 million budget reserve. Total General Fund expenditures and
transfers for the biennium are projected to be $18.8 billion. State expenditures
for education finance (K-12), post-secondary education, and human services in
the biennium ending June 30, 1997 are not anticipated to be sufficient to
maintain program levels of the previous biennium. The State is party to a
variety of civil actions that could adversely affect the State's General Fund.
In addition, substantial portions of State and local revenues are derived from
federal expenditures, and reductions in federal aid to the State and its
political subdivisions and other federal spending cuts may have substantial
adverse effects on the economic and fiscal condition of the State and its local
governmental units. The February 1996 Forecast states that pending federal
legislation could reduce federal aid to Minnesota's state and local governments
by a total of $3.2 billion over seven years. Risks are inherent in making
revenue and expenditure forecasts. Economic or fiscal conditions less favorable
than those reflected in State budget forecasts and planning estimates may create
additional budgetary pressures.
State grants and aids represent a large percentage of the total revenues of
cities, towns, counties and school districts in Minnesota, but generally the
State has no obligation to make payments on local obligations in the event of a
default. Even with respect to revenue obligations, no assurance can be given
that economic or other fiscal difficlties and the resultant impact on State and
local government finances will not adversely affect the ability of the
respective obligors to make timely payment of the principal and interest on
Minnesota municipal obligations that are held by the Minnesota Tax-Free Income
Fund or the marketability of such obligations.
1995 Minnesota tax legislation and possible future changes in federal and State
income tax laws, including rate reductions, could adversely affect the value and
marketability of Minnesota municipal obligations that are held by the Minnesota
Tax-Free Income Fund. See "Taxes" in the Prospectus.
SECURITIES IN WHICH THE MONEY MARKET FUND MIGHT INVEST
OBLIGATIONS OF BANKS
Bank money instruments in which the Fund may invest include certificates of
deposit, including variable rate certificates of deposit, bankers' acceptances
and time deposits. "Bank" includes commercial banks, savings banks and savings
and loan associations. Certificates of deposit are generally short-term,
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against 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, usually
at 30, 90 or 180 day intervals ("coupon dates"), based upon a specified market
rate, which is tied to the then prevailing certificate of deposit rate, with
some premium paid because of the longer final maturity date of the variable rate
certificate of deposit. As a result of these adjustments, the interest rate on
these obligations may be increased or decreased periodically. Variable rate
certificates of deposit normally carry a higher interest rate than fixed rate
certificates of deposit with shorter maturities, because the bank issuing the
variable rate certificate of deposit pays the investor a premium as the bank has
the use of the investors's money for a longer period of time. Variable rate
certificates of deposit can be sold in the secondary market. In addition,
frequently banks or dealers sell variable rate certificates of deposit and
simultaneously
-9-
agree, either formally or informally, to repurchase such certificates, at the
option of the purchaser of the certificate, at par on the coupon dates. In
connection with the Fund's purchase of variable rate certifies of deposit, it
may enter into formal or informal agreements with banks or dealers allowing the
Fund to resell the certificates to the bank or dealer, at the Fund's option. If
the agreement to repurchase is informal, there can be no assurance that the Fund
would always be able to resell such certificates. Before entering into any such
transactions governed by formal agreements, however, the Fund will comply with
the provisions of SEC Release 10666 which generally provides that the repurchase
agreement must be fully collateralized. With respect to variable rate
certificates of deposit maturing in 180 days or less from the time of purchase
with interest rates adjusted on a monthly cycle, the Fund uses the period
remaining until the next rate adjustment date for purposes of determining the
average weighted maturity of its portfolio. With respect to all variable rate
instruments not meeting the foregoing criteria, the Fund uses the remaining
period to maturity for purposes of determining the average weighted maturity of
its portfolio until such time as the Securities and Exchange Commission has
determined otherwise.
A banker's acceptance is a time draft drawn on a commercial bank by a borrower
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). The borrower is liable for
payment as well as the bank, which unconditionally guarantees to pay the draft
at its face amount on the maturity date. Most acceptances have maturities of six
months or less and are traded in secondary markets prior to maturity.
Both domestic banks and foreign branches of domestic banks are subject to
extensive, but different, governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of financing
lending operations under prevailing short-term debt conditions. General economic
conditions, as well as exposure to credit losses arising from possible financial
difficulties of borrowers, also play an important part in the operations of the
banking industry.
As a result of federal and state laws and regulations, domestic banks are, among
other things, generally required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and are subject
to other regulations designed to promote financial soundness. Since the
portfolio may contain securities of foreign banks and foreign branches of
domestic banks, the Fund may be subject to additional investment risks that are
different in some respects from those incurred by a fund that invests only in
debt obligations of domestic banks.
The Fund only purchases certificates of deposit from savings and loan
institutions which are members of the Federal Home Loan Bank and are insured by
the Federal Savings and Loan Insurance Corporation. Such savings and loan
associations are subject to regulation and examination. Unlike most savings
accounts, certificates of deposit held by the Fund do not benefit materially
from insurance either from the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation. Certificates of deposit of
foreign branches of domestic banks are not covered by such insurance and
certificates of deposit of domestic banks purchased by the Fund are generally in
denominations far in excess of the dollar limitations on insurance coverage.
COMMERCIAL PAPER AND OTHER CORPORATE DEBT SECURITIES
Short-term corporate debt instruments purchased by the Fund consist of
commercial paper (including variable amount master demand notes), which refers
to short-term, unsecured promissory notes issued by corporations to finance
short-term credit needs. Commercial paper is usually sold on a discount basis
and has a maturity at the time of issuance not exceeding nine months. Variable
amount master demand notes are demand obligations that permit the investment of
fluctuating amounts at varying market rates of interest pursuant to arrangements
between the issuer and a commercial bank acting as agent for the payees of such
notes, whereby both parties have the right to vary the amount of the outstanding
indebtedness of the notes.
The Fund may also invest in fixed interest rate non-convertible corporate debt
securities (i.e., bonds and debentures) with no more than 397 days remaining to
maturity at date of settlement.
-10-
COMMON INVESTMENTS
MORTGAGE-BACKED SECURITIES
The mortgage-backed securities in which the Bond Fund and Government Fund invest
provide funds for mortgage loans made to residential home buyers. These include
securities which represent interests in pools of mortgage loans made by lenders
such as savings and loan institutions, mortgage banks, commercial banks and
insurance companies. Pools of mortgage loans are assembled for sale to investors
such as the Funds by various private, governmental and government-related
organizations.
Interests in pools of mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates.
Mortgage-backed securities provide monthly payments which consist of both
interest and principal payments to the investor. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some mortgage-backed
securities, i.e., GNMA's, are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
The principal government guarantor of mortgage-backed securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.
Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation ("FHLMC"). FHLMC is a corporate instrumentality of the U.S.
government and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's") which represent interest in mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, however, PC's are not backed by the full faith and credit of the U.S.
government.
The Federal National Mortgage Association ("FNMA") is a government sponsored
corporation owned entirely by private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller/servicers which include
state and federally-chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions and mortgage banks. Pass-through
securities issued by FNMA are guaranteed as to timely payment of principal and
interest by FNMA, but are not backed by the full faith and credit of the U.S.
government.
The Federal Housing Administration ("FHA") was established by Congress in 1934
under the National Housing Act. A major purpose of the Act was to encourage the
flow of private capital into residential financing on a protected basis. FHA is
authorized to insure mortgage loans, primarily those related to residential
housing. FHA does not make loans and does not plan or build housing. FHA Project
Pools are pass-through securities representing undivided interests in pools of
FHA-insured multi-family project mortgage loans.
The Funds may purchase securities which are insured but not issued or guaranteed
by the U.S. government, its agencies or instrumentalities. An example of such a
security is a housing revenue bond (the interest on which is subject to federal
taxation) issued by a state and insured by an FHA mortgage loan. The Funds have
not purchased this type of security and have no current intent to do so. This
type of mortgage is insured by FHA pursuant to the provisions of Section
221(d)(4) of the National Housing Act of 1934, as amended. After a mortgagee
files a claim for insurance benefits, FHA will pay insurance benefits up to 100%
of the unpaid principal amount of the mortgage (generally 70% of the amount is
paid within
-11-
six months of the claim and the remainder within the next six months). The risks
associated with this type of security are the same as other mortgage securities
- --prepayment and/or redemption prior to maturity, loss of premium (if paid) if
the security is redeemed prior to maturity and fluctuation in principal value
due to an increase or decrease in interest rates.
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, the pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayment is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. Mortgage pass-through
securities which receive regular principal payments have an average life less
than their maturity. The average life of mortgage pass-through investments will
typically vary from 1 to 18 years.
Yields on pass-through mortgage-backed securities are typically quoted based on
the maturity of the underlying instruments and the associated average life
assumption. Actual prepayment experience may cause the yield to differ from the
assumed average life yield. The compounding effect from reinvestments of monthly
payments received by the Fund will increase the yield to shareholders.
MANUFACTURED HOME LOANS
The Government Fund invests in GNMA Manufactured Home pass-through securities.
Manufactured home loans are fixed-rate loans secured by a manufactured home
unit. In certain instances the loan may be collateralized by a combination of a
manufactured home unit and a developed lot of land upon which the unit can be
placed. Manufactured home loans are generally not mortgages, however, because of
the structural and operational similarities with mortgage backed pass-through
securities and the role of GNMA, industry practice often groups the securities
within the spectrum of GNMA mortgage backed pass-through securities for listing
purposes. Manufactured home loans have key characteristics different from
mortgage backed securities including different prepayment rates. Prepayment
rates tend to fluctuate with interest rates and other economic variables.
Manufactured home prepayment rates generally tend to be less volatile than the
prepayment rates experienced by mortgage backed securities. See the above
discussion regarding mortgage backed securities.
OTHER ASSET-BACKED SECURITIES
The Bond Fund may invest in asset-backed securities that are backed by consumer
credit such as automobile receivables, and consumer credit card receivables.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO)
The Funds, except the Money Market Fund, may invest in CMOs. CMOs are hybrid
instruments with characteristics of both mortgage-backed bonds and mortgage
pass-through securities. CMOs are commonly referred to as derivative securities.
Similar to a bond, interest and prepaid principal on a CMO is paid, in most
cases, semiannually. CMOs may be collateralized by whole mortgage loans, but are
more typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured into multiple classes,
each bearing a different stated maturity. Monthly payments of principal,
including prepayments, are first returned to investors holding the shortest
maturity class; investors holding the longer maturity classes receive principal
only after the first class has been retired. CMOs that are issued or guaranteed
by the U.S. Government or by any of its agencies or instrumentalities will be
considered U.S. Government securities by the Funds, while other CMOs, even if
collateralized by U.S. Government securities, will have the same status as other
privately issued securities for purposes of applying each Fund's diversification
tests.
In a typical CMO transaction, a corporation ("issuer") issues multiple series
("A, B, C, Z") of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to
purchase mortgage instruments or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on
-12-
the Series A, B, or C Bond currently paid off. When the Series A, B, and C Bonds
are paid in full, interest and principal on the Series Z Bond begin to be paid
currently. With some CMOs, the issuer serves as a conduit to allow loan
originators (primarily builders or savings and loan associations) to borrow
against their loan portfolios.
MUNICIPAL LEASES
The Minnesota Tax-Free Income Fund and the Tax-Free Income Fund may invest up to
25% of their net assets in municipal lease obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities. Municipal leases may take the form of a lease, an installment
purchase contract, a conditional sales contract or a participation certificate
in any of the above. In determining leases in which the Funds will invest, the
Adviser will carefully evaluate the outstanding credit rating of the issuer (and
the probable secondary market acceptance of such credit rating). Additionally,
the Adviser may require that certain municipal lease obligations be issued or
backed by a letter of credit or put arrangement with an independent financial
institution.
Municipal leases frequently have special risks not normally associated with
general obligation or revenue bonds. The constitutions and statutes of all
states contain requirements that the state or a municipality must meet to incur
debt. These often include voter referendum, interest rate limits and public sale
requirements. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt-issuance limitations are deemed
to be inapplicable because of the inclusion in many leases or contracts of
"nonappropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis.
In addition to the "nonappropriation" risk, municipal leases have additional
risk aspects because they represent a relatively new type of financing that has
not yet developed the depth of marketability associated with conventional bonds;
moreover, although the obligations will be secured by the leased equipment, the
disposition of the equipment in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In addition, in certain instances the
tax-exempt status of the obligations will not be subject to the legal opinion of
a nationally recognized "bond counsel," as is customarily required in larger
issues of municipal securities.
Municipal lease obligations, except in certain circumstances, are considered
illiquid by the staff of the Securities and Exchange Commission. Municipal lease
obligations held by a Fund will be treated as illiquid unless they are
determined to be liquid pursuant to guidelines established by the Fund's Board
of Directors. Under these guidelines, the Adviser will consider factors
including, but not limited to 1) whether the lease can be canceled, 2) what
assurance there is that the assets represented by the lease can be sold, 3) the
municipality's general credit strength (e.g. its debt, administrative, economic
and financial characteristics), 4) the likelihood that the municipality will
discontinue appropriating funding for the leased property because the property
is no longer deemed essential to the operations of the municipality (e.g. the
potential for an "event of non-appropriation"), and 5) the legal recourse in the
event of failure to appropriate.
MUNICIPAL NOTES
Municipal notes, which generally mature in three months to three years, are a
type of municipal security which may be purchased by the Minnesota Tax-Free Fund
and the Tax-Free Income Fund.
OBLIGATIONS OF, OR GUARANTEED BY, THE UNITED STATES GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES
Securities issued or guaranteed by the United States include a variety of
Treasury securities, which differ only in their interest rates, maturities and
dates of issuance. Treasury bills have a maturity of one year or less. Treasury
notes have maturities of one to ten years and Treasury bonds generally have
maturities of greater than ten years at the date of issuance.
The prospectus also refers to securities which are issued or guaranteed by
agencies of the U.S. government and various instrumentalities which have been
established or sponsored by the U.S. government. Except for U.S. Treasury
securities, these U.S. government obligations, even those which are guaranteed
by federal agencies or instrumentalities, may or may
-13-
not be backed by the "full faith and credit" of the United States. In the case
of securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment.
Some of the government agencies which issue or guarantee securities are the
Department of Housing and Urban Development, the Department of Health and Human
Services, the Government National Mortgage Association, the Farmers Home
Administration, the Department of Transportation, the Department of Defense and
the Department of Commerce. Instrumentalities which issue or guarantee
securities include the Export-Import Bank, the Federal Farm Credit System,
Federal Land Banks, the Federal Intermediate Credit Bank, the Bank for
Cooperatives, Federal Home Loan Banks, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation. Instrumentalities of the U.S.
government which issue or guarantee securities which the Fund may purchase
include the Federal Farm Credit System, Federal Land Banks, the Federal
Intermediate Credit Bank, the Bank for Cooperatives, Federal Home Loan Banks,
FHLMC and the Student Loan Marketing Association. The U.S. Treasury is not
obligated by law to provide support to all U.S. government instrumentalities and
agencies, and the Funds will invest in securities which are not backed by the
full faith and credit of the U.S. Treasury issued by such instrumentalities and
agencies only when the Funds' Adviser determines that the credit risk with
respect to the instrumentality or agency issuing such securities does not make
its securities unsuitable investments for the Funds.
The Funds may purchase securities which are insured but not issued or guaranteed
by the U.S. government, its agencies or instrumentalities. An example of such a
security is a housing revenue bond (the interest on which is subject to federal
taxation) issued by a state and insured by an FHA mortgage loan. The Funds have
not purchased this type of security and have no current intent to do so.
FUTURES CONTRACTS, OPTIONS AND OPTIONS ON FUTURES CONTRACTS
The Bond Fund, Minnesota Tax-Free Income Fund, and the Tax-Free Income Fund may
invest in interest rate futures contracts, index futures contracts and may buy
options on such contracts for the purpose of hedging its portfolio of fixed
income securities (and not for speculative purposes) against the adverse effects
of anticipated movements in interest rates. The Government Fund may buy and sell
options on interest rate futures contracts and index futures contracts for the
purpose of hedging. As a result of entering into futures contracts, no more than
10% of the Fund's (5% for Tax-Free Income Fund's) total assets may be committed
to margin.
Each Fund (except the Money Market Fund) may purchase exchange traded put and
call options on debt securities of an amount up to 5% of its net assets (10% for
Bond Fund) for the purpose of hedging. A put option (sometimes called a standby
commitment) gives the purchaser of the option, in return for a premium paid, the
right to sell the underlying security at a specified price during the term of
the option. The writer of the put option receives the premium and has the
obligation to buy the underlying securities upon exercise at the exercise price
during the option period. A call option (sometimes called a reverse standby
commitment) gives the purchaser of the option, in return for a premium, the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option receives
the premium and has the obligation at the exercise of the option, to deliver the
underlying security against payment of the exercise price during the option
period. A principal risk of standby commitments is that the writer of a
commitment may default on its obligation to repurchase or deliver the
securities.
An interest rate futures contract is an agreement to purchase or deliver an
agreed amount of debt securities in the future for a stated price on a certain
date. The Fund may use interest rate futures solely as a defense or hedge
against anticipated interest rate changes and not for speculation. The Fund
presently could accomplish a similar result to that which it hopes to achieve
through the use of futures contracts by selling debt securities with long
maturities and investing in debt securities with short maturities when interest
rates are expected to increase, or conversely, selling short-term debt
securities and investing in long-term debt securities when interest rates are
expected to decline. However, because of the liquidity that is often available
in the futures market, such protection is more likely to be achieved, perhaps at
a lower cost and without changing the rate of interest being earned by the Fund,
through using futures contracts.
-14-
DESCRIPTION OF FUTURES CONTRACTS. A futures contract sale creates an obligation
by the Fund, as seller, to deliver the type of financial instrument called for
in the contract at a specified future time for a stated price. A futures
contract purchase creates an obligation by the Fund, as purchaser, to take
delivery of the underlying financial instrument at a specified future time for a
stated price. The specific securities delivered or taken, respectively, at
settlement date, are not determined until at or near that date. The
determination is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made.
Although futures contracts by their terms call for actual delivery or acceptance
of securities, in most cases the contracts are closed out before the settlement
date without the making or taking of delivery. Closing out a futures contract
sale is effected by purchasing a futures contract for the same aggregate amount
of the specific type of financial instrument and the same delivery date. If the
price of the initial sale of the futures contract exceeds the price of the
offsetting purchase, the Fund is paid the difference and realizes a gain. If the
price of the offsetting purchase exceeds the price of the initial sale, the Fund
pays the difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the Fund entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the Fund realizes a
gain, and if the purchase price exceeds the offsetting sale price, the Fund
realizes a loss.
The Funds are required to maintain margin deposits with brokerage firms through
which they enter into futures contracts. Margin balances will be adjusted at
least weekly to reflect unrealized gains and losses on open contracts. In
addition, the Funds will pay a commission on each contract, including offsetting
transactions.
Futures contracts are traded only on commodity exchanges--known as "contract
markets"--approved for such trading by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market. The CFTC
regulates trading activity on the exchanges pursuant to the Commodity Exchange
Act. The principal exchanges are the Chicago Board of Trade, the Chicago
Mercantile Exchange and the New York Futures Exchange. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership. The CFTC rules
provide that a mutual fund does not have to register a "commodity pool" if the
Fund uses commodity futures and options positions solely (1) for "bona fide
hedging" purposes (as that term is used in the rules and regulations of the
CFTC) or (2) for other purposes so long as aggregate initial margins and
premiums required in connection with non-hedging positions do not exceed five
percent of the liquidation value of the Fund's portfolio.
RISKS IN FUTURES CONTRACTS. One risk in employing futures contracts to protect
against cash market price volatility is the prospect that futures prices will
correlate imperfectly with the behavior of cash prices. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest trends by the Adviser may
still not result in a successful transaction.
Another risk is that the Adviser would be incorrect in its expectation as to the
extent of various interest rate movements or the time span within which the
movements take place. Closing out a futures contract purchase at a loss because
of higher interest rates will generally have one or two consequences depending
on whether, at the time of closing out, the "yield curve" is normal (long-term
rates exceeding short-term). If the yield curve is normal, it is possible that
the Fund will still be engaged in a program of buying long-term securities.
Thus, closing out the futures contract purchase at a loss will reduce the
benefit of the reduced price of the securities purchased. If the yield curve is
inverted, it is possible that the Fund will
-15-
retain its investments in short-term securities earmarked for purchase of longer
term securities. Thus, closing out of a loss will reduce the benefit of the
incremental income that the Fund will experience by virtue of the high
short-term rates.
RISKS OF OPTIONS. The use of options and options on interest rate futures
contracts also involves additional risk. Compared to the purchase or sale of
futures contracts, the purchase of call or put options and options on futures
contracts involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs).
The effective use of options strategies is dependent, among other things, upon
theFund's ability to terminate options positions at a time when the Adviser
deems it desirable to do so. Although theFund will enter into an option position
only if the Adviser believes that a liquid secondary market exists for such
option, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Funds'
transactions involving options on futures contracts will be conducted only on
recognized exchanges.
The Funds' purchase or sale of put or call options and options on futures
contracts will be based upon predictions as to anticipated interest rates by the
Adviser, which could prove to be inaccurate. Even if the expectations of the
Adviser are correct, there may be an imperfect correlation between the change in
the value of the options and of the Funds' portfolio securities.
The Funds, except the Money Market Fund, may purchase and sell put and call
options and options on interest rate futures contracts which are traded on a
United States exchange or board of trade as a hedge against changes in interest
rates, and will enter into closing transactions with respect to such options to
terminate existing positions. An interest rate futures contract provides for the
future sale by one party and the purchase by the other party of a certain amount
of a specific financial instrument (debt security) at a specified price, date,
time and place. An option on an interest rate futures contract, as contrasted
with the direct investment in such a contract, gives the purchaser the right, in
return for the premium paid, to assume a position in an interest rate futures
contract at a specified exercise price at any time prior to the expiration date
of the option. Options on interest rate futures contracts are similar to options
on securities, which give the purchaser the right, in return for the premium
paid, to purchase or sell securities.
A call option gives the purchaser of such option the right to buy, and obliges
its writer to sell, a specified underlying futures contract at a stated exercise
price at any time prior to the expiration date of the option. A purchaser of a
put option has the right to sell, and the writer has the obligation to buy, such
contract at the exercise price during the option period. Upon exercise of an
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
in the writer's futures margin account, which represents the amount by which the
market price of the futures contract exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the closing
price of the interest rate futures contract on the expiration date. The
potential loss related to the purchase of an option on interest rate futures
contracts is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset values of the Fund.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS. The Funds (except the Money Market
Fund) may purchase put options on futures contracts if the Adviser anticipates a
rise in interest rates. Because the value of an interest rate or municipal bond
index futures contract moves inversely in relation to changes in interest rates,
a put option on such a contract becomes more valuable as interest rates rise. By
purchasing put options on futures contracts at a time when the Adviser expects
interest rates to rise, the Funds will seek to realize a profit to offset the
loss in value of its portfolio securities.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS. The Funds (except the Money
Market Fund may purchase call options on futures contracts if the Adviser
anticipates a decline in interest rates. The purchase of a call option on an
interest rate or index futures contract represents a means of obtaining
temporary exposure to market appreciation at limited risk. Because
-16-
the value of an interest rate or index futures contract moves inversely in
relation to changes to interest rates, a call option on such a contract becomes
more valuable as interest rates decline. The Funds will purchase a call option
on a futures contract to hedge against a decline in interest rates in a market
advance when the Funds are holding cash. The Funds can take advantage of the
anticipated rise in the value of long-term securities without actually buying
them until the market is stabilized. At that time, the options can be liquidated
and the Funds' cash can be used to buy long-term securities.
The Funds expect that new types of futures contracts, options thereon, and put
and call options on securities and indexes may be developed in the future. As
new types of instruments are developed and offered to investors, the Adviser
will be permitted to invest in them provided that the Adviser believes their
quality is equivalent to the Funds' quality standards.
RISKS OF INVESTING IN HIGH YIELD SECURITIES The Bond Fund and Minnesota Tax-Free
Income Fund may each invest in high yield securities or "junk bonds." Junk bonds
are regarded as being predominantly speculative as to the issuer's ability to
make payments of principal and interest. Investment in such securities involves
substantial risk. Issuers of junk bonds may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of junk bonds
may be more likely to experience financial stress, especially if such issuers
are highly leveraged. In addition, the market for junk bonds is relatively new
and has not weathered a major economic recession, and it is unknown what effects
such a recession might have on such securities. During such periods, such
issuers may not have sufficient cash flows to meet their interest payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific issuer developments, or the issuer's inability to
meet specific projected business forecasts, or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of junk bonds because such securities may be unsecured
and may be subordinated to the creditors of the issuer. While most of the junk
bonds in which the Funds may invest do not include securities which, at the time
of investment, are in default or the issuers of which are in bankruptcy, there
can be no assurance that such events will not occur after a Fund purchases a
particular security, in which case the Fund may experience losses and incur
costs.
Junk bonds frequently have call or redemption features that would permit an
issuer to repurchase the security from the Fund. If a call were exercised by the
issuer during a period of declining interest rates, the Fund likely would have
to replace such called security with a lower yielding security, thus decreasing
the net investment income to the Fund and dividends to shareholders.
Junk bonds tend to be more volatile than higher-rated fixed income securities,
so that adverse economic events may have a greater impact on the prices of junk
bonds than on higher-rated fixed income securities. Factors adversely affecting
the market value of such securities are likely to affect adversely the Fund's
net asset value. Like higher-rated fixed income securities, junk bonds generally
are purchased and sold through dealers who make a market in such securities for
their own accounts. However, there are fewer dealers in the junk bond market,
which may be less liquid than the market for higher-rated fixed income
securities, even under normal economic conditions. Also there may be significant
disparities in the prices quoted for junk bonds by various dealers. Adverse
economic conditions and investor perceptions thereof (whether or not based on
economic fundamentals) may impair the liquidity of this market and may cause the
prices the Fund receives for its junk bonds to be reduced. In addition, the Fund
may experience difficulty in liquidating a portion of its portfolio when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
Under such conditions, judgment may play a greater role in valuing certain of
the Fund's portfolio securities than in the case of securities trading in a more
liquid market. In addition, the Fund may incur additional expenses to the extent
that it is required to seek recovery upon a default on a portfolio holding or to
participate in the restructuring of the obligation.
COMPUTATION OF NET ASSET VALUE
-17-
Net asset value is determined as of the close of the New York Stock Exchange on
each day that the exchange is open for business and on any other day on which
there is sufficient trading in a Fund's securities to materially affect the
Fund's net asset value per share. The customary national business holidays
observed by the New York Stock Exchange and on which the Funds are closed are:
New Year's Day, President's Day, Good Friday, Memorial Day, July Fourth, Labor
Day, Thanksgiving Day and Christmas Day. The net asset value per share will not
be determined on these national holidays.
On March 31, 1996, the net asset value and public offering price per share for
each Fund was calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Bond Fund:
net assets ($5,222,387)
shares outstanding (531,102) = NAV per share = public offering price per share ($9.83)
Minnesota Tax-Free Income Fund:
net assets ($62,980,272)
shares outstanding (6,242,068) = NAV per share = public offering price per share ($10.09)
Government Fund:
net assets ($52,449,999)
shares outstanding (5,011,215) = NAV per share = public offering price per share ($10.47)
Tax-Free Income Fund:
net assets ($279,768,600)
shares outstanding (28,317,895) = NAV per share = public offering price per share ($9.88)
Money Market Fund:
net assets ($21,260,306)
shares outstanding (21,263,306) = NAV per share = public offering price per share ($1.00)
</TABLE>
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Funds (other than Money Market
Fund) may refer to cumulative total return, average annual total return and
yield.
CUMULATIVE TOTAL RETURN. Total return means cumulative total return and is
calculated by finding the cumulative compounded rate of return over the period
indicated that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
CTR = (ERV-P)/P X 100
CTR = cumulative total return
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment
made at the beginning of such period
P = initial payment of $1,000
This calculation assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates and includes
all recurring fees, such as investment advisory and management fees, charged to
all shareholder accounts.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is computed by finding
the average annual compounded rates of return over the periods indicated that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
n
P(1+T) = ERV
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
-18-
ERV = ending redeemable value at the end of
the period of a hypothetical $1,000 payment
made at the beginning of such period.
This calculation assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates and includes
all recurring fees, such as investment advisory and management fees, charged to
all shareholder accounts.
YIELD. Yield is computed by dividing the net investment income per share (as
defined under Securities and Exchange Commission rules and regulations) earned
during the computation period by the maximum offering price per share on the
last day of the period, according to the following formula:
6
Yield = 2[( a - b + 1) - 1]
--------
cd
a = dividends and interest earned during the
periods;
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 dividends; and
d = the maximum offering price per share on the
last day of the period.
The Funds' yields for the 30-day period ended March 31, 1996 were:
Bond Fund 7.01%
Minnesota Tax-Free Income Fund 5.72
Tax-Free Income Fund 5.71
Government Fund 6.87
CURRENT YIELD AND EFFECTIVE YIELD FOR MONEY MARKET FUND
CURRENT YIELD The Money Market Fund's current yield is based on a seven-day
period and is computed by determining the net change in value, exclusive of
capital changes, of a hypothetical account having a balance of one share at the
beginning of the period. This number is then divided by the price per share at
the beginning of the period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting yield figure
carried to at least the nearest hundredth of one percent.
EFFECTIVE YIELD The Money Market Fund's effective yield is computed by using the
base period return as calculated above as follows:
Effective yield = [ (Base period return + 1) 365/7 ] - 1
TAXABLE EQUIVALENT YIELD. The Tax-Free Income Fund and Minnesota Tax-Free Income
Fund may state a taxable equivalent yield which is computed by dividing that
portion of the yield of the Fund (as computed above) which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield of the Fund that is not tax-exempt. The taxable equivalent yield
for the Tax-Free Income Fund and Minnesota Tax-Free Income Fund assuming a 39.6%
marginal federal tax bracket and an 8.5% tax bracket for Minnesota residents
were 9.45% and 10.35% respectively, for the 30-day period ended March 31, 1996.
DISTRIBUTION RATE. The distribution rate is computed by dividing the net
investment income distributed to shareholders for a given period divided by a
Fund's average net asset value per share for that period, according to the
following formula:
Distribution Rate = a/b X 365 X 100
---
c
a = net investment income distributed for the period;
b = number of days in the period;
c = average net asset value during the period;
The Funds' distribution rates for the 12-month period ended March 31, 1996 were:
Bond Fund 6.45%
Minnesota Tax-Free Income Fund 5.60
Tax-Free Income Fund 5.62
-19-
Government Fund 6.69
As noted in the Prospectus, a Fund may advertise its relative performance as
compiled by outside organizations or refer to publications which have mentioned
its performance. The Adviser may refer to the following indices in
advertisements and other sales literature: Lehman Aggregate Bond Index, Lehman
5-Year Municipal Bond Index, Lehman Intermediate Bond Index.
MANAGEMENT
The Funds as a group pay each director, who is not also an officer, an annual
total fee of $8,000, $2,000 for each meeting attended, and provide reimbursement
for travel and other expenses. The names, addresses, principal occupations and
other affiliations of directors and officers of the Funds are given below.
Except as noted below, the business address of each officer and director is the
same as that of the Adviser - 4600 Norwest Center, Minneapolis, Minnesota.
<TABLE>
<CAPTION>
NAME & ADDRESS POSITION WITH THE FUNDS PRINCIPAL OCCUPATION DURING PAST 5 YEARS
<S> <C> <C>
Eugene C. Sit * Director - All Funds Chairman, CEO and CIO Sit Investment Associates, Inc.
Chairman - All Funds (the "Adviser"); Chairman and CEO of Sit/Kim
International Investment Associates, Inc.
Melvin C. Bahle Director - All Funds Financial consultant; director and/or officer of several
#1 Muirfield Lane companies, foundations and religious organizations.
St. Louis, MO 63141
Michael C. Brilley * Director - Tax Free Income Fund, Senior Vice President and Senior Fixed Income
Govt. Fund, Money Market Fund; Officer of the Adviser
Sr. Vice President & Sr. Portfolio
Manager - Tax Free Income Fund,
Govt. Fund, Money Market Fund
Michael P. Eckert Vice President - All Funds Vice President - Mutual Fund Sales of the Adviser;
Formerly Regional Vice President of MacKenzie
Investment Management Company until October,
1989
William E. Frenzel * Director - All Funds Senior Visiting Scholar at the Brookings Institution;
1775 Massachusetts Ave. NW formerly a Senior member of Congress and a ranking
Washington, DC 20036 member on the House Ways and Means Committee and
Vice Chairman of the House Budget Committee,
Advisory Director of the Adviser
John E. Hulse Director - All Funds Director, Vice Chairman and Chief Financial Officer at
4303 Quail Run Lane Pacific Telesis Group until June 1992; Trustee, Benild
Danville, CA 64506 Religious & Charitable Trust; Trustee, Pacific Gas &
Electric Nuclear Decommissioning Trust
Sidney L. Jones Director Adjunct Faculty, Center for Public Policy Education, The
8505 Parliament Drive Brookings Institution and Visiting Professor, Dartmouth
Potomac, MD 20854 College and Carleton College; Former Assistant
Secretary for Economic Policy, United States Department
of the Treasury
-20-
Peter L. Mitchelson * Director - All Funds President and Director of the Adviser and Director of the
Vice Chairman - All Funds Sub-Adviser
Donald W. Phillips Director - All Funds Executive Vice President and Director of Equity
Two North Riverside Plaza Financial and Management Company; Chairman of
Chicago, IL 60606 Equity Institutional Investors, Inc.; Chief Investment
Officer of of Ameritech, Inc., Chicago, IL until 1990
Michael J. Radmer Secretary - All Funds Partner of the Funds' general counsel, Dorsey &
220 South Sixth Street Whitney LLP
Minneapolis, MN
Paul E. Rasmussen Vice President & Treasurer Controller for the Adviser; Senior Tax Associate for
All Funds Coopers & Lybrand until 1994.
Debra A. Sit Vice President-Investments Vice President - Bond Investments of the Adviser
Tax-Free Fund, Govt. Fund;
Asst. Treasurer of all Funds
Mary K. Stern President - All Funds President of Sit Mutual Funds since 1994; formerly
President of Mutual Fund Group and Executive Vice
President of Society Bank, Cleveland, Ohio - 1993;
formerly Vice President of Norwest Bank Minnesota,
N.A. until 1992.
</TABLE>
* Directors who are deemed to be "interested persons" of the Funds as that
term is defined by the Investment Company Act of 1940. Messrs. Sit, Brilley
and Mitchelson are interested persons because they are officers of the
Adviser. Ms. Debra Sit is the daughter of Eugene C. Sit.
INVESTMENT ADVISER
The Adviser (or an affiliate) has served as the investment adviser for each Fund
since the inception of each Fund.
TERMS COMMON TO ALL FUNDS' INVESTMENT MANAGEMENT AGREEMENTS.
Each Fund's Investment Management Agreement provides that the Adviser will
manage the investment of the Fund's assets, subject to the applicable provisions
of the Fund's articles of incorporation, bylaws and current registration
statement (including, but not limited to, the investment objective, policies and
restrictions delineated in the Fund's current prospectus and Statement of
Additional Information), as interpreted from time to time by the Fund's Board of
Directors. Under each Agreement, the Adviser has the sole and exclusive
responsibility for the management of the Fund's investment portfolio and for
making and executing all investment decisions for the Fund. The Adviser is
obligated under each Agreement to report to the Fund's Board of Directors
regularly at such times and in such detail as the Board may from time to time
determine appropriate, in order to permit the Board to determine the adherence
of the Adviser to the Fund's investment policies. Each Agreement also provides
that the Adviser shall not be liable for any loss suffered by the Fund in
connection with the matters to which the Agreement relates, except losses
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its obligations and duties or by reason of its
reckless disregard of its obligations and duties under the Agreement.
-21-
Each Agreement provides that the Adviser shall, at its own expense, furnish all
office facilities, equipment and personnel necessary to discharge its
responsibilities and duties under the Agreement and that the Adviser will
arrange, if requested by the Fund, for officers or employees of the Adviser to
serve without compensation from the Fund as directors, officers or employees of
the Fund if duly elected to such positions by the shareholders or directors of
the Fund.
Each Agreement provides that it will continue in effect from year to year only
as long as such continuance is specifically approved at least annually by the
applicable Fund's Board of Directors or shareholders and by a majority of the
Board of Directors who are not "interested persons" (as defined in the 1940 Act)
of the Adviser or the Fund. The Agreement is terminable upon 60 days' written
notice by the Adviser or the Fund and will terminate automatically in the event
of its "assignment" (as defined in the 1940 Act).
COMPENSATION AND ALLOCATION OF EXPENSES. Under each of the Fund's Investment
Management Agreement, the Fund is obligated to pay the Adviser a flat monthly
fee, which is equal on an annual basis to .80%, (except for the Government Fund
and Money Market Fund) of the average daily net assets of each Fund. However,
under each such Fund's Agreement, the Adviser has agreed to bear all of the
Fund's expenses, except for extraordinary expenses (as designated by a majority
of the Fund's disinterested directors), interest, brokerage commissions and
other transaction charges relating to the investing activities of the Fund.
Under the current Investment Management Agreement for each of Government Fund
and Money Market Fund, the Fund is obligated to pay the Adviser a flat monthly
fee (equal on an annual basis to 1.00% of the first $50 million of average daily
net assets and .80% of average daily net assets in excess of $50 million for
Government Fund and equal on an annual basis to .80% of the first $50 million of
average daily net assets and .60% of average daily net assets in excess of $50
million for Money Market Fund). However, under each such Fund's current
Agreement, the Adviser is obligated to bear all of the Fund's expenses, except
for extraordinary expenses (as designated by a majority of the Fund's
disinterested directors), interest, brokerage commissions and other transaction
charges relating to the investing activities of the Fund.
For the period October 1, 1993 through March 31, 1997 the Adviser has
voluntarily agreed to limit the management fee (and, thereby, all Fund expenses,
except those not payable by the Adviser as set forth above) of Government Fund
and Money Market Fund to .80% and .50% of average daily net assets per year,
respectively, and of Tax-Free Income Fund to.70% of the Fund's average daily net
assets in excess of $250 million. After March 31, 1997, this voluntary fee
waiver may be discontinued by the Adviser in its sole discretion.
On February 11, 1994 the Board of Directors changed the fiscal year end from
June 30 to March 31. Set forth below are the investment management fees paid by
each Fund, during the fiscal years ended March 31, 1996, 1995, and the period
ended March 31, 1994 (9 months) , and other fees and expenses paid by the Funds
during such years and fees and expenses of the Funds waived or paid by the
Adviser during such years:
<TABLE>
<CAPTION>
MN TAX-FREE TAX-FREE MONEY
BOND INCOME INCOME GOVT MARKET
1996 FUND FUND FUND FUND FUND
- ---- --------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
AVERAGE NET ASSETS 4,845,015 54,570,121 265,004,492 44,538,307 22,216,443
Investment Advisory Fees 38,803 436,992 2,123,785 445,304 178,297
Other Expenses
Expenses Waived 00 00 (15,540) (88,625) (66,862)
Net Fund Expenses 38,308 436,992 2,108,245 356,679 111,435
Ratio of expenses to average daily net assets .80% .80% .80% .80% .50%
1995
AVERAGE NET ASSETS $3,337,957 $32,146,887 $274,227,924 $36,625,411 $21,254,204
-22-
Investment Advisory Fees 26,701 256,587 2,195,496 366,490 169,942
Other Expenses
Expenses Waived 00 00 (24,991) (73,460) (63,828)
--------- -------- ---------- ------------ --------
Net Fund Expenses 26,701 256,587 2,170,505 293,030 106,114
Ratio of expenses to average daily net assets .80% .80% .79% .80% .50%
1994
AVERAGE NET ASSETS $1,260,636 $6,276,886 $352,559,536 $37,505,150 $12,956,324
Investment Advisory Fees 7,492 37,300 2,117,602 281,350 77,646
Other Expenses
Expenses Waived 00 00 (77,029) (39,324) (20,789)
--------- -------- ---------- ------------ --------
Net Fund Expenses 7,492 37,300 2,040,573 242,026 56,857
Ratio of expenses to average daily net assets .80% .80% .77% .86% .59%
</TABLE>
SIA SECURITIES CORP.
SIT Mutual Funds II, Inc. (the "Company") on behalf of the Bond Fund, Minnesota
Tax-Free Income Fund, and the Tax-Free Income Fund; the Government Fund, and the
Money Market Fund have entered into an Underwriting and Distribution Agreement
with SIA Securities Corp. ("Securities"), an affiliate of the Adviser, pursuant
to which Securities will act as each Fund's principal underwriter. Securities
will market each Fund's shares only to certain institutional investors and all
other sales of each Fund's shares will be made by each Fund. The Adviser will
pay all expenses of Securities in connection with such services and Securities
is otherwise not entitled to any other compensation under the Underwriting and
Distribution Agreement. Each Fund will incur no additional fees in connection
with the Underwriting and Distribution Agreement.
Pursuant to the Underwriting and Distribution Agreement, Securities has agreed
to act as the principal underwriter for each Fund in the sale and distribution
to the public of shares of each Fund, either through dealers or otherwise.
Securities has agreed to offer such shares for sale at all times when such
shares are available for sale and may lawfully be offered for sale and sold. The
Underwriting and Distribution Agreement is renewable from year to year if the
Fund's directors approve such agreement. The Fund or Securities can terminate
the Underwriting and Distribution Agreement at any time without penalty on 60
days' notice written notice to the other party. The Underwriting and
Distribution Agreement terminates automatically upon its assignment. In the
Underwriting and Distribution Agreement, Securities agrees to indemnify each
Fund against all costs of litigation and other legal proceedings and against any
liability incurred by or imposed on the Fund in any way arising out of or in
connection with the sale or distribution of each Fund's shares, except to the
extent that such liability is the result of information which was obtainable by
Securities only from persons affiliated with the Fund but not Securities.
BROKERAGE
Transactions on a stock exchange in equity securities will be executed primarily
through brokers that will receive a commission paid by the applicable Fund.
Fixed income securities, as well as equity securities traded in the
over-the-counter market, are generally traded on a "net" basis with dealers
acting as principals for their own accounts without a stated
-23-
commission, although the price of the security usually includes a profit to the
dealer. In underwritten fixed income and equity offerings, securities are
purchased at a fixed price that includes an amount of compensation to the
underwriter, generally referred to as the underwriter's selling concession or
discount. Certain of these securities may also be purchased directly from the
issuer, in which case neither commissions nor discounts are paid.
The Adviser selects and, where applicable, negotiates commissions with the
broker-dealers who execute the transactions for one or more of the Funds. The
primary criterion for the selection of a broker-dealer is the ability of the
broker-dealer, in the opinion of the Adviser to secure prompt execution of the
transactions on favorable terms, including the best price of the security, the
reasonableness of the commission and considering the state of the market at the
time. When consistent with these objectives, business may be placed with
broker-dealers who furnish investment research or services to the Adviser. Such
research or services include advice, both directly and in writing, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities, or purchasers or sellers of
securities. Such services also may include analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. This allows the Adviser to supplement its own
investment research activities and enables the Adviser to obtain the views and
information of individuals and research staffs of many different securities
firms prior to making investment decisions for the Funds. To the extent
portfolio transactions are effected with broker-dealers who furnish research
services to the Adviser, the Adviser receives a benefit, not capable of
valuation in dollar amounts, without providing any direct monetary benefit to
the applicable Funds from these transactions. The Adviser believes that most
research services they receive generally benefit several or all of the
investment companies and private accounts which they manage, as opposed to
solely benefiting one specific managed fund or account. Normally, research
services obtained through managed funds or accounts investing in common stocks
would primarily benefit the managed funds or accounts which invest in common
stock; similarly, services obtained from transactions in fixed income securities
would normally be of greater benefit to the managed funds or accounts which
invest in debt securities.
The Adviser maintains an informal list of broker-dealers, which is used from
time to time as a general guide in the placement of Fund business, in order to
encourage certain broker-dealers to provide the Adviser with research services
which the Adviser anticipates will be useful to them in managing the Funds.
Because the list is merely a general guide, which is to be used only after the
primary criterion for the selection of broker-dealers (discussed above) has been
met, substantial deviations from the list are permissible and may be expected to
occur. The Adviser will authorize a Fund to pay an amount of commission for
effecting a securities transaction in excess of the amount of commission another
broker-dealer would have charged only if the Adviser determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either that particular transaction or the Adviser's overall responsibilities
with respect to the accounts as to which it exercises investment discretion.
Generally, the Fund pays commissions higher than the lowest commission rates
available.
Fund management does not currently anticipate that the Fund will effect
brokerage transactions in its portfolio securities with any broker-dealer
affiliated directly or indirectly with the Funds or the Adviser.
The Adviser has entered into agreements with Capital Institutional Services,
Inc. ("CIS"), and Lipper Analytical Securities Corporation ("LAS"), unaffiliated
registered broker-dealers located in Dallas and New York respectively. All
transactions placed with CIS and LAS are subject to the above criteria. CIS and
LAS provide the Adviser with a wide variety of economic, performance, and
investment research information.
Investment decisions for each Fund are made independently of those for other
clients of the Adviser, including the other Funds. When the Funds or clients
simultaneously engage in the purchase or sale of the same securities, the price
of the transactions is averaged and the amount allocated in accordance with a
formula deemed equitable to each Fund and client. In some cases, this system may
adversely affect the price paid or received by the Fund or the size of the
position obtainable. All trades will be transacted through U.S. based brokerage
firms and commercial banks. Brokerage commissions paid by the Funds for the
fiscal years ended March 31, 1996, 1995, and for the period July 1, 1993 through
fiscal year end March 31, 1994 :
-24-
1996 1995 1994
---- ------ ------
Bond Fund $1,936 $195 $113
Minnesota Tax-Free Income Fund 0 1,669 4,688
Tax-Free Income Fund 0 0 5,370
Government Fund 4,123 1,000 1,173
Money Market Fund 0 0 0
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following persons owned of record or beneficially 5% or more of the
respective Fund's outstanding shares as of July 1, 1996:
<TABLE>
<CAPTION>
Record Beneficially Of Record &
Person Only Only Beneficially
<S> <C> <C> <C>
GOVERNMENT FUND
Charles Schwab & Company, Inc., Special Custody Account for 11.89%
Benefit Cust, 101 Montgomery Street, San Francisco, CA
Hazelden Foundation II, Investors Bldg., 5th Floor MS 0047 6.21%
733 Marquette Ave., Minneapolis, MN
TAX-FREE INCOME FUND
Charles Schwab & Company, Inc., Special Custody Account for 5.82%
Benefit Cust, 101 Montgomery Street, San Francisco, CA
MONEY MARKET FUND
Bongards Creameries Cooperative, 13200 County Road 51, Norwood, MN 6.16%
Richard John Williams, 20 N. Wacker Drive, Ste. 2800, Chicago, IL 5.89%
MINNESOTA TAX-FREE INCOME FUND
W. John Driscoll, 32 Minnesota Street, Ste. 2100, St. Paul, MN 7.68%
BOND FUND
Victor C. Wallestad Foundatiaon, MS 0036, 733 Marquette Ave., 49.64%
Minneapolis, MN
S. Walter Richey, 900 2nd Ave. So., Ste. 1600, Minneapolis, MN 12.93%
</TABLE>
TAXES
The tax status of the Funds and the distributions which they may make are
summarized in the prospectus in the section entitled "Taxes." Each Fund intends
to fulfill the requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), as a regulated investment company. If so
qualified, each Fund will not be liable for federal income taxes to the extent
it distributes its taxable income to its shareholders.
To qualify under Subchapter M for tax treatment as a regulated investment
company, each Fund must, among other things: (1) distribute to its shareholders
at least 90% of its investment company taxable income (as that term is defined
in the Code determined without regard to the deduction for dividends paid) and
90% of its net tax-exempt income; (2) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock or securities, or other income derived
with respect to its business of investing in such stock, securities,
-25-
or currency; (3) derive less than 30% of its annual gross income from the sale
or other disposition of stock, securities, options, futures, or forward
contracts held for less than three months; and (3) diversify its holdings so
that, at the end of each fiscal quarter of the Fund, (a) at least 50% of the
market value of the Fund's assets is represented by cash, cash items, United
States Government securities and securities of other regulated investment
companies, and other securities, with these other securities limited, with
respect to any one issuer, to an amount no greater than 5% of the Fund's total
assets and no greater than 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the market value of the Fund's total assets
is invested in the securities of any one issuer (other than United States
Government securities or securities of other regulated investment companies).
Each Fund is subject to a non-deductible excise tax equal to 4% of the excess,
if any, of the amount required to be distributed for each calendar year over the
amount actually distributed. In order to avoid the imposition of this excise
tax, each Fund must declare and pay dividends representing 98% of its net
investment income for that calendar year and 98% of its capital gains (both
long-term and short-term) for the twelve-month period ending October 31 of the
calendar year.
When shares of a Fund are sold or otherwise disposed of, the Fund shareholder
will realize a capital gain or loss equal to the difference between the purchase
price and the sale price of the shares disposed of, if, as is usually the case,
the Fund shares are a capital asset in the hands of the Fund shareholder. In
addition, pursuant to a special provision in the Code, if Fund shares with
respect to which a long-term capital gain distribution has been made are held
for six months or less, any loss on the sale or other disposition of such shares
will be a long-term capital loss to the extent of such long-term capital gain
distribution. Any loss on the sale or exchange of shares of the Tax-Free Income
Fund or the Minnesota Tax-Free Income Fund held for six months or less (although
regulations may reduce this time period to 31 days) will be disallowed for
federal income tax purposes to the extent of the amount of any exempt-interest
dividend received with respect to such shares. Certain deductions otherwise
allowable to financial institutions and property and casualty insurance
companies will be eliminated or reduced by reason of the receipt of certain
exempt-interest dividends.
Any loss on the sale or exchange of shares of a Fund generally will be
disallowed to the extent that a shareholder acquires or contracts to acquire
shares of the same Fund within 30 days before or after such sale or exchange.
Under the Code, interest on indebtedness incurred or continued to purchase or
carry shares of an investment company paying exempt-interest dividends, such as
the Tax-Free Income Fund or the Minnesota Tax-Free Income Fund, will not be
deductible by a shareholder in proportion to the ratio of exempt-interest
dividends to all dividends other than those treated as long-term capital gains.
Indebtedness may be allocated to shares of the Tax-Free Income Fund or the
Minnesota Tax-Free Income Fund even though not directly traceable to the
purchase of such shares. Federal law also restricts the deductibility of other
expenses allocable to shares of such Fund.
The Tax-Free Income Fund and the Minnesota Tax-Free Income Fund intend to take
all actions required under the Code to ensure that each Fund may pay
"exempt-interest dividends." Distributions of net interest income from
tax-exempt obligations that are designated by the Funds as exempt-interest
dividends are excludable from the gross income of the Funds' shareholders. The
Funds' present policy is to designate exempt-interest dividends annually. The
Funds will calculate exempt-interest dividends based on the average annual
method and the percentage of income designated as tax-exempt for any particular
distribution may be substantially different from the percentage of income that
was tax-exempt during the period covered by the distribution. Shareholders are
required for information purposes to report exempt-interest dividends and other
tax-exempt interest on their tax return. Distributions paid from other taxable
interest income and from any net realized short-term capital gains will be
taxable to shareholders as ordinary income, whether received in cash or in
additional shares.
For federal income tax purposes, an alternative minimum tax ("AMT") is imposed
on taxpayers to the extent that such tax exceeds a taxpayer's regular income tax
liability (with certain adjustments). Exempt-interest dividends attributable to
interest income on certain tax-exempt obligations issued after August 7, 1986 to
finance certain private activities are treated as an item of tax preference that
is included in alternative minimum taxable income for purposes of computing the
federal AMT for all taxpayers and the federal environmental tax on corporations.
The Tax-Free Income Fund and Minnesota Tax-
-26-
Free Income Fund may each invest up to 20% of its net assets in securities that
generate interest that is treated as an item of tax preference. In addition, a
portion of all other tax-exempt interest received by a corporation, including
exempt-interest dividends, will be included in adjusted current earnings and in
earnings and profits for purposes of determining the federal corporate AMT, the
environmental tax imposed on corporations by Section 59A of the Code, and the
branch profits tax imposed on foreign corporations under Section 884 of the
Code.
Because liability for the AMT depends upon the regular tax liability and tax
preference items of a specific taxpayer, the extent, if any, to which any tax
preference items resulting from investment in the Tax-Free Income Fund or the
Minnesota Tax-Free Income Fund will be subject to the tax will depend upon each
shareholder's individual situation. For shareholders with substantial tax
preferences, the AMT could reduce the after-tax economic benefits of an
investment in the Tax-Free Income Fund or the Minnesota Tax-Free Income Fund.
Each shareholder is advised to consult his or her tax adviser with respect to
the possible effects of such tax preference items.
In addition, shareholders who are or may become recipients of Social Security
benefits should be aware that exempt-interest dividends are includable in
computing "modified adjusted gross income" for purposes of determining the
amount of Social Security benefits, if any, that is required to be included in
gross income. The maximum amount of Social Security benefits includable in gross
income is 85%.
The Tax Reform Act of 1986 imposed new requirements on certain tax-exempt bonds
which, if not satisfied, could result in loss of tax exemption for interest on
such bonds, even retroactively to the date of issuance of the bonds. Proposals
may be introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the federal income tax exemption for tax-exempt
securities. The Tax-Free Income Fund and the Minnesota Tax-Free Income Fund
cannot predict what additional legislation may be enacted that may affect
shareholders. The Funds will avoid investment in tax-exempt securities which, in
the opinion of the investment adviser, pose a material risk of the loss of tax
exemption. Further, if a tax-exempt security in a Fund's portfolio loses its
exempt status, the Fund will make every effort to dispose of such investment on
terms that are not detrimental to the Fund.
The foregoing relates only to federal income taxation and is a general summary
of the federal tax law in effect as of the date of this Statement of Additional
Information.
MINNESOTA INCOME TAXATION - MINNESOTA TAX-FREE INCOME FUND
Minnesota taxable net income is based generally on federal taxable income. The
portion of exempt-interest dividends paid by the Minnesota Tax-Free Income Fund
that is derived from interest on Minnesota tax exempt obligations is excluded
from the Minnesota taxable net income of individuals, estates and trusts,
provided that the portion of the exempt-interest dividends from such Minnesota
sources paid to all shareholders represents 95% or more of the exempt-interest
dividends paid by the Fund. The remaining portion of such dividends, and
dividends that are not exempt-interest dividends or capital gain dividends, are
included in the Minnesota taxable net income of individuals, estates and trusts,
except for dividends directly attributable to interest on obligations of the
U.S. government, its territories and possessions. Exempt-interest dividends are
not excluded from the Minnesota taxable income of corporations and financial
institutions. Dividends qualifying for federal income tax purposes as capital
gain dividends are to be treated by shareholders as long-term capital gains.
Minnesota has repealed the favorable treatment of long-term capital gains, while
retaining restrictions on the deductibility of capital losses. Exempt-interest
dividends attributable to interest on certain private activity bonds issued
after August 7, 1986 will be included in Minnesota alternative minimum taxable
income of individuals, estates and trusts for purposes of computing Minnesota's
alternative minimum tax. Dividends generally will not qualify for the
dividends-received deduction for corporations and financial institutions.
FINANCIAL STATEMENTS
The information contained in the financial statements and annual reports to
shareholders of the Funds is incorporated by reference in this Statement of
Additional Information.
-27-
OTHER INFORMATION
CUSTODIAN; COUNSEL; ACCOUNTANTS
The Northern Trust Co., 50 South LaSalle Street, Chicago, IL 60675 acts as
custodian of the Funds' assets and portfolio securities; Dorsey & Whitney LLP,
220 South Sixth Street, Minneapolis, Minnesota 55402, is the independent General
Counsel for the Funds; and KPMG Peat Marwick LLP, 4200 Norwest Center,
Minneapolis, Minnesota 55402, acts as the Funds' independent accountants.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director of the Funds owes certain fiduciary duties to
the Funds and to their shareholders. Minnesota law provides that a director
"shall discharge the duties of the position of director in good faith, in a
manner the director reasonably believes to be in the best interest of the
corporation, and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances." Fiduciary duties of a director of a
Minnesota corporation include, therefore, both a duty of "loyalty" (to act in
good faith and act in a manner reasonably believed to be in the best interests
of the corporation) and a duty of "care" (to act with the care an ordinarily
prudent person in a like position would exercise under similar circumstances).
Minnesota law authorizes corporations to eliminate or limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of the fiduciary duty of "care". Minnesota law does not,
however, permit a corporation to eliminate or limit the liability of a director
(i) for any breach of the directors' duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation of
Minnesota law or for violation of certain provisions of Minnesota securities
laws or (iv) for any transaction from which the director derived an improper
personal benefit. The Articles of Incorporation of the Company limit the
liability of directors to the fullest extent permitted by Minnesota statutes,
except to the extent that such liability cannot be limited as provided in the
Investment Company Act of 1940 (which Act prohibits any provisions which purport
to limit the liability of directors arising from such directors' willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a director. It
only authorizes a corporation to eliminate monetary liability for violations of
that duty. Minnesota law, further, does not permit elimination or limitation of
liability of "officers" to the corporation for breach of their duties as
officers (including the liability of directors who serve as officers for breach
of their duties as officers). Minnesota law does not permit elimination or
limitation of the availability of equitable relief, such as injunctive or
rescissionary relief. Further, Minnesota law does not permit elimination or
limitation of a director's liability under the Securities Act of 1933 or the
Securities Exchange Act of 1934, and it is uncertain whether and to what extent
the elimination of monetary liability would extend to violations of duties
imposed on directors by the Investment Company Act of 1940 and the rules and
regulations adopted under such Act.
The Funds are not required under Minnesota law to hold annual or periodically
scheduled meetings of shareholders. Minnesota corporation law provides for the
Board of Directors to convene shareholder meetings when it deems appropriate.
However, the Funds intend to hold meetings of shareholders annually. In
addition, if a regular meeting of shareholders has not been held during the
immediately preceding fifteen months, a shareholder or shareholders holding
three percent or more of the voting shares of the Funds may demand a regular
meeting of shareholders by written notice of demand given to the chief executive
officer or the chief financial officer of the Funds. Within ninety days after
receipt of the demand, a regular meeting of shareholders must be held at the
expense of the Funds. Irrespective of whether a regular meeting of shareholders
has been held during the immediately preceding fifteen months, in accordance
with Section 16(c) under the 1940 Act, the Board of Directors of the Funds shall
promptly call a meeting of shareholders for the purpose of voting upon the
question of removal of any director when requested in writing so to do by the
record holders of not less than 10 percent of the
-28-
outstanding shares. Additionally, the 1940 Act requires shareholder votes for
all amendments to fundamental investment policies and restrictions and for all
investment advisory contracts and amendments thereto. The Funds will assist in
communications with other shareholders as required by Section 16(c) of the 1940
Act.
-29-
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa Judged to be the best quality, carry the smallest degree of investment
risk
Aa Judged to be of high quality by all standards
A Possess many favorable investment attributes and are to be considered
as higher medium grade obligations
Baa Medium grade obligations. Lack outstanding investment characteristics.
Ba Judged to have speculative elements. Protection of interest and
principal payments may be very moderate. B Generally lack
characteristics of a desirable investment. Assurance of interest and
principal payments over any long period of time may be small.
Moody's also applies numerical indicators, 1, 2, and 3, to rating
categories Aa through Ba. The modifier 1 indicates that the security is in
the higher end of the rating category; the modifier 2 indicates a mid-range
ranking; and 3 indicates a ranking toward the lower end of the category.
STANDARD & POOR'S CORPORATION
AAA Highest grade obligations and possess the ultimate degree of
protection as to principal and interest
AA Also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in small degree
A Regarded as upper medium grade, have considerable investment strength
but are not entirely free from adverse effects of changes in economic
and trade conditions, interest and principal are regarded as safe
BBB Considered investment grade with adequate capacity to pay interest and
repay principal.
BB Judged to be speculative with some inadequacy to meet timely interest
and principal payments.
B Has greater vulnerability to default than other speculative grade
securities. Adverse economic conditions will likely impair capacity or
willingness to pay interest and principal.
Standard & Poor's applies indicators "+", no character, and "-" to the
above rating categories AA through BB. The indicators show relative
standing within the major rating categories.
FITCH INVESTORS SERVICE, INC.
AAA Highest credit quality with exceptional ability to pay interest and
repay principal
AA Investment grade and very high credit quality ability to pay interest
and repay principal is very strong, although not quite as strong as
AAA
A Investment grade with high credit quality. Ability to pay interest and
repay principal is strong.
BBB Investment grade and has satisfactory credit quality. Adequate ability
to pay interest and repay principal.
BB Considered speculative. Ability to pay interest and repay principal
may be affected over time by adverse economic changes.
B Considered highly speculative. Currently meeting interest and
principal obligations, but probability of continued payment reflects
limited margin of safety.
+and - indicators indicate the relative position within the rating
category, but are not used in AAA category.
DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality, risk factors are negligible
AA+, AA, AA - High credit quality with moderate risk
A+, A, A- Protection factors are average but adequate, however,
risk factors are more variable and greater in periods of
economic stress
BBB+,BBB,BBB - Below average protection factors, but still considered
sufficient for prudent investment
BB+,BB,BB - Below investment grade but likely to meet obligations when
due.
B+,B,B - Below investment grade and possessing risk that obligations
will not be met when due.
COMMERCIAL PAPER RATINGS
-30-
MOODY'S
Commercial paper rated "Prime" carries the smallest degree of
investment risk. The modifiers 1, 2, and 3 are used to denote relative
strength within this highest classification.
STANDARD & POOR'S
The rating A-1 is the highest commercial paper rating assigned by
Standard & Poor's Corporation. The modifier "+" indicates that the
security is in the higher end of this rating category.
FITCH'S
F-1+ Exceptionally strong credit quality
DUFF & PHELPS'
Category 1 (top grade):
Duff1+ Highest certainty of timely payment
Duff1 Very high certainty of timely payment
Duff1- High certainty of timely payment
-31-
APPENDIX B
MUNICIPAL BOND, MUNICIPAL NOTE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
MUNICIPAL BOND RATINGS
STANDARD & POOR'S CORPORATION:
Rating Definition
------ ----------
AAA Highest rating; extremely strong security.
AA Very strong security; differs from AAA in only a small degree.
A Strong capacity but more susceptible to adverse economic effects
than two above categories.
BBB Adequate capacity but adverse economic conditions more likely to
weaken capacity.
MOODY'S INVESTORS SERVICES, INC.:
Rating Definition
------ ----------
Aaa Best quality; carry the smallest degree of investment risk.
Aa High quality; margins of protection not quite as large as the Aaa
bonds.
A Upper medium grade; security adequate but could be susceptible to
impairment.
Baa Medium grade; neither highly protected nor poorly secured--lack
outstanding investment characteristics and sensitive to changes
in economic circumstances.
MUNICIPAL NOTE RATINGS
STANDARD & POOR'S CORPORATION:
Rating Definition
------ ----------
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC.:
Rating* Definition
------- ----------
MIG 1 Best quality
MIG 2 High quality
MIG 3 Favorable quality
MIG 4 Adequate quality
* A short-term issue having a demand feature, i.e., payment relying on
external liquidity and usually payable upon demand rather than fixed
maturity dates, is differentiated by Moody's with the use of the symbols
VMIG1 through VMIG4.
TAX-EXEMPT COMMERCIAL PAPER RATINGS
STANDARD & POOR'S CORPORATION:
Rating Definition
------ ----------
A-1+ Highest degree of safety.
A-1 Very strong degree of safety.
MOODY'S INVESTORS SERVICE, INC.:
Rating Definition
------ ----------
Prime 1(P-1) Superior capacity for repayment.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (incorporated by reference in Part B of
this Registration Statement).
(b) Exhibits (Explanatory Note: This Registration Statement
contains the combined Part C for SIT U.S. Government
Securities Fund, Inc., SIT Mutual Funds II, Inc., and SIT
Money Market Fund, Inc. Only the exhibits which relate to the
Registrant, as set forth in the Exhibit Index to this
Registration Statement, are being filed herewith).
1. Articles of Incorporation
(a) SIT U.S. Government Securities Fund, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 11 to the Fund's Registration
Statement.)
(b) SIT Mutual Funds II, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 12 to the Fund's Registration
Statement.)
(c) SIT Money Market Fund, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 12 to the Fund's Registration
Statement.)
2. Bylaws
(a) SIT U.S. Government Securities Fund, Inc.
(Incorporated by reference to the Fund's original
Registration Statement.)
(b) SIT Mutual Funds II, Inc.
(Incorporated by reference to the Fund's original
Registration Statement.)
(c) SIT Money Market Fund, Inc.
(Incorporated by reference to the Fund's original
Registration Statement.)
4. Specimen Copy of Share Certificate
(a) SIT U.S. Government Securities Fund, Inc.
(Incorporated by reference to the Fund's original
Registration Statement.)
(b) SIT Mutual Funds II, Inc.
(Incorporated by reference to Pre-Effective Amendment
No. 1 to the Fund's Registration Statement.)
(c) SIT Money Market Fund, Inc.
(Incorporated by reference to Pre-Effective Amendment
No. 1 to the Fund's Registration Statement.)
5. Form of Investment Management Agreement
(a) SIT U.S. Government Securities Fund, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 10 to the Fund's Registration
Statement.)
(b) SIT Mutual Funds II, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 11 to the Fund's Registration
Statement.)
(c) SIT Money Market Fund, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 11 to the Fund's Registration
Statement.)
6. Underwriting and Distribution Agreement
(a) SIT U.S. Government Securities Fund, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 12 to the Fund's Registration
Statement.)
(b) SIT Mutual Funds II, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 16 to the Fund's Registration
Statement.)
(c) SIT Money Market Fund, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 13 to the Fund's Registration
Statement.)
8.1 Custodian Agreement
(a) SIT U.S. Government Securities Fund, Inc.
(Filed herewith.)
(b) SIT Mutual Funds II, Inc. (Filed herewith.)
(c) SIT Money Market Fund, Inc. (Filed herewith.)
8.2 Transfer Agency and Services Agreement
(a) SIT U.S. Government Securities Fund, Inc. (Filed
herewith.)
(b) SIT Mutual Funds II, Inc. (Filed herewith.)
(c) SIT Money Market Fund, Inc. (Filed herewith.)
8.3 Accounting Services Agreement
(a) SIT U.S. Government Securities Fund, Inc. (Filed
herewith.)
(b) SIT Mutual Funds II, Inc. (Filed herewith.)
(c) SIT Money Market Fund, Inc. (Filed herewith.)
10. Opinions and Consents of Dorsey & Whitney
(a) SIT U.S. Government Securities Fund, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 8 to the Fund's Registration
Statement.)
(b) SIT Mutual Funds II, Inc. (Incorporated by reference
to Post-Effective Amendment No. 9 to the Fund's
Registration Statement.)
(c) SIT Money Market Fund, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 9 to the Fund's Registration
Statement.)
11. Consent of KPMG Peat Marwick (Filed herewith.)
13. Letter of Investment Intent
(a) SIT U.S. Government Securities Fund, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 9 to the Fund's Registration
Statement.)
(b) SIT Mutual Funds II, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 10 to the Fund's Registration
Statement.)
(c) SIT Money Market Fund, Inc.
(Incorporated by reference to Post-Effective
Amendment No. 10 to the Fund's Registration
Statement.)
16. Calculations of Performance Data
(a) SIT U.S. Government Securities Fund, Inc. (Filed
herewith.)
(b) SIT Mutual Funds II, Inc. (Filed herewith.)
(c) SIT Money Market Fund, Inc. Filed herewith.)
17. Powers of Attorney
(a) SIT U.S. Government Securities Fund, Inc. (Filed
herewith.)
(b) SIT Mutual Funds II, Inc.(Filed herewith.)
(c) SIT Money Market Fund, Inc. (Filed herewith.)
Item 25. Persons Controlled by or Under Common Control with Registrant
See the sections of the Prospectus entitled "Investment Adviser"
Item 26. Number of Holders of Securities
The number of holders of shares of each Registrant as of March 31, 1996
are:
Fund Title of Class Record Holders
---- -------------- --------------
U.S. Government Securities Fund Common Stock 1,329
Mutual Funds II
Tax-Free Income Fund Common Stock, Series A 4,591
Minnesota Tax-Free Income Fund Common Stock, Series B 910
Bond Fund Common Stock, Series C 100
Money Market Fund Common Stock 1,389
Item 27. Indemnification
Each Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify such persons, for such expenses and liabilities, in
such manner, under such circumstances, and to such extent as permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereinafter amended, and any rules, regulations or releases promulgated
thereunder.
Each Registrant may indemnify its officers and directors and other
"persons" acting in an "official capacity" (as such terms are defined in Section
302A.521) pursuant to a determination by the board of directors or shraeholders
of the Registrant as set forth in Section 302A.521, by special legal counsel
selected by the board or a committee thereof for the purpose of making such a
determination, or by a Minnesota court upon application of the person seeking
indemnification. If a director is seeking indemnification for conduct in the
capacity of director or officer of a Registrant, then such director generally
may not be counted for the purpose of determining either the presence of a
quorum or such director's eligibility to be indemnified.
In any case, indemnification is proper only if the eligibility
determining body decides that the person seeking indemnification:
(a) has not received indemnification for the same conduct from any
other party or organization;
(b) acted in good faith;
(c) received no improper personal benefit;
(d) in the case of criminal proceedings, had no reasonable cause
to believe the conduct was unlawful;
(e) reasonably believed that the conduct was in the best interest
of a Registrant, or in certain contexts, was not opposed to
the best interest of a Registrant; and
(f) had not otherwise engaged in conduct which precludes
indemnification under either Minnesota or Federal law
(including, but not limited to, conduct constituting willful
misfeasance, bad faith, gross negligence, or reckless
disregard of duties as set forth in Section 17(h) and (i) of
the Investment Company Act of 1940).
If a person is made or threatened to be made a party to a proceeding,
the person is entitled, upon written request to a Registrant, to payment or
reimbursement by a Registrant of reasonable expenses, including attorneys' fees
and disbursements, incurred by the person in advance of the final disposition of
the proceeding, (a) upon receipt by a Registrant of a written affirmation by the
person of a good faith belief that the criteria for indemnification set forth in
Section 302A.521 have been satisfied and a written undertaking by the person to
repay all amounts so paid or reimbursed by the Registrant, if it is ultimately
determined that the criteria for indemnification have not been satisfied, and
(b) after a determination that the facts then known to those making the
determination would not preclude indemnification under Section 302A.521. The
written undertaking required by clause (a) is an unlimited general obligation of
the person making it, but need not be secured and shall be accepted without
reference to financial ability to make the repayment.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of a
Registrant pursuant to the foregoing provisions, or otherwise, each 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 a Registrant of expenses incurred or
paid by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Each Registrant undertakes to comply with the indemnification
requirements of Investment Company Release 7221 (June 9, 1972) and Investment
Company Release 11330 (September 2, 1980).
Item 28. Business and other Connections of Investment Adviser
Sit Investment Associates, Inc. (the "Adviser"), serves as the
investment adviser of each of the Sit Mutual Funds. In addition to serving as
the investment adviser to the Sit Mutual Funds and to various other public and
private accounts, the Adviser serves as sub-adviser to Fremont Equity Fund,
Inc., an open-end fund managed by Fremont Investment Advisers of San Francisco,
CA, and receives fees therefor of .40% per year of such fund's average daily net
assets.
Below is a list of the officers and directors of the Adviser and their
business/employment during the past two years.
Business and Employment During Past Two Years;
Name Principal Business Address
---- --------------------------
Eugene C. Sit Chairman, CIO and Treasurer of the Adviser; Chairman
and CEO of the Sub-Adviser; Chairman of the Board of
Directors of all SIT Funds.
Peter L. Mitchelson President and Director of the Adviser; Director of
the Sub-Adviser; Senior Vice President and Senior
Portfolio Manager of the SIT Growth & Income Fund;
Vice Chairman & Director of all SIT Funds.
Debra A. Sit Vice President - Bond Investments of the Adviser;
Officer of all Sit Funds; Treasurer of the
Sub-Adviser
Paul E. Rasmussen Vice President, Secretary and Controller of the
Adviser and the Sub-Adviser
Michael C. Brilley Senior Vice President and Senior Fixed Income
Officer of the Adviser
Ronald D. Sit Vice President - Equity Research and Portfolio
Management of the Adviser
Erik S. Anderson Vice President - Equity Research and Portfolio
Management of the Adviser
Michael P. Eckert Vice President - Mutual Fund Sales of the Adviser
Frederick Adler Senior Partner, Fulbright & Jaworski; Director of
the Adviser 1520 S. Ocean Boulevard Palm Beach,
FL 33480
Norman Bud Grossman President, Cogel Management; Director of the Adviser
4670 Norwest Center
Minneapolis MN 55402
Item 29. Principal Underwriters
The Distributor for each Registrant is SIA Securities Corp., 4600
Norwest Center, Minneapolis, MN 55402, an affiliate of the Adviser, which
distributes only shares of each Registrant.
Below is a list of the officers and directors of the Distributor and
their business/employment during the past two years:
Business and Employment During Past Two Years;
Name Principal Business Address
---- --------------------------
Eugene C. Sit Chairman, CIO and Treasurer of the Adviser; Chairman
and CEO of the Sub-Adviser; Chairman of the Board of
Directors of all SIT Funds.
Peter L. Mitchelson President and Director of the Adviser; Director of
the Sub-Adviser; Senior Vice President and Senior
Portfolio Manager of the SIT Growth & Income Fund;
Vice Chairman & Director of all SIT Funds.
Parnell M. Kingsley Assistant Secretary of all SIT Funds
Paul E. Rasmussen Controller for the Adviser; Vice President &
Treasurer of all SIT Funds
Item 30. Location of Accounts and Records
The Custodian for each Registrant is The Northern Trust Company, 50
South LaSalle Street, Chicago, IL 60675. The Transfer Agent for each Registrant
is First Data Investor Services, 4400 Computer Drive, B215, Westborough, MA
01581. Other books and records are maintained by the Adviser, which is located
at 4600 Norwest Center, Minneapolis, MN 55402.
Item 31. Management Services
Not applicable
Item 32. Undertakings
(a) Not applicable
(b) Not applicable
(c) Each Registrant undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of a
director if requested to do so by the holders of at least 10%
of such Registrant's outstanding shares and to assist in
communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has caused this Registration
Statement on Form N-1A to be duly signed on its behalf by the undersigned,
thereunder duly authorized, in the City of Minneapolis, State of Minnesota, on
the 26th day of July, 1996.
SIT U.S. GOVERNMENT SECURITIES FUND, INC.
(Registrant)
By /s/ Eugene C. Sit
Eugene C. Sit, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature and Title
-------------------
/s/ Eugene C. Sit Dated: July 26, 1996
- ------------------------------------------
Eugene C. Sit Chairman
(Principal Executive Officer and Director)
/s/ Paul E. Rasmussen Dated: July 26, 1996
- ------------------------------------------
Paul E. Rasmussen, Treasurer
(Principal Financial Officer and Accounting Officer)
John E. Hulse, Director*
Sidney L. Jones, Director*
Peter L. Mitchelson, Director*
Donald W. Phillips, Director*
*By /s/ Eugene C. Sit Dated: July 26, 1996
- -----------------------------------------
Eugene C. Sit, Attorney-in-fact
(Pursuant to Powers of Attorney filed
previously with the Commission.)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has caused this Registration
Statement on Form N-1A to be duly signed on its behalf by the undersigned,
thereunder duly authorized, in the City of Minneapolis, State of Minnesota, on
the 26th day of July, 1996.
SIT MUTUAL FUNDS II, INC.
(Registrant)
By /s/ Eugene C. Sit
Eugene C. Sit, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
/s/ Eugene C. Sit Dated: July 26, 1996
- ----------------------------------------
Eugene C. Sit Chairman
(Principal Executive Officer
and Director)
/s/ Paul E. Rasmussen Dated: July 26, 1996
- ----------------------------------------
Paul E. Rasmussen, Treasurer
(Principal Financial Officer and
Accounting Officer)
John E. Hulse, Director*
Sidney L. Jones, Director*
Peter L. Mitchelson, Director*
Donald W. Phillips, Director*
*By /s/ Eugene C. Sit Dated: July 26, 1996
-----------------------------------
Eugene C. Sit, Attorney-in-fact
(Pursuant to Powers of Attorney filed
previously with the Commission.)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has caused this Registration
Statement on Form N-1A to be duly signed on its behalf by the undersigned,
thereunder duly authorized, in the City of Minneapolis, State of Minnesota, on
the 26th day of July, 1996.
SIT MONEY MARKET FUND, INC.
(Registrant)
By /s/ Eugene C. Sit
Eugene C. Sit, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature and Title
/s/ Eugene C. Sit Dated: July 26, 1996
- -----------------------------------------
Eugene C. Sit Chairman
(Principal Executive Officer
and Director)
/s/ Paul E. Rasmussen Dated: July 26, 1996
- -----------------------------------------
Paul E. Rasmussen, Treasurer
(Principal Financial Officer and
Accounting Officer)
John E. Hulse, Director*
Sidney L. Jones, Director*
Peter L. Mitchelson, Director*
Donald W. Phillips, Director*
*By /s/ Eugene C. Sit Dated: July 26, 1996
---------------------------------------
Eugene C. Sit, Attorney-in-fact
(Pursuant to Powers of Attorney filed
previously with the Commission.)
REGISTRATION STATEMENT ON FORM N-1A
EXHIBIT INDEX
EXHIBIT NO. NAME OF EXHIBIT PAGE NO.
- ----------- -------------------------------------- --------
8.1 Custodian Agreement C-10
8.2 Transfer Agency and Services Agreement C-69
8.3 Accounting Services Agreement C-128
11 Independent Auditors' Consent C-157
16 Calculations of Performance Data C-158
17 Power of Attorney C-159
EXHIBIT 8.1
Custodian Agreement
SIT U.S. Government Securities Fund, Inc.
(This is a Specimen Documents DO NOT DELETE OR MODIFY)
CUSTODY AGREEMENT
AGREEMENT dated as of April 1, 1996, between SIT U. S. Government
Securities Fund, Inc., a corporation organized under the laws of the State of
Minnesota, having its principal office and place of business at 4600 Norwest
Center, 90 South Seven Street, Minneapolis, Minnesota 554022-4130 (the
"Company"), and THE NORTHERN TRUST COMPANY (the "Custodian"), an Illinois
Company with its principal place of business at 50 South LaSalle Street,
Chicago, Illinois 60675.
WITNESSETH:
That for and in consideration of the mutual promises hereinafter set
forth, the Company and the Custodian agree as follows:
1. Definitions.
Whenever used in this Agreement or in any Schedules to this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings
(a) The "1940 Act" shall mean the Investment Company Act of 1940, and
the Rules and Regulations thereunder, all as amended from time to time.
(b) "Authorized Person" shall be deemed to include the Chairman of the
Board of Directors, the President, and any Vice President, the
Secretary, the Treasurer or any other person, whether or not any such
person is an officer or employee of the Company, duly authorized by the
Board of Directors to give Oral Instructions and Written Instructions
on behalf of the Company and listed in the certification annexed hereto
as Schedule A or such other certification as may be received by the
Custodian from time to time.
(c) "Board of Directors" shall mean the Board of Directors of the
Company.
(d) "Book-Entry System" shall mean the Federal Reserve/ Treasury
book-entry system for United States and federal agency Securities, its
successor or successors and its nominee or nominees.
(e) "Certificate" shall mean any notice, instruction or other
instrument in writing, authorized or required by this Agreement to be
given to the Custodian, which is actually received by the Custodian and
signed on behalf of the Company by any two Authorized Persons or any
two officers thereof.
(f) "Articles of Incorporation and Certificate of Designation" shall
mean the Articles of Incorporation and Certificate of Designation of
the Company dated July 30, 1991, as amended.
(g) "Depository" shall mean The Depository Trust Company, a clearing
agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended, its
successor or successors and its nominee or nominees, in which the
Custodian is hereby specifically authorized to make deposits. The term
"Depository" shall further mean and include any other person to be
named in a Certificate authorized to act as a depository under the 1940
Act, its successor or successors and its nominee or nominees.
(h) "Fund Accountant" shall mean the person appointed by the Company
who performs the daily calculations of the net asset values of the
Portfolios and determines the amount of cash available in each
Portfolio on a daily basis for investment. The Fund Accountant shall be
identified to the Custodian in writing.
(i) "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and
principal by the Government of the United States or agencies or
instrumentalities thereof, commercial paper, bank certificates of
deposit, bankers' acceptances and short-term corporate obligations,
where the purchase or sale of such securities normally requires
settlement in federal funds on the same day as such purchase or sale,
and repurchase agreements with respect to any of the foregoing types of
securities.
(j) "Oral Instructions" shall mean an oral communication actually
received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person.
(k) "Portfolio" refers to the portfolios identified in the attached
Exhibit 1, or any such other separate and distinct investment portfolio
as may from time to time be created and designated by the Company in
accordance with the provisions of Articles of Incorporation and
certificate of designation and which the Company and Custodian shall
have agreed in writing shall be subject to this Agreement pursuant to
the provisions of section 5(b).
(l) "Prospectus" shall mean the Company's current prospectus and
statement of additional information relating to the registration of the
Portfolio's Shares under the Securities Act of 1933, as amended.
(m) "Shares" refers to the shares of the Portfolio.
(n) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and other
securities, commodity interests and investments from time to time owned
by the Portfolio.
(o) "Sub-Custodian" shall mean and include (i) any branch of the
Custodian, (ii) any branch of a "qualified U.S. bank," as that term is
defined in Rule 17f-5 under the 1940 Act, (iii) any "eligible foreign
custodian," as that term is defined in Rule 17f-5 under the 1940 Act,
approved by the Board of Directors and having a contract with the
Custodian which contract has been approved by the Board of Directors,
and (iv) any securities depository or clearing agency, incorporated or
organized under the laws of a country other than the United States,
which operates the central system for handling of securities or
equivalent book-entries in that country or a transnational system for
the central handling of securities or equivalent book-entries, which
securities depository or clearing agency has been approved by the Board
of Directors; provided, that the Custodian or a SubCustodian has
entered into an agreement with such securities depository or clearing
agency.
(p) "Transfer Agent" shall mean the person which performs as the
transfer agent, dividend disbursing agent and shareholder servicing
agent for the Company.
(q) "Written Instructions" shall mean a written communication actually
received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person by any system whereby the receiver
of such communication is able to verify through codes or otherwise with
a reasonable degree of certainty the authenticity of the sender of such
communication; however, "Written Instructions" from the Company to the
Custodian shall mean a facsimile or electronic communication
transmitted by the Company or the Fund Accountant (who has been
provided an access code by the Company) and actually received by the
Custodian. Except as otherwise provided in this Agreement, "Written
Instructions" may include instructions given on a standing basis.
2. Appointment of Custodian.
(a) The Company hereby constitutes and appoints the Custodian as
custodian of all the Securities and monies owned by or in the
possession of the Portfolio during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
3. Appointment and Removal of Sub-Custodians.
(a) The Custodian may appoint one or more Sub-Custodians to act as
Depository or Depositories or as sub-custodian or sub-custodians of
Securities and moneys at any time owned by any Portfolio, upon terms
and conditions as are specified in this Agreement. The Custodian shall
oversee the maintenance of any Securities or moneys of any Portfolio by
any Sub-Custodian.
(b) If, after the initial approval of Sub-Custodians by the Board of
Directors in connection with this Agreement, the Custodian wishes to
appoint other SubCustodians to hold property of the Portfolios, it will
so notify the Company and provide it with information reasonably
necessary to determine any such new SubCustodian's eligibility under
Rule 17f-5 under the 1940 Act, including a copy of the proposed
agreement with such Sub-Custodian. The Company shall at the meeting of
the Board of Directors 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) If the Custodian intends to remove any Sub-Custodian previously
approved by the Board of Directors, it shall so notify the Company and
move the property of the Portfolio(s) deposited with such Sub-Custodian
to another Sub-Custodian previously approved by the Board of Directors.
The Custodian shall promptly take such steps as may be required to
remove any Sub-Custodian that has ceased to meet the requirements of
Rule 17f-5 under the 1940 Act.
(e) The Custodian hereby warrants to the Company that in its opinion,
after due inquiry, the established procedures to be followed by each
Sub-Custodian (that is not being used as a foreign securities
depository or clearing agency) in connection with the safekeeping of
property of the Portfolio pursuant to this Agreement afford protection
for such property not materially different from that afforded by the
Custodian's established safekeeping procedures with respect to similar
property held by it (and its securities depositories) in Chicago,
Illinois.
4. Use of Sub-Custodians.
With respect to property of a Portfolio which is maintained by the
Custodian in the custody of a Sub-Custodian pursuant to Section 3:
(a) The Custodian will identify on its books as belonging to the
particular Portfolio any property held by such Sub-Custodian.
(b) In the event that a Sub-Custodian permits any of the Securities
placed in its care to be held in an eligible foreign securities
depository, such Sub-Custodian will be required by its agreement with
the Custodian to identify on its books such Securities as being held
for the account of the Custodian as a custodian for its customers.
(c) Any Securities held by a Sub-Custodian will be subject only to the
instructions of the Custodian or its agents; and any Securities held in
an eligible foreign securities depository for the account of a
Sub-Custodian will be subject only to the instructions of such
Sub-Custodian.
(d) The Custodian will only deposit property of a Portfolio in an
account with a Sub-Custodian which includes exclusively the assets held
by the Custodian for its customers, and will cause such account to be
designated by such Sub-Custodian as a special custody account for the
exclusive benefit of customers of the Custodian.
5. Compensation.
(a) The Custodian shall be entitled to compensation for its services
hereunder as set forth in a separate agreement between the Custodian
and the Fund Accountant. The Custodian will bill the Fund Accountant
directly for all such amounts.
6. Custody of Cash and Securities
(a) Receipt and Holding of Assets. The Company will deliver or cause to
be delivered to the Custodian and the Sub-Custodians all Securities and
monies owned by the Portfolio at any time during the period of this
Agreement and shall specify the Portfolio to which the Securities and
monies are to be specifically allocated. The Custodian will not be
responsible for such Securities and monies until actually received by
it or by a Sub-Custodian. The Company shall instruct the Custodian from
time to time in its sole discretion, by means of Written Instructions,
as to the manner in which and in what amounts Securities, and monies of
a Portfolio are to be deposited on behalf of such Portfolio in the
Book-Entry System or a Depository; provided, however, that prior to the
deposit of Securities of a Portfolio in the Book-Entry System or a
Depository, including a deposit in connection with the settlement of a
purchase or sale, the Custodian shall have received a Certificate
specifically approving such deposits by the Custodian or a
Sub-Custodian in the Book-Entry System or a Depository. Securities and
monies of a Portfolio deposited in the Book-Entry System or a
Depository will be deposited in accounts which include only assets held
by the Custodian for its customers.
(b) Accounts and Disbursements. The Custodian shall establish and
maintain a separate account for each Portfolio and shall credit to the
separate account all monies received by it or a Sub-Custodian for the
account of such Portfolio and shall disburse, or cause a Sub-Custodian
to disburse, the same only:
1. In payment for Securities purchased for the Portfolio, as
provided in Section 7 hereof;
2. In payment of dividends or distributions with respect to
the Shares of such Portfolio, as provided in Section 10
hereof;
3. In payment of original issue or other taxes with respect to
the Shares of such Portfolio, as provided in Section 11(c)
hereof;
4. In payment for Shares which have been redeemed by such
Portfolio, as provided in Section 11 hereof;
5. In payment of fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to the Company, as
provided in Sections 5 and 15(h) hereof;
6. Pursuant to Written Instructions setting forth the name of
the Portfolio and the name and address of the person to whom
the payment is to be made, the amount to be paid and the
purpose for which payment is to be made.
(c) Fail Float. In the event that any payment made for a Portfolio
under this Section 6 exceeds the funds available in that Portfolio's
account, the Custodian or relevant Sub-Custodian, as the case may be,
may, in its discretion, advance the Company on behalf of that Portfolio
an amount equal to such excess and such advance shall be deemed an
overdraft from the Custodian or such Sub-Custodian to that Portfolio
payable on demand, bearing interest at the rate of interest customarily
charged by the Custodian or such Sub-Custodian on similar overdrafts.
(d) Confirmation and Statements. Promptly after the close of business
on each business day, the Custodian shall furnish the Company with
confirmations and a summary of all transfers to or from the account of
each Portfolio during said day. Such summary shall include without
limitation, as to property acquired for a Portfolio, the identity of
the entity having physical possession of such property. Where
securities purchased by a Portfolio are in a fungible bulk of
securities registered in the name of the Custodian (or its nominee) or
shown on the Custodian's account on the books of a Depository, the
Book-Entry System or a Sub-Custodian, the Custodian shall by book entry
or otherwise identify the quantity of those securities belonging to
such Portfolio. At least monthly, the Custodian shall furnish the
Company with a detailed statement of the Securities and monies held by
it and all Sub-Custodians for each Portfolio. In the absence of the
filing in writing with the Custodian by the Company of exceptions or
objections to any such statement within 60 days after the date that a
material defect is reasonably discoverable, the Company shall be deemed
to have approved such statement; and in such case or upon written
approval of the Company of any such statement the Custodian shall, to
the extent permitted by law and provided the Custodian has met the
standard of care in Section 14 hereof, be released, relieved and
discharged with respect to all matters and things set forth in such
statement as though such statement had been settled by the decree of a
court of competent jurisdiction in an action in which the Company and
all persons having any equity interest in the Company were parties.
(e) Registration of Securities and Physical Separation. All Securities
held for a Portfolio which are issued or issuable only in bearer form,
except such Securities as are held in the Book-Entry System, shall be
held by the Custodian or a SubCustodian in that form; all other
Securities held for a Portfolio may be registered in the name of that
Portfolio, in the name of any duly appointed registered nominee of the
Custodian or a Sub-Custodian as the Custodian or such Sub-Custodian may
from time to time determine, or in the name of the Book-Entry System or
a Depository or their successor or successors, or their nominee or
nominees. The Company reserves the right to instruct the Custodian as
to the method of registration and safekeeping of the Securities. The
Company agrees to furnish to the Custodian appropriate instruments to
enable the Custodian or any SubCustodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee
or in the name of the Book-Entry System or a Depository, any Securities
which the Custodian of a Sub-Custodian may hold for the account of a
Portfolio and which may from time to time be registered in the name of
a Portfolio. The Custodian shall hold all such Securities specifically
allocated to a Portfolio which are not held in the Book-Entry System or
a Depository in a separate account for such Portfolio in the name of
such Portfolio physically segregated at all times from those of any
other person or persons.
(f) Segregated Accounts. Upon receipt of a Written Instruction, the
Custodian will establish segregated accounts on behalf of a Portfolio
to hold liquid or other assets as it shall be directed by a Written
Instruction and shall increase or decrease the assets in such
Segregated Accounts only as it shall be directed by subsequent Written
Instruction.
(g) Collection of Income and Other Matters Affecting Securities. Unless
otherwise instructed to the contrary by a Written Instruction, the
Custodian, by itself or through the use of the Book-Entry System or a
Depository with respect to Securities therein deposited, shall, or
shall instruct the relevant Sub-Custodian to:
1. Collect all income due or payable with respect to
Securities held for a Portfolio in accordance with this
Agreement;
2. Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed or retired,
or otherwise become payable;
3. Surrender Securities in temporary form for derivative
Securities;
4. Execute 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
5. Hold directly, or through the Book-Entry System or a
Depository with respect to Securities therein deposited, for
the account of each Portfolio all rights and similar
Securities issued with respect to any Securities held by the
Custodian or relevant Sub-Custodian for each Portfolio.
If the Custodian or any Sub-Custodian causes the
account of a Portfolio to be credited on the payable date for
interest, dividends or redemptions, the particular Portfolio
involved will promptly return to the Custodian any such amount
or property so credited upon oral or written notification that
neither the custodian nor the relevant Sub-Custodian can
collect such amount or property in the ordinary course of
business. The Custodian or such Sub-Custodian, as the case may
be, shall have no duty or obligation to institute legal
proceedings, file a claim or proof of claim in any insolvency
proceeding or take any other action with respect to the
collection of such amount or property beyond its ordinary
collection procedures unless it is specifically requested to
do so by the Company and indemnified to its satisfaction for
any liability, cost or expense arising therefrom.
(h) Delivery of Securities and Evidence of Authority. Upon receipt of a
Written Instruction and not otherwise, except for subparagraphs 5, 6,
7, and 8 of this section 6(h) which may be effected by Oral or Written
Instructions, the Custodian, directly or through the use of the
Book-Entry System or a Depository, shall, or shall instruct the
relevant Sub-Custodian to:
1. Execute and deliver or cause to be executed and delivered
to such persons as may be designated in such Written
Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Company as owner of
any Securities may be exercised;
2. Deliver or cause to be delivered any Securities held for a
Portfolio in exchange for other Securities or cash issued or
paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
3. Deliver or cause to be delivered any Securities held for a
Portfolio to any protective committee, reorganization
committee or other person in connection with the
reorganization, refinancing, merger, consolidation or
recapitalization or sale of assets of any corporation, and
receive and hold under the terms of this Agreement in the
separate account for each such Portfolio certificates of
deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;
4. Make or cause to be made such transfers or exchanges of the
assets specifically allocated to the separate account of a
Portfolio and take such other steps as shall be stated in
Written Instructions to be for the purpose of effectuating any
duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Company;
5. Deliver Securities upon sale of such Securities for the
account of a Portfolio pursuant to Section 7;
6. Deliver Securities upon the receipt of payment in
connection with any repurchase agreement related to such
Securities entered into by a Portfolio;
7. Deliver Securities owned by a Portfolio to the issuer
thereof or its agent when such Securities are called,
redeemed, retired or otherwise become payable; provided,
however, that in any such case the cash or other consideration
is to be delivered to the Custodian or Sub-Custodian, as the
case may be;
8. Deliver Securities for delivery in connection with any
loans of securities made by a Portfolio but only against
receipt of adequate collateral as agreed upon from time to
time by the Custodian and the Company which may be in the form
of cash or obligations issued by the United States Government,
its agencies or instrumentalities;
9. Deliver Securities for delivery as security in connection
with any borrowings by a Portfolio requiring a pledge of
Portfolio assets, but only against receipt of the amounts
borrowed;
10. Deliver Securities to the Transfer Agent or to the holders
of Shares in connection with distributions in kind, as may be
described from time to in the Prospectus, in satisfaction of
requests by holders of Shares for repurchase or redemption;
11. Deliver Securities owned by any Portfolio for any purpose
expressly permitted by and in accordance with procedures
described in the Prospectus; and
12. Deliver Securities owned by any Portfolio for any other
proper business purpose, but only upon receipt of, in addition
to Written Instructions, a certified copy of a resolution of
the Board of Directors signed by an Authorized Person and
certified by the Secretary of the Company, 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 business purpose, and naming the person or persons
to whom delivery of such Securities shall be made.
(i) Endorsement and Collection of Checks. Etc. The Custodian is hereby
authorized to endorse and collect all checks, drafts or other orders
for the payment of money received by the Custodian for the account of a
Portfolio.
7. Purchase and Sale of Investments of a Portfolio.
(a) Promptly after each purchase of Securities for a Portfolio, the
Company shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, a Written
Instruction and (ii) with respect to each purchase of Money Market
Securities, either a Written Instruction or Oral Instruction, in either
case specifying with respect to each purchase: (1) the name of the
Portfolio to which such Securities are to be specifically allocated;
(2) the name of the issuer and the title of the Securities; (3) the
number of shares or the principal amount purchased and accrued
interest, if any; (4) the date of purchase and settlement; (5) the
purchase price per unit; (6) the total amount payable upon such
purchase; and 7) the name of the person from whom or the broker through
whom the purchase was made, if any. The Custodian or specified
Sub-Custodian shall receive the Securities purchased by or for a
Portfolio and upon receipt thereof shall pay to the broker or other
person designated by the Company out of the monies held for the account
of such Portfolio the total amount payable upon such purchase, provided
that the same conforms to the total amount payable as set forth in such
Written or Oral Instruction.
(b) Promptly after each sale of Securities of a Portfolio, the Company
shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, a Written
Instruction, and (ii) with respect to each sale of Money Market
Securities, either Written Instructions or Oral Instructions, in either
case specifying with respect to such sale: (1) the name of the
Portfolio to which the Securities sold were specifically allocated; (2)
the name of the issuer and the title of the Securities; (3) the number
of shares or principal amount sold, and accrued interest, if any; (4)
the date of sale; (5) the sale price per unit; (6) the total amount
payable to the Portfolio upon such sale; and (7) the name of the broker
through whom or the person to whom the sale was made. The Custodian or
relevant Sub-Custodian shall deliver or cause to be delivered the
Securities to the broker or other person designated by the Company upon
receipt of the total amount payable to such Portfolio upon such sale,
provided that the same conforms to the total amount payable to such
Portfolio as set forth in such Written or Oral Instruction. Subject to
the foregoing, the Custodian or relevant Sub-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.
(c) Notwithstanding (a) and (b) above, cash in any of the Portfolios
may be invested by the Custodian for short term purposes pursuant to
standing Written Instructions from the Company.
8. Lending of Securities.
If any Portfolio is permitted by the terms of the Articles of
Incorporation and Certificate of Designation and the Prospectus to lend
Securities, then the Board of Directors may approve a separate written
agreement between the Company and the Custodian authorizing the
Custodian to lend such Securities. Such agreement may provide for the
payment of additional reasonable compensation to the Custodian.
9. Investment in Futures and Options
The Custodian shall pursuant to Written Instructions (which may be
standing instructions) from an Authorized Person (i) transfer initial
margin to a safekeeping bank or, with respect to options, broker, (ii)
pay or demand variation margin to or from a designated futures
commission merchant or other broker based on daily marking to market
calculations and in accordance with accepted industry practices, and
(iii) subject to the consent of the Custodian, enter into separate
procedural, safekeeping or other agreements with safekeeping banks,
futures commission merchants and other brokers pursuant to which such
banks and, in the case of options, brokers, will act as custodian for
initial margin deposits in transactions involving futures contracts and
options. The Custodian shall have no custodial or investment
responsibility for any assets transferred to a safekeeping bank,
futures commission merchant or broker pursuant to this paragraph.
10. Payment of Dividends or Distributions.
(a) The Company shall furnish to the Custodian the vote of the Board of
Directors or the Dividend Committee thereof, as the case may be,
certified by the Secretary of the Company (i) authorizing the
declaration of distributions with respect to a Portfolio on a specified
periodic basis and authorizing the Custodian to rely on Oral or Written
Instructions specifying the date of the declaration of such
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per Share to the shareholders of record as of the record date
and the total amount payable to the Transfer Agent on the payment date,
or (ii) setting forth the date of declaration of any distribution by a
Portfolio, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per share to the shareholders of record as of the record date
and the total amount payable to the Transfer Agent on the Payment date.
(b) Upon the payment date specified in such vote, Oral Instructions, or
Written Instructions, as the case may be, the Custodian shall pay the
total amount payable to the Transfer Agent out of the monies
specifically allocated to and held for the account of the appropriate
Portfolio.
11. Sale and Redemption of Shares of the Company.
(a) Whenever the Company shall sell any Shares of a Portfolio, the
Company shall deliver or cause to be delivered to the Custodian a
Written Instruction duly specifying:
1. The name of the Portfolio whose Shares were sold;
2. The number of Shares sold, trade date, and price; and
3. The amount of money to be received by the Custodian for the
sale of such Shares.
The Custodian understands and agrees that Written Instructions may be
furnished subsequent to the purchase of Shares of a Portfolio and that
the information contained therein will be derived from the sales of
Shares as reported to the Company by the Transfer Agent.
(b) Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account of the Portfolio
specified in (a)(1) above.
(c) Upon issuance of any Shares of a Portfolio in accordance with the
foregoing provisions of this Section 11, the Custodian shall pay all
original issue or other taxes required to be paid in connection with
such issuance upon the receipt of a Written Instruction specifying the
amount to be paid.
(d) Except as provided hereafter, whenever any Shares of a Portfolio
are redeemed, the Company shall cause the Transfer Agent to promptly
furnish to the Custodian Written Instructions specifying:
1. The name of the Portfolio whose Shares were redeemed;
2. The number of Shares redeemed; and
3. The amount to be paid for the Shares redeemed.
The Custodian further understands that the information
contained in such Written Instructions will be derived from the
redemption of Shares as reported to the Company by the Transfer Agent.
(e) Upon receipt from the Transfer Agent of advice setting forth the
number of Shares of a Portfolio being redeemed pursuant to valid
instructions as described in the Prospectus, the Custodian shall make
payment to the Transfer Agent out of the monies specifically allocated
to and held for the account of the Portfolio specified in (d)(l) above
of the total amount specified in a Written Instruction issued pursuant
to paragraph (d) of this Section 11.
12. Indebtedness.
(a) The Company will cause to be delivered to the Custodian by any bank
(excluding the Custodian) from which the Company borrows money, using
Securities as collateral, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such bank will
loan to the Company against delivery of a stated amount of collateral.
The Company shall promptly deliver to the Custodian Written
Instructions stating with respect to each such borrowing: (1) the name
of the Portfolio for which the borrowing is to be made; (2) the name of
the bank; (3) the amount and terms of the borrowing, which may be set
forth by incorporating by reference an attached promissory note, duly
endorsed by the Company, or other loan agreement; (4) the time and
date, if known, on which the loan is to be entered into (the "borrowing
date"); (5) the date on which the loan becomes due and payable; (6) the
total amount payable to the Company for the separate account of the
Portfolio on the borrowing date; (7) the market value of Securities to
be delivered as collateral for such loan, including the name of the
issuer, the title and the number of shares or the principal amount of
any particular Securities; (8) whether the Custodian is to deliver such
collateral through the Book-Entry System or a Depository; and (9) a
statement that such loan is in conformance with the 1940 Act and the
Prospectus.
(b) Upon receipt of the Written Instruction referred to in paragraph
(a) above, the Custodian shall deliver on the borrowing date the
specified collateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set
forth in the Written Instruction. The Custodian may, at the option of
the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending
bank by virtue of any promissory note or loan agreement. The Custodian
shall deliver as additional collateral in the manner directed by the
Company from time to time such Securities specifically allocated to
such Portfolio as may be specified in Written Instruction to
collateralize further any transaction described in this Section 12. The
Company shall cause all Securities released from collateral status to
be returned directly to the Custodian, and the Custodian shall receive
from time to time such return of collateral as may be tendered to it.
In the event that the Company fails to specify in Written Instruction
all of the information required by this Section 12, the Custodian shall
not be under any obligation to deliver any Securities. Collateral
returned to the Custodian shall be held hereunder as it was prior to
being used as collateral.
13. Corporate Action
Whenever the Custodian or any Sub-Custodian (other than a foreign
securities depository or clearing agency) receives information
concerning Securities held for a Portfolio which requires discretionary
action by the beneficial owner of the Securities (other than a proxy),
such as subscription rights, bond issues, stock repurchase plans and
rights offerings, or legal notices or other material intended to be
transmitted to Securities holders ("Corporate Actions"), the Custodian
will give the Fund Accountant notice of such Corporate Actions to the
extent that the Custodian's central corporate actions department has
actual knowledge of a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action
is received which bears an expiration date, the Custodian will endeavor
to obtain Written or Oral Instructions from the Company or the Fund
Accountant, but if such Instructions are not received in time for the
Custodian to take timely action, or actual notice of such Corporate
Action was received too late to seek such Instructions, the Custodian
is authorized to sell, or cause a Sub-Custodian to sell, such rights
entitlement or fractional interest and to credit the applicable account
with the proceeds and to take any other action it deems, in good faith,
to be appropriate, in which case, provided it has met the standard of
care in Section 15 hereof, it shall be held harmless by the particular
Portfolio involved for any such action.
The Custodian will deliver proxies to the Company or its designated
agent pursuant to special arrangements which may have been agreed to in
writing between the parties hereto. Such proxies shall be executed in
the appropriate nominee name relating to Securities registered in the
name of such nominee but without indicating the manner in which such
proxies are to be voted; and where bearer Securities are involved,
proxies will be delivered in accordance with Written or Oral
Instructions from Authorized Persons.
14. Persons Having Access of the Portfolios.
(a) No Company or agent of the Company, and no officer, director,
employee or agent of the Company's investment adviser, of any
sub-investment adviser of the Company, shall have physical access to
the assets of any Portfolio held by the Custodian or any Sub-Custodian
or be authorized or permitted to withdraw any investments of a
Portfolio, nor shall the Custodian or any Sub-Custodian deliver any
assets of a Portfolio to any such person. No officer, director,
employee or agent of the Custodian who holds any similar position with
the Company's investment adviser, with any sub-investment adviser of
the Company or with the Administrator shall have access to the assets
of any Portfolio.
(b) Nothing in this Section 14 shall prohibit any officer, employee or
agent of the Company, or any officer, director, employee or agent of
the investment adviser, of any sub investment adviser of the Company,
from giving Oral Instructions or Written Instructions to the Custodian
or executing a Certificate so long as it does not result in delivery of
or access to assets of a Portfolio prohibited by paragraph (a) of this
Section 14.
(c) The Custodian represents that it maintains a system that is
reasonably designed to prevent unauthorized persons from having access
to the assets that it holds (by any means) for its customers.
15. Concerning the Custodian.
(a) Scope of Services. The Custodian shall be obligated to perform only
such services as are set forth in this Agreement or expressly contained
in a Certificate, Written Instructions or Oral Instructions given to
the Custodian which are not contrary.
(b) Standard of Care.
1. The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of
property of the Portfolios. The Custodian shall be liable to,
and shall indemnify and hold harmless the Company from and
against any loss which shall occur as the result of the
failure of the Custodian or a Sub-Custodian (other than a
foreign securities depository or clearing agency) to exercise
reasonable care with respect to their respective obligations
under this Agreement and the safekeeping of such property. The
determination of whether the Custodian or Sub-Custodian has
exercised reasonable care in connection with the safekeeping
of Portfolio property shall be made in light of the standards
applicable to the Custodian with respect to similar property
held by it in Chicago, Illinois. The determination of whether
the Custodian or Sub-Custodian has exercised reasonable care
in connection with their other obligations under this
Agreement shall be made in light of prevailing standards
applicable to professional custodians in the jurisdiction in
which such custodial services are performed. In the event of
any loss to the Company by reason of the failure of the
Custodian or a Sub-Custodian (other than a foreign securities
depository or clearing agency) to exercise reasonable care,
the Custodian shall be liable to the Company only to the
extent of the Company's direct damages and expenses, which
damages, for purposes of property only, shall be determined
based on the market value of the property which is the subject
of the loss at the date of discovery of such loss and without
reference to any special condition or circumstances.
2. The Custodian will not be responsible for any act,
omission, default or for the solvency of any foreign
securities depository or clearing agency approved by the Board
of Directors pursuant to Section (l)(n) or Section 3 hereof.
3. The Custodian will not be responsible for any act,
omission, default or for the solvency of any broker or agent
(not referred to in paragraph (b)(2) above) which it or a
Sub-Custodian appoints and uses unless such appointment and
use is made or done negligently or in bad faith. In the event
such an appointment and use is made or done negligently or in
bad faith, the Custodian shall be liable to the Company only
for direct damages and expenses (determined in the manner
described in paragraph (b)(1) above) resulting from such
appointment and use and, in the case of any loss due to an
act, omission or default of such agent or broker, only to the
extent that such loss occurs as a result of the failure of the
agent or broker to exercise reasonable care ("reasonable care"
for this purpose to be determined in light of the prevailing
standards applicable to agents or brokers, as appropriate, in
the jurisdiction where services are performed).
4. The Custodian shall be entitled to rely, and may act upon
the advice of counsel (who may be counsel for the Company) on
all matters and shall be without liability for any action
reasonably taken or omitted in good faith and without
negligence pursuant to such advice.
5. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by
the Custodian and reasonably believed by the Custodian to be
genuine and to be signed by two officers of the Company. The
Custodian shall be entitled to rely upon any Written
Instructions or Oral Instructions actually received by the
Custodian pursuant to the applicable Sections of this
Agreement and reasonably believed by the Custodian to be
genuine and to be given by an Authorized Person. The Company
agrees to forward to the Custodian Written Instructions from
an Authorized Person confirming such Oral Instructions in such
manner so that such Written Instructions are received by the
Custodian, whether by hand delivery, telex or otherwise, by
the close of business on the same day that such Oral
Instructions are given to the Custodian. The Company agrees
that the fact that such confirming instructions are not
received by the Custodian shall in no way affect the validity
of the transactions or enforceability of the transactions
hereby authorized by the Company. The Company agrees that the
Custodian shall incur no liability to the Company in (i)
acting upon Oral Instructions given to the Custodian hereunder
concerning such transactions provided such instructions
reasonably appear to have been received from a duly Authorized
Person or (ii) deciding not to act solely upon Oral
Instructions, provided that the Custodian shall be required to
contact the giver of such Oral Instructions and request
written confirmation immediately following any such decision
not to act.
6. The Custodian shall supply the Fund Accountant with such
daily information regarding the cash and securities positions
and activity of each Portfolio as the Custodian and the Fund
Accountant shall from time to time agree. It is understood
that such information will not be audited by Custodian and
Custodian represents that such information will be the best
information then available to the Custodian. The Custodian
shall have no responsibility whatsoever for the pricing of
Portfolio Securities or for the failure of the Fund Accountant
to reconcile differences between the information supplied by
the Custodian and information obtained by the Fund Accountant
from other sources, including but not limited to pricing
vendors and the Company's investment adviser. Subject to the
foregoing, to the extent that any miscalculation by the Fund
Accountant of a Portfolio's net asset value is attributable to
the willful misfeasance, bad faith or negligence of the
Custodian (including any Sub-Custodian other than a foreign
securities depository or clearing agency) in supplying or
omitting to supply the Fund Accountant with information as
aforesaid, the Custodian shall be liable to the Company for
any resulting loss (subject to such de minims rule of change
in value as the Board of Directors may from time to time
adopt).
(c) Limit of Duties. Without limiting the generality of the foregoing,
the Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any Securities purchased by
any Portfolio, the legality of the purchase thereof, or the
propriety of the amount specified by the Company for payment
therefor;
2. The legality of the sale of any Securities by any Portfolio
or the propriety of the amount of consideration for which the
same are sold;
3. The legality of the issue or sale of any Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor;
5. The legality of the declaration or payment of any
distribution of any Portfolio;
6. The legality of any borrowing.
(d) The Custodian need not maintain any insurance for the exclusive
benefit of the Company, but hereby warrants that as of the date of this
Agreement it is maintaining a bankers Blanket Bond and hereby agrees to
notify the Company in the event that such bond is canceled or otherwise
lapses.
(e) Consistent with and without limiting the language contained in
Section 1 5(b), it is specifically acknowledged that the Custodian
shall have no duty or responsibility to:
1. Question Written Instructions or Oral Instructions or make
any suggestions to the Company or an Authorized Person
regarding such Instructions;
2. Supervise or make recommendations with respect to
investments or the retention of Securities:
3. Subject to Section 15(b)(3) hereof, evaluate or report to
the Company or an Authorized Person regarding the financial
condition of any broker, agent or other party to which
Securities are delivered or payments are made pursuant to this
Agreement: or
4. Review or reconcile trade confirmations received from
brokers.
(f) Amounts Due for Transfer Agent. The Custodian shall not be under
any duty or obligation to take action to effect collection of any
amount due to any Portfolio from the Transfer Agent nor to take any
action to effect payment or distribution by the Transfer Agent of any
amount paid by the Custodian to the Transfer Agent in accordance with
this Agreement.
(g) No Duty to Ascertain Authority. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any time
delivered to or held by it for the Company and specifically allocated
to a Portfolio are such as may properly be held by the Company under
the provisions of the Articles of Incorporation and Certificate of
Designation and the Prospectus.
(h) Indemnification. The Company agrees to indemnify and hold the
Custodian harmless from all loss, cost, taxes, charges, assessments,
claims, and liabilities (including, without limitation, liabilities
arising under the Securities Act of 1933, the Securities Exchange Act
of 1934 and the 1940 Act and state or foreign securities laws) and
expenses (including reasonable attorneys fees and disbursements)
arising directly or indirectly from any action taken or omitted by the
Custodian (i) at the request or on the direction of or in reliance on
the advice of the Company or in reasonable reliance upon the Prospectus
or (ii) upon a Certificate or Oral or Written Instructions; provided,
that the aforegoing indemnity shall not apply to any loss, cost, tax,
charge, assessment, claim, liability or expense to the extent the same
is attributable to the Custodian's or any Sub-Custodian's (other than a
foreign securities depository or clearing agency) negligence, willful
misconduct, bad faith or reckless disregard of duties and obligations
under this Agreement or any other agreement relating to the custody of
Company property.
(i) The Company on behalf of the particular Portfolio involved agrees
to hold the Custodian harmless from any liability or loss resulting
from the imposition or assessment of any taxes or other governmental
charges on a Portfolio.
(j) Without limiting the foregoing, the Custodian shall not be liable
for any loss which results from:
1. the general risk of investing, or
2. subject to Section 15(b) hereof, investing or holding
property in a particular country including, but not limited
to, losses resulting from nationalization, expropriation or
other governmental actions; regulation of the banking or
securities industry; currency restrictions, devaluations or
fluctuations; and market conditions which prevent the orderly
execution of securities transactions or affect the value of
property held pursuant to this Agreement.
(k) No party shall be liable to the other for any loss due to forces
beyond their control including but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, or acts of
(1) Inspection of Books and Records. The books and records of the
Custodian shall be open to inspection and audit at reasonable times by
officers and auditors employed by the Company and by the appropriate
employees of the Securities and Exchange Commission.
(m) Accounting Control Reports. The Custodian shall provide the Company
with any report obtained by the Custodian on the system of internal
accounting control of the Book-Entry System, each Depository, and each
Sub-Custodian and with an annual report on its own systems of internal
accounting control.
16. Term and Termination.
(a) This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter as
the parties may, mutually agree.
(b) Either of the parties hereto may terminate this Agreement with
respect to any Portfolio by giving to the other party a notice in
writing specifying the date of such termination, which, in case the
Company is the terminating party, shall be not less than 60 days after
the date of receipt of such notice or, in case the Custodian is the
terminating party, shall be not less than 90 days after the date of
receipt of such notice. In the event such notice is given by the
Company, it shall be accompanied by a certified vote of the Board of
Directors, electing to terminate this Agreement with respect to any
Portfolio and designating a successor custodian or custodians, which
shall be a person qualified to so act under the 1940 Act.
In the event such notice is given by the Custodian, the Company shall,
on or before the termination date, deliver to the Custodian a certified
vote of the Board of Directors, designating a successor custodian or
custodians. In the absence of such designation by the Company, the
Custodian may designate a successor custodian, which shall be a person
qualified to so act under the 1940 Act. If the Company fails to
designate a successor custodian with respect to any Portfolio, the
Company shall upon the date specified in the notice of termination of
this Agreement and upon the delivery by the Custodian of all Securities
(other than Securities held in the Book-Entry System which cannot be
delivered to the Company) and monies then owned by such Portfolio, be
deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement,
other than the duty with respect to Securities held in the Book-Entry
System which cannot be delivered to the Company.
(c) Upon the date set forth in such notice under paragraph (b) of this
Section 16, this Agreement shall terminate to the extent specified in
such notice, and the Custodian shall upon receipt of a notice of
acceptance by the successor custodian on that date deliver directly to
the successor custodian all Securities and monies then held by the
Custodian and specifically allocated to the Portfolio or Portfolios
specified, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled with
respect to such Portfolio or Portfolios.
17. Limitation of Liability.
The Company and the Custodian agree that the obligations of the Company
under this Agreement shall not be binding upon any of the Directors,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Company individually, but are binding only
upon the assets and property of the Company or of the appropriate
Portfolio(s) thereof. The execution and delivery of this Agreement have
been authorized by the Board of Directors of the Company, and signed by
an authorized officer of the Company, acting as such, and neither such
authorization by such the Board of Directors nor such execution and
delivery by such officer shall be deemed to have been made by any of
them or any shareholder of the Company individually or to impose any
liability on any of them or any shareholder of the Company personally,
but shall bind only the assets and property of the Company or of the
appropriate Portfolio(s) thereof.
18. Miscellaneous.
(a) Annexed hereto as Schedule A is a certification signed by two of
the present officers of the Company setting forth the names and the
signatures of the present Authorized Persons. The Company agrees to
furnish to the Custodian a new certification in similar form in the
event that any such present Authorized Person ceases to be such an
Authorized Person or in the event that other or additional Authorized
Persons are elected or appointed. Until such new certification shall be
received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon Oral Instructions or signatures of
the present Authorized Persons as set forth in the last delivered
certification.
(b) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at
its offices at its address stated on the first page hereof or at such
other place as the Custodian may from time to time designate in
writing.
(c) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Company, shall be sufficiently
given if addressed to the Company and mailed or delivered to it at its
offices at its address shown on the first page hereof or at such other
place as the Company may from time to time designate in writing, with a
copy to:
(d) This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality
as this Agreement, (i) authorized and approved by a vote of the Board
of Directors, including a majority of the members of the Board of
Directors who are not "interested persons" of the Company (as defined
in the 1940 Act), or (ii) authorized and approved by such other
procedures as may be permitted or required by the 1940 Act.
(e) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Company
without the written consent of the Custodian, or by the Custodian
without the written consent of the Company authorized or approved by a
vote of the Board of Directors, and any attempted assignment without
such written consent shall be null and void.
(f) This Agreement shall be construed in accordance with the laws of
the State of Illinois.
(g) The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(h) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective representatives duly authorized as of the day and
year first above written.
SIT U.S. GOVERNMENT SECURITIES FUND, INC.
By: /s/ Paul E. Rasmussen
Name: Paul E. Rasmussen
Title: V.P., Treasurer
THE NORTHERN TRUST COMPANY
By: /s/ Peggy O'Leary
Name: Peggy O'Leaery
Title: Vice President
Schedule A
to
Custody Agreement
Between
SIT U.S. Government Securities Fund, Inc. and
The Northern Trust Company
Authorized Persons
Written Instructions Only
Erik S. Anderson Vice President - Investments
Ronald D. Sit Vice President - Investments
Debra A Sit Vice President - Investments,
Assistant Treasurer
Michael P. Eckert Vice President - Group Manager
Michael J. Radmer Secretary
Parnell M. Kingsley Assistant Secretary
Carla J. Rose Assistant Secretary
Written and Oral Instructions
Eugene C. Sit Chairman
Peter L. Mitchelson Vice President
Mary K. Stern President
Michael C. Brilley Senior Vice President
Paul E. Rasmussen Vice President & Treasurer
EXHIBIT 8.1
Custodian Agreement
SIT Mutual Funds II, Inc.
(This is a Specimen Documents DO NOT DELETE OR MODIFY)
CUSTODY AGREEMENT
AGREEMENT dated as of April 1, 1996, between SIT Mutual Funds II, Inc.,
a corporation organized under the laws of the State of Minnesota, having its
principal office and place of business at 4600 Norwest Center, 90 South Seven
Street, Minneapolis, Minnesota 554022-4130 (the "Company"), and THE NORTHERN
TRUST COMPANY (the "Custodian"), an Illinois Company with its principal place of
business at 50 South LaSalle Street, Chicago, Illinois 60675.
WITNESSETH:
That for and in consideration of the mutual promises hereinafter set
forth, the Company and the Custodian agree as follows:
1. Definitions.
Whenever used in this Agreement or in any Schedules to this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings
(a) The "1940 Act" shall mean the Investment Company Act of 1940, and
the Rules and Regulations thereunder, all as amended from time to time.
(b) "Authorized Person" shall be deemed to include the Chairman of the
Board of Directors, the President, and any Vice President, the
Secretary, the Treasurer or any other person, whether or not any such
person is an officer or employee of the Company, duly authorized by the
Board of Directors to give Oral Instructions and Written Instructions
on behalf of the Company and listed in the certification annexed hereto
as Schedule A or such other certification as may be received by the
Custodian from time to time.
(c) "Board of Directors" shall mean the Board of Directors of the
Company.
(d) "Book-Entry System" shall mean the Federal Reserve/ Treasury
book-entry system for United States and federal agency Securities, its
successor or successors and its nominee or nominees.
(e) "Certificate" shall mean any notice, instruction or other
instrument in writing, authorized or required by this Agreement to be
given to the Custodian, which is actually received by the Custodian and
signed on behalf of the Company by any two Authorized Persons or any
two officers thereof.
(f) "Articles of Incorporation and Certificate of Designation" shall
mean the Articles of Incorporation and Certificate of Designation of
the Company dated July 30, 1991, as amended.
(g) "Depository" shall mean The Depository Trust Company, a clearing
agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended, its
successor or successors and its nominee or nominees, in which the
Custodian is hereby specifically authorized to make deposits. The term
"Depository" shall further mean and include any other person to be
named in a Certificate authorized to act as a depository under the 1940
Act, its successor or successors and its nominee or nominees.
(h) "Fund Accountant" shall mean the person appointed by the Company
who performs the daily calculations of the net asset values of the
Portfolios and determines the amount of cash available in each
Portfolio on a daily basis for investment. The Fund Accountant shall be
identified to the Custodian in writing.
(i) "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and
principal by the Government of the United States or agencies or
instrumentalities thereof, commercial paper, bank certificates of
deposit, bankers' acceptances and short-term corporate obligations,
where the purchase or sale of such securities normally requires
settlement in federal funds on the same day as such purchase or sale,
and repurchase agreements with respect to any of the foregoing types of
securities.
(j) "Oral Instructions" shall mean an oral communication actually
received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person.
(k) "Portfolio" refers to the portfolios identified in the attached
Exhibit 1, or any such other separate and distinct investment portfolio
as may from time to time be created and designated by the Company in
accordance with the provisions of Articles of Incorporation and
certificate of designation and which the Company and Custodian shall
have agreed in writing shall be subject to this Agreement pursuant to
the provisions of section 5(b).
(l) "Prospectus" shall mean the Company's current prospectus and
statement of additional information relating to the registration of the
Portfolio's Shares under the Securities Act of 1933, as amended.
(m) "Shares" refers to the shares of the Portfolio.
(n) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and other
securities, commodity interests and investments from time to time owned
by the Portfolio.
(o) "Sub-Custodian" shall mean and include (i) any branch of the
Custodian, (ii) any branch of a "qualified U.S. bank," as that term is
defined in Rule 17f-5 under the 1940 Act, (iii) any "eligible foreign
custodian," as that term is defined in Rule 17f-5 under the 1940 Act,
approved by the Board of Directors and having a contract with the
Custodian which contract has been approved by the Board of Directors,
and (iv) any securities depository or clearing agency, incorporated or
organized under the laws of a country other than the United States,
which operates the central system for handling of securities or
equivalent book-entries in that country or a transnational system for
the central handling of securities or equivalent book-entries, which
securities depository or clearing agency has been approved by the Board
of Directors; provided, that the Custodian or a SubCustodian has
entered into an agreement with such securities depository or clearing
agency.
(p) "Transfer Agent" shall mean the person which performs as the
transfer agent, dividend disbursing agent and shareholder servicing
agent for the Company.
(q) "Written Instructions" shall mean a written communication actually
received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person by any system whereby the receiver
of such communication is able to verify through codes or otherwise with
a reasonable degree of certainty the authenticity of the sender of such
communication; however, "Written Instructions" from the Company to the
Custodian shall mean a facsimile or electronic communication
transmitted by the Company or the Fund Accountant (who has been
provided an access code by the Company) and actually received by the
Custodian. Except as otherwise provided in this Agreement, "Written
Instructions" may include instructions given on a standing basis.
2. Appointment of Custodian.
(a) The Company hereby constitutes and appoints the Custodian as
custodian of all the Securities and monies owned by or in the
possession of the Portfolio during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
3. Appointment and Removal of Sub-Custodians.
(a) The Custodian may appoint one or more Sub-Custodians to act as
Depository or Depositories or as sub-custodian or sub-custodians of
Securities and moneys at any time owned by any Portfolio, upon terms
and conditions as are specified in this Agreement. The Custodian shall
oversee the maintenance of any Securities or moneys of any Portfolio by
any Sub-Custodian.
(b) If, after the initial approval of Sub-Custodians by the Board of
Directors in connection with this Agreement, the Custodian wishes to
appoint other SubCustodians to hold property of the Portfolios, it will
so notify the Company and provide it with information reasonably
necessary to determine any such new SubCustodian's eligibility under
Rule 17f-5 under the 1940 Act, including a copy of the proposed
agreement with such Sub-Custodian. The Company shall at the meeting of
the Board of Directors 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) If the Custodian intends to remove any Sub-Custodian previously
approved by the Board of Directors, it shall so notify the Company and
move the property of the Portfolio(s) deposited with such Sub-Custodian
to another Sub-Custodian previously approved by the Board of Directors.
The Custodian shall promptly take such steps as may be required to
remove any Sub-Custodian that has ceased to meet the requirements of
Rule 17f-5 under the 1940 Act.
(e) The Custodian hereby warrants to the Company that in its opinion,
after due inquiry, the established procedures to be followed by each
Sub-Custodian (that is not being used as a foreign securities
depository or clearing agency) in connection with the safekeeping of
property of the Portfolio pursuant to this Agreement afford protection
for such property not materially different from that afforded by the
Custodian's established safekeeping procedures with respect to similar
property held by it (and its securities depositories) in Chicago,
Illinois.
4. Use of Sub-Custodians.
With respect to property of a Portfolio which is maintained by the
Custodian in the custody of a Sub-Custodian pursuant to Section 3:
(a) The Custodian will identify on its books as belonging to the
particular Portfolio any property held by such Sub-Custodian.
(b) In the event that a Sub-Custodian permits any of the Securities
placed in its care to be held in an eligible foreign securities
depository, such Sub-Custodian will be required by its agreement with
the Custodian to identify on its books such Securities as being held
for the account of the Custodian as a custodian for its customers.
(c) Any Securities held by a Sub-Custodian will be subject only to the
instructions of the Custodian or its agents; and any Securities held in
an eligible foreign securities depository for the account of a
Sub-Custodian will be subject only to the instructions of such
Sub-Custodian.
(d) The Custodian will only deposit property of a Portfolio in an
account with a Sub-Custodian which includes exclusively the assets held
by the Custodian for its customers, and will cause such account to be
designated by such Sub-Custodian as a special custody account for the
exclusive benefit of customers of the Custodian.
5. Compensation.
(a) The Custodian shall be entitled to compensation for its services
hereunder as set forth in a separate agreement between the Custodian
and the Fund Accountant. The Custodian will bill the Fund Accountant
directly for all such amounts.
6. Custody of Cash and Securities
(a) Receipt and Holding of Assets. The Company will deliver or cause to
be delivered to the Custodian and the Sub-Custodians all Securities and
monies owned by the Portfolio at any time during the period of this
Agreement and shall specify the Portfolio to which the Securities and
monies are to be specifically allocated. The Custodian will not be
responsible for such Securities and monies until actually received by
it or by a Sub-Custodian. The Company shall instruct the Custodian from
time to time in its sole discretion, by means of Written Instructions,
as to the manner in which and in what amounts Securities, and monies of
a Portfolio are to be deposited on behalf of such Portfolio in the
Book-Entry System or a Depository; provided, however, that prior to the
deposit of Securities of a Portfolio in the Book-Entry System or a
Depository, including a deposit in connection with the settlement of a
purchase or sale, the Custodian shall have received a Certificate
specifically approving such deposits by the Custodian or a
Sub-Custodian in the Book-Entry System or a Depository. Securities and
monies of a Portfolio deposited in the Book-Entry System or a
Depository will be deposited in accounts which include only assets held
by the Custodian for its customers.
(b) Accounts and Disbursements. The Custodian shall establish and
maintain a separate account for each Portfolio and shall credit to the
separate account all monies received by it or a Sub-Custodian for the
account of such Portfolio and shall disburse, or cause a Sub-Custodian
to disburse, the same only:
1. In payment for Securities purchased for the Portfolio, as
provided in Section 7 hereof;
2. In payment of dividends or distributions with respect to the
Shares of such Portfolio, as provided in Section 10 hereof;
3. In payment of original issue or other taxes with respect to the
Shares of such Portfolio, as provided in Section 11(c) hereof;
4. In payment for Shares which have been redeemed by such
Portfolio, as provided in Section 11 hereof;
5. In payment of fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to the Company, as
provided in Sections 5 and 15(h) hereof;
6. Pursuant to Written Instructions setting forth the name of the
Portfolio and the name and address of the person to whom the
payment is to be made, the amount to be paid and the purpose for
which payment is to be made.
(c) Fail Float. In the event that any payment made for a Portfolio
under this Section 6 exceeds the funds available in that Portfolio's
account, the Custodian or relevant Sub-Custodian, as the case may be,
may, in its discretion, advance the Company on behalf of that Portfolio
an amount equal to such excess and such advance shall be deemed an
overdraft from the Custodian or such Sub-Custodian to that Portfolio
payable on demand, bearing interest at the rate of interest customarily
charged by the Custodian or such Sub-Custodian on similar overdrafts.
(d) Confirmation and Statements. Promptly after the close of business
on each business day, the Custodian shall furnish the Company with
confirmations and a summary of all transfers to or from the account of
each Portfolio during said day. Such summary shall include without
limitation, as to property acquired for a Portfolio, the identity of
the entity having physical possession of such property. Where
securities purchased by a Portfolio are in a fungible bulk of
securities registered in the name of the Custodian (or its nominee) or
shown on the Custodian's account on the books of a Depository, the
Book-Entry System or a Sub-Custodian, the Custodian shall by book entry
or otherwise identify the quantity of those securities belonging to
such Portfolio. At least monthly, the Custodian shall furnish the
Company with a detailed statement of the Securities and monies held by
it and all Sub-Custodians for each Portfolio. In the absence of the
filing in writing with the Custodian by the Company of exceptions or
objections to any such statement within 60 days after the date that a
material defect is reasonably discoverable, the Company shall be deemed
to have approved such statement; and in such case or upon written
approval of the Company of any such statement the Custodian shall, to
the extent permitted by law and provided the Custodian has met the
standard of care in Section 14 hereof, be released, relieved and
discharged with respect to all matters and things set forth in such
statement as though such statement had been settled by the decree of a
court of competent jurisdiction in an action in which the Company and
all persons having any equity interest in the Company were parties.
(e) Registration of Securities and Physical Separation. All Securities
held for a Portfolio which are issued or issuable only in bearer form,
except such Securities as are held in the Book-Entry System, shall be
held by the Custodian or a SubCustodian in that form; all other
Securities held for a Portfolio may be registered in the name of that
Portfolio, in the name of any duly appointed registered nominee of the
Custodian or a Sub-Custodian as the Custodian or such Sub-Custodian may
from time to time determine, or in the name of the Book-Entry System or
a Depository or their successor or successors, or their nominee or
nominees. The Company reserves the right to instruct the Custodian as
to the method of registration and safekeeping of the Securities. The
Company agrees to furnish to the Custodian appropriate instruments to
enable the Custodian or any SubCustodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee
or in the name of the Book-Entry System or a Depository, any Securities
which the Custodian of a Sub-Custodian may hold for the account of a
Portfolio and which may from time to time be registered in the name of
a Portfolio. The Custodian shall hold all such Securities specifically
allocated to a Portfolio which are not held in the Book-Entry System or
a Depository in a separate account for such Portfolio in the name of
such Portfolio physically segregated at all times from those of any
other person or persons.
(f) Segregated Accounts. Upon receipt of a Written Instruction, the
Custodian will establish segregated accounts on behalf of a Portfolio
to hold liquid or other assets as it shall be directed by a Written
Instruction and shall increase or decrease the assets in such
Segregated Accounts only as it shall be directed by subsequent Written
Instruction.
(g) Collection of Income and Other Matters Affecting Securities. Unless
otherwise instructed to the contrary by a Written Instruction, the
Custodian, by itself or through the use of the Book-Entry System or a
Depository with respect to Securities therein deposited, shall, or
shall instruct the relevant Sub-Custodian to:
1. Collect all income due or payable with respect to Securities
held for a Portfolio in accordance with this Agreement;
2. Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed or retired, or
otherwise become payable;
3. Surrender Securities in temporary form for derivative
Securities;
4. Execute 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
5. Hold directly, or through the Book-Entry System or a Depository
with respect to Securities therein deposited, for the account of
each Portfolio all rights and similar Securities issued with
respect to any Securities held by the Custodian or relevant
Sub-Custodian for each Portfolio.
If the Custodian or any Sub-Custodian causes the account of a
Portfolio to be credited on the payable date for interest,
dividends or redemptions, the particular Portfolio involved will
promptly return to the Custodian any such amount or property so
credited upon oral or written notification that neither the
custodian nor the relevant Sub-Custodian can collect such amount
or property in the ordinary course of business. The Custodian or
such Sub-Custodian, as the case may be, shall have no duty or
obligation to institute legal proceedings, file a claim or proof
of claim in any insolvency proceeding or take any other action
with respect to the collection of such amount or property beyond
its ordinary collection procedures unless it is specifically
requested to do so by the Company and indemnified to its
satisfaction for any liability, cost or expense arising therefrom.
(h) Delivery of Securities and Evidence of Authority. Upon receipt of a
Written Instruction and not otherwise, except for subparagraphs 5, 6,
7, and 8 of this section 6(h) which may be effected by Oral or Written
Instructions, the Custodian, directly or through the use of the
Book-Entry System or a Depository, shall, or shall instruct the
relevant Sub-Custodian to:
1. Execute and deliver or cause to be executed and delivered to
such persons as may be designated in such Written Instructions,
proxies, consents, authorizations, and any other instruments
whereby the authority of the Company as owner of any Securities
may be exercised;
2. Deliver or cause to be delivered any Securities held for a
Portfolio in exchange for other Securities or cash issued or paid
in connection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege;
3. Deliver or cause to be delivered any Securities held for a
Portfolio to any protective committee, reorganization committee or
other person in connection with the reorganization, refinancing,
merger, consolidation or recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this
Agreement in the separate account for each such Portfolio
certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
4. Make or cause to be made such transfers or exchanges of the
assets specifically allocated to the separate account of a
Portfolio and take such other steps as shall be stated in Written
Instructions to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Company;
5. Deliver Securities upon sale of such Securities for the account
of a Portfolio pursuant to Section 7;
6. Deliver Securities upon the receipt of payment in connection
with any repurchase agreement related to such Securities entered
into by a Portfolio;
7. Deliver Securities owned by a Portfolio to the issuer thereof
or its agent when such Securities are called, redeemed, retired or
otherwise become payable; provided, however, that in any such case
the cash or other consideration is to be delivered to the
Custodian or Sub-Custodian, as the case may be;
8. Deliver Securities for delivery in connection with any loans of
securities made by a Portfolio but only against receipt of
adequate collateral as agreed upon from time to time by the
Custodian and the Company which may be in the form of cash or
obligations issued by the United States Government, its agencies
or instrumentalities;
9. Deliver Securities for delivery as security in connection with
any borrowings by a Portfolio requiring a pledge of Portfolio
assets, but only against receipt of the amounts borrowed;
10. Deliver Securities to the Transfer Agent or to the holders of
Shares in connection with distributions in kind, as may be
described from time to in the Prospectus, in satisfaction of
requests by holders of Shares for repurchase or redemption;
11. Deliver Securities owned by any Portfolio for any purpose
expressly permitted by and in accordance with procedures described
in the Prospectus; and
12. Deliver Securities owned by any Portfolio for any other proper
business purpose, but only upon receipt of, in addition to Written
Instructions, a certified copy of a resolution of the Board of
Directors signed by an Authorized Person and certified by the
Secretary of the Company, 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 business purpose,
and naming the person or persons to whom delivery of such
Securities shall be made.
(i) Endorsement and Collection of Checks. Etc. The Custodian is hereby
authorized to endorse and collect all checks, drafts or other orders
for the payment of money received by the Custodian for the account of a
Portfolio.
7. Purchase and Sale of Investments of a Portfolio.
(a) Promptly after each purchase of Securities for a Portfolio, the
Company shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, a Written
Instruction and (ii) with respect to each purchase of Money Market
Securities, either a Written Instruction or Oral Instruction, in either
case specifying with respect to each purchase: (1) the name of the
Portfolio to which such Securities are to be specifically allocated;
(2) the name of the issuer and the title of the Securities; (3) the
number of shares or the principal amount purchased and accrued
interest, if any; (4) the date of purchase and settlement; (5) the
purchase price per unit; (6) the total amount payable upon such
purchase; and 7) the name of the person from whom or the broker through
whom the purchase was made, if any. The Custodian or specified
Sub-Custodian shall receive the Securities purchased by or for a
Portfolio and upon receipt thereof shall pay to the broker or other
person designated by the Company out of the monies held for the account
of such Portfolio the total amount payable upon such purchase, provided
that the same conforms to the total amount payable as set forth in such
Written or Oral Instruction.
(b) Promptly after each sale of Securities of a Portfolio, the Company
shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, a Written
Instruction, and (ii) with respect to each sale of Money Market
Securities, either Written Instructions or Oral Instructions, in either
case specifying with respect to such sale: (1) the name of the
Portfolio to which the Securities sold were specifically allocated; (2)
the name of the issuer and the title of the Securities; (3) the number
of shares or principal amount sold, and accrued interest, if any; (4)
the date of sale; (5) the sale price per unit; (6) the total amount
payable to the Portfolio upon such sale; and (7) the name of the broker
through whom or the person to whom the sale was made. The Custodian or
relevant Sub-Custodian shall deliver or cause to be delivered the
Securities to the broker or other person designated by the Company upon
receipt of the total amount payable to such Portfolio upon such sale,
provided that the same conforms to the total amount payable to such
Portfolio as set forth in such Written or Oral Instruction. Subject to
the foregoing, the Custodian or relevant Sub-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.
(c) Notwithstanding (a) and (b) above, cash in any of the Portfolios
may be invested by the Custodian for short term purposes pursuant to
standing Written Instructions from the Company.
8. Lending of Securities.
If any Portfolio is permitted by the terms of the Articles of
Incorporation and Certificate of Designation and the Prospectus to lend
Securities, then the Board of Directors may approve a separate written
agreement between the Company and the Custodian authorizing the
Custodian to lend such Securities. Such agreement may provide for the
payment of additional reasonable compensation to the Custodian.
9. Investment in Futures and Options
The Custodian shall pursuant to Written Instructions (which may be
standing instructions) from an Authorized Person (i) transfer initial
margin to a safekeeping bank or, with respect to options, broker, (ii)
pay or demand variation margin to or from a designated futures
commission merchant or other broker based on daily marking to market
calculations and in accordance with accepted industry practices, and
(iii) subject to the consent of the Custodian, enter into separate
procedural, safekeeping or other agreements with safekeeping banks,
futures commission merchants and other brokers pursuant to which such
banks and, in the case of options, brokers, will act as custodian for
initial margin deposits in transactions involving futures contracts and
options. The Custodian shall have no custodial or investment
responsibility for any assets transferred to a safekeeping bank,
futures commission merchant or broker pursuant to this paragraph.
10. Payment of Dividends or Distributions.
(a) The Company shall furnish to the Custodian the vote of the Board of
Directors or the Dividend Committee thereof, as the case may be,
certified by the Secretary of the Company (i) authorizing the
declaration of distributions with respect to a Portfolio on a specified
periodic basis and authorizing the Custodian to rely on Oral or Written
Instructions specifying the date of the declaration of such
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per Share to the shareholders of record as of the record date
and the total amount payable to the Transfer Agent on the payment date,
or (ii) setting forth the date of declaration of any distribution by a
Portfolio, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per share to the shareholders of record as of the record date
and the total amount payable to the Transfer Agent on the Payment date.
(b) Upon the payment date specified in such vote, Oral Instructions, or
Written Instructions, as the case may be, the Custodian shall pay the
total amount payable to the Transfer Agent out of the monies
specifically allocated to and held for the account of the appropriate
Portfolio.
11. Sale and Redemption of Shares of the Company.
(a) Whenever the Company shall sell any Shares of a Portfolio, the
Company shall deliver or cause to be delivered to the Custodian a
Written Instruction duly specifying:
1. The name of the Portfolio whose Shares were sold;
2. The number of Shares sold, trade date, and price; and
3. The amount of money to be received by the Custodian for the
sale of such Shares.
The Custodian understands and agrees that Written Instructions may be
furnished subsequent to the purchase of Shares of a Portfolio and that
the information contained therein will be derived from the sales of
Shares as reported to the Company by the Transfer Agent.
(b) Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account of the Portfolio
specified in (a)(1) above.
(c) Upon issuance of any Shares of a Portfolio in accordance with the
foregoing provisions of this Section 11, the Custodian shall pay all
original issue or other taxes required to be paid in connection with
such issuance upon the receipt of a Written Instruction specifying the
amount to be paid.
(d) Except as provided hereafter, whenever any Shares of a Portfolio
are redeemed, the Company shall cause the Transfer Agent to promptly
furnish to the Custodian Written Instructions specifying:
1. The name of the Portfolio whose Shares were redeemed;
2. The number of Shares redeemed; and
3. The amount to be paid for the Shares redeemed.
The Custodian further understands that the information contained
in such Written Instructions will be derived from the redemption of
Shares as reported to the Company by the Transfer Agent.
(e) Upon receipt from the Transfer Agent of advice setting forth the
number of Shares of a Portfolio being redeemed pursuant to valid
instructions as described in the Prospectus, the Custodian shall make
payment to the Transfer Agent out of the monies specifically allocated
to and held for the account of the Portfolio specified in (d)(l) above
of the total amount specified in a Written Instruction issued pursuant
to paragraph (d) of this Section 11.
12. Indebtedness.
(a) The Company will cause to be delivered to the Custodian by any bank
(excluding the Custodian) from which the Company borrows money, using
Securities as collateral, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such bank will
loan to the Company against delivery of a stated amount of collateral.
The Company shall promptly deliver to the Custodian Written
Instructions stating with respect to each such borrowing: (1) the name
of the Portfolio for which the borrowing is to be made; (2) the name of
the bank; (3) the amount and terms of the borrowing, which may be set
forth by incorporating by reference an attached promissory note, duly
endorsed by the Company, or other loan agreement; (4) the time and
date, if known, on which the loan is to be entered into (the "borrowing
date"); (5) the date on which the loan becomes due and payable; (6) the
total amount payable to the Company for the separate account of the
Portfolio on the borrowing date; (7) the market value of Securities to
be delivered as collateral for such loan, including the name of the
issuer, the title and the number of shares or the principal amount of
any particular Securities; (8) whether the Custodian is to deliver such
collateral through the Book-Entry System or a Depository; and (9) a
statement that such loan is in conformance with the 1940 Act and the
Prospectus.
(b) Upon receipt of the Written Instruction referred to in paragraph
(a) above, the Custodian shall deliver on the borrowing date the
specified collateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set
forth in the Written Instruction. The Custodian may, at the option of
the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending
bank by virtue of any promissory note or loan agreement. The Custodian
shall deliver as additional collateral in the manner directed by the
Company from time to time such Securities specifically allocated to
such Portfolio as may be specified in Written Instruction to
collateralize further any transaction described in this Section 12. The
Company shall cause all Securities released from collateral status to
be returned directly to the Custodian, and the Custodian shall receive
from time to time such return of collateral as may be tendered to it.
In the event that the Company fails to specify in Written Instruction
all of the information required by this Section 12, the Custodian shall
not be under any obligation to deliver any Securities. Collateral
returned to the Custodian shall be held hereunder as it was prior to
being used as collateral.
13. Corporate Action
Whenever the Custodian or any Sub-Custodian (other than a foreign
securities depository or clearing agency) receives information
concerning Securities held for a Portfolio which requires discretionary
action by the beneficial owner of the Securities (other than a proxy),
such as subscription rights, bond issues, stock repurchase plans and
rights offerings, or legal notices or other material intended to be
transmitted to Securities holders ("Corporate Actions"), the Custodian
will give the Fund Accountant notice of such Corporate Actions to the
extent that the Custodian's central corporate actions department has
actual knowledge of a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action
is received which bears an expiration date, the Custodian will endeavor
to obtain Written or Oral Instructions from the Company or the Fund
Accountant, but if such Instructions are not received in time for the
Custodian to take timely action, or actual notice of such Corporate
Action was received too late to seek such Instructions, the Custodian
is authorized to sell, or cause a Sub-Custodian to sell, such rights
entitlement or fractional interest and to credit the applicable account
with the proceeds and to take any other action it deems, in good faith,
to be appropriate, in which case, provided it has met the standard of
care in Section 15 hereof, it shall be held harmless by the particular
Portfolio involved for any such action.
The Custodian will deliver proxies to the Company or its designated
agent pursuant to special arrangements which may have been agreed to in
writing between the parties hereto. Such proxies shall be executed in
the appropriate nominee name relating to Securities registered in the
name of such nominee but without indicating the manner in which such
proxies are to be voted; and where bearer Securities are involved,
proxies will be delivered in accordance with Written or Oral
Instructions from Authorized Persons.
14. Persons Having Access of the Portfolios.
(a) No Company or agent of the Company, and no officer, director,
employee or agent of the Company's investment adviser, of any
sub-investment adviser of the Company, shall have physical access to
the assets of any Portfolio held by the Custodian or any Sub-Custodian
or be authorized or permitted to withdraw any investments of a
Portfolio, nor shall the Custodian or any Sub-Custodian deliver any
assets of a Portfolio to any such person. No officer, director,
employee or agent of the Custodian who holds any similar position with
the Company's investment adviser, with any sub-investment adviser of
the Company or with the Administrator shall have access to the assets
of any Portfolio.
(b) Nothing in this Section 14 shall prohibit any officer, employee or
agent of the Company, or any officer, director, employee or agent of
the investment adviser, of any sub investment adviser of the Company,
from giving Oral Instructions or Written Instructions to the Custodian
or executing a Certificate so long as it does not result in delivery of
or access to assets of a Portfolio prohibited by paragraph (a) of this
Section 14.
(c) The Custodian represents that it maintains a system that is
reasonably designed to prevent unauthorized persons from having access
to the assets that it holds (by any means) for its customers.
15. Concerning the Custodian.
(a) Scope of Services. The Custodian shall be obligated to perform only
such services as are set forth in this Agreement or expressly contained
in a Certificate, Written Instructions or Oral Instructions given to
the Custodian which are not contrary.
(b) Standard of Care.
1. The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of
property of the Portfolios. The Custodian shall be liable to,
and shall indemnify and hold harmless the Company from and
against any loss which shall occur as the result of the
failure of the Custodian or a Sub-Custodian (other than a
foreign securities depository or clearing agency) to exercise
reasonable care with respect to their respective obligations
under this Agreement and the safekeeping of such property. The
determination of whether the Custodian or Sub-Custodian has
exercised reasonable care in connection with the safekeeping
of Portfolio property shall be made in light of the standards
applicable to the Custodian with respect to similar property
held by it in Chicago, Illinois. The determination of whether
the Custodian or Sub-Custodian has exercised reasonable care
in connection with their other obligations under this
Agreement shall be made in light of prevailing standards
applicable to professional custodians in the jurisdiction in
which such custodial services are performed. In the event of
any loss to the Company by reason of the failure of the
Custodian or a Sub-Custodian (other than a foreign securities
depository or clearing agency) to exercise reasonable care,
the Custodian shall be liable to the Company only to the
extent of the Company's direct damages and expenses, which
damages, for purposes of property only, shall be determined
based on the market value of the property which is the subject
of the loss at the date of discovery of such loss and without
reference to any special condition or circumstances.
2. The Custodian will not be responsible for any act,
omission, default or for the solvency of any foreign
securities depository or clearing agency approved by the Board
of Directors pursuant to Section (l)(n) or Section 3 hereof.
3. The Custodian will not be responsible for any act,
omission, default or for the solvency of any broker or agent
(not referred to in paragraph (b)(2) above) which it or a
Sub-Custodian appoints and uses unless such appointment and
use is made or done negligently or in bad faith. In the event
such an appointment and use is made or done negligently or in
bad faith, the Custodian shall be liable to the Company only
for direct damages and expenses (determined in the manner
described in paragraph (b)(1) above) resulting from such
appointment and use and, in the case of any loss due to an
act, omission or default of such agent or broker, only to the
extent that such loss occurs as a result of the failure of the
agent or broker to exercise reasonable care ("reasonable care"
for this purpose to be determined in light of the prevailing
standards applicable to agents or brokers, as appropriate, in
the jurisdiction where services are performed).
4. The Custodian shall be entitled to rely, and may act upon
the advice of counsel (who may be counsel for the Company) on
all matters and shall be without liability for any action
reasonably taken or omitted in good faith and without
negligence pursuant to such advice.
5. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by
the Custodian and reasonably believed by the Custodian to be
genuine and to be signed by two officers of the Company. The
Custodian shall be entitled to rely upon any Written
Instructions or Oral Instructions actually received by the
Custodian pursuant to the applicable Sections of this
Agreement and reasonably believed by the Custodian to be
genuine and to be given by an Authorized Person. The Company
agrees to forward to the Custodian Written Instructions from
an Authorized Person confirming such Oral Instructions in such
manner so that such Written Instructions are received by the
Custodian, whether by hand delivery, telex or otherwise, by
the close of business on the same day that such Oral
Instructions are given to the Custodian. The Company agrees
that the fact that such confirming instructions are not
received by the Custodian shall in no way affect the validity
of the transactions or enforceability of the transactions
hereby authorized by the Company. The Company agrees that the
Custodian shall incur no liability to the Company in (i)
acting upon Oral Instructions given to the Custodian hereunder
concerning such transactions provided such instructions
reasonably appear to have been received from a duly Authorized
Person or (ii) deciding not to act solely upon Oral
Instructions, provided that the Custodian shall be required to
contact the giver of such Oral Instructions and request
written confirmation immediately following any such decision
not to act.
6. The Custodian shall supply the Fund Accountant with such
daily information regarding the cash and securities positions
and activity of each Portfolio as the Custodian and the Fund
Accountant shall from time to time agree. It is understood
that such information will not be audited by Custodian and
Custodian represents that such information will be the best
information then available to the Custodian. The Custodian
shall have no responsibility whatsoever for the pricing of
Portfolio Securities or for the failure of the Fund Accountant
to reconcile differences between the information supplied by
the Custodian and information obtained by the Fund Accountant
from other sources, including but not limited to pricing
vendors and the Company's investment adviser. Subject to the
foregoing, to the extent that any miscalculation by the Fund
Accountant of a Portfolio's net asset value is attributable to
the willful misfeasance, bad faith or negligence of the
Custodian (including any Sub-Custodian other than a foreign
securities depository or clearing agency) in supplying or
omitting to supply the Fund Accountant with information as
aforesaid, the Custodian shall be liable to the Company for
any resulting loss (subject to such de minims rule of change
in value as the Board of Directors may from time to time
adopt).
(c) Limit of Duties. Without limiting the generality of the foregoing,
the Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any Securities purchased by any
Portfolio, the legality of the purchase thereof, or the propriety
of the amount specified by the Company for payment therefor;
2. The legality of the sale of any Securities by any Portfolio or
the propriety of the amount of consideration for which the same
are sold;
3. The legality of the issue or sale of any Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the redemption of any Shares, or the propriety
of the amount to be paid therefor;
5. The legality of the declaration or payment of any distribution
of any Portfolio;
6. The legality of any borrowing.
(d) The Custodian need not maintain any insurance for the exclusive
benefit of the Company, but hereby warrants that as of the date of this
Agreement it is maintaining a bankers Blanket Bond and hereby agrees to
notify the Company in the event that such bond is canceled or otherwise
lapses.
(e) Consistent with and without limiting the language contained in
Section 1 5(b), it is specifically acknowledged that the Custodian
shall have no duty or responsibility to:
1. Question Written Instructions or Oral Instructions or make any
suggestions to the Company or an Authorized Person regarding such
Instructions;
2. Supervise or make recommendations with respect to investments
or the retention of Securities:
3. Subject to Section 15(b)(3) hereof, evaluate or report to the
Company or an Authorized Person regarding the financial condition
of any broker, agent or other party to which Securities are
delivered or payments are made pursuant to this Agreement: or
4. Review or reconcile trade confirmations received from brokers.
(f) Amounts Due for Transfer Agent. The Custodian shall not be under
any duty or obligation to take action to effect collection of any
amount due to any Portfolio from the Transfer Agent nor to take any
action to effect payment or distribution by the Transfer Agent of any
amount paid by the Custodian to the Transfer Agent in accordance with
this Agreement.
(g) No Duty to Ascertain Authority. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any time
delivered to or held by it for the Company and specifically allocated
to a Portfolio are such as may properly be held by the Company under
the provisions of the Articles of Incorporation and Certificate of
Designation and the Prospectus.
(h) Indemnification. The Company agrees to indemnify and hold the
Custodian harmless from all loss, cost, taxes, charges, assessments,
claims, and liabilities (including, without limitation, liabilities
arising under the Securities Act of 1933, the Securities Exchange Act
of 1934 and the 1940 Act and state or foreign securities laws) and
expenses (including reasonable attorneys fees and disbursements)
arising directly or indirectly from any action taken or omitted by the
Custodian (i) at the request or on the direction of or in reliance on
the advice of the Company or in reasonable reliance upon the Prospectus
or (ii) upon a Certificate or Oral or Written Instructions; provided,
that the aforegoing indemnity shall not apply to any loss, cost, tax,
charge, assessment, claim, liability or expense to the extent the same
is attributable to the Custodian's or any Sub-Custodian's (other than a
foreign securities depository or clearing agency) negligence, willful
misconduct, bad faith or reckless disregard of duties and obligations
under this Agreement or any other agreement relating to the custody of
Company property.
(i) The Company on behalf of the particular Portfolio involved agrees
to hold the Custodian harmless from any liability or loss resulting
from the imposition or assessment of any taxes or other governmental
charges on a Portfolio.
(j) Without limiting the foregoing, the Custodian shall not be liable
for any loss which results from:
1. the general risk of investing, or
2. subject to Section 15(b) hereof, investing or holding property
in a particular country including, but not limited to, losses
resulting from nationalization, expropriation or other
governmental actions; regulation of the banking or securities
industry; currency restrictions, devaluations or fluctuations; and
market conditions which prevent the orderly execution of
securities transactions or affect the value of property held
pursuant to this Agreement.
(k) No party shall be liable to the other for any loss due to forces
beyond their control including but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, or acts of
(1) Inspection of Books and Records. The books and records of the
Custodian shall be open to inspection and audit at reasonable times by
officers and auditors employed by the Company and by the appropriate
employees of the Securities and Exchange Commission.
(m) Accounting Control Reports. The Custodian shall provide the Company
with any report obtained by the Custodian on the system of internal
accounting control of the Book-Entry System, each Depository, and each
Sub-Custodian and with an annual report on its own systems of internal
accounting control.
16. Term and Termination.
(a) This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter as
the parties may, mutually agree.
(b) Either of the parties hereto may terminate this Agreement with
respect to any Portfolio by giving to the other party a notice in
writing specifying the date of such termination, which, in case the
Company is the terminating party, shall be not less than 60 days after
the date of receipt of such notice or, in case the Custodian is the
terminating party, shall be not less than 90 days after the date of
receipt of such notice. In the event such notice is given by the
Company, it shall be accompanied by a certified vote of the Board of
Directors, electing to terminate this Agreement with respect to any
Portfolio and designating a successor custodian or custodians, which
shall be a person qualified to so act under the 1940 Act.
In the event such notice is given by the Custodian, the Company shall,
on or before the termination date, deliver to the Custodian a certified
vote of the Board of Directors, designating a successor custodian or
custodians. In the absence of such designation by the Company, the
Custodian may designate a successor custodian, which shall be a person
qualified to so act under the 1940 Act. If the Company fails to
designate a successor custodian with respect to any Portfolio, the
Company shall upon the date specified in the notice of termination of
this Agreement and upon the delivery by the Custodian of all Securities
(other than Securities held in the Book-Entry System which cannot be
delivered to the Company) and monies then owned by such Portfolio, be
deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement,
other than the duty with respect to Securities held in the Book-Entry
System which cannot be delivered to the Company.
(c) Upon the date set forth in such notice under paragraph (b) of this
Section 16, this Agreement shall terminate to the extent specified in
such notice, and the Custodian shall upon receipt of a notice of
acceptance by the successor custodian on that date deliver directly to
the successor custodian all Securities and monies then held by the
Custodian and specifically allocated to the Portfolio or Portfolios
specified, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled with
respect to such Portfolio or Portfolios.
17. Limitation of Liability.
The Company and the Custodian agree that the obligations of the Company
under this Agreement shall not be binding upon any of the Directors,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Company individually, but are binding only
upon the assets and property of the Company or of the appropriate
Portfolio(s) thereof. The execution and delivery of this Agreement have
been authorized by the Board of Directors of the Company, and signed by
an authorized officer of the Company, acting as such, and neither such
authorization by such the Board of Directors nor such execution and
delivery by such officer shall be deemed to have been made by any of
them or any shareholder of the Company individually or to impose any
liability on any of them or any shareholder of the Company personally,
but shall bind only the assets and property of the Company or of the
appropriate Portfolio(s) thereof.
18. Miscellaneous.
(a) Annexed hereto as Schedule A is a certification signed by two of
the present officers of the Company setting forth the names and the
signatures of the present Authorized Persons. The Company agrees to
furnish to the Custodian a new certification in similar form in the
event that any such present Authorized Person ceases to be such an
Authorized Person or in the event that other or additional Authorized
Persons are elected or appointed. Until such new certification shall be
received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon Oral Instructions or signatures of
the present Authorized Persons as set forth in the last delivered
certification.
(b) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at
its offices at its address stated on the first page hereof or at such
other place as the Custodian may from time to time designate in
writing.
(c) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Company, shall be sufficiently
given if addressed to the Company and mailed or delivered to it at its
offices at its address shown on the first page hereof or at such other
place as the Company may from time to time designate in writing, with a
copy to:
(d) This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality
as this Agreement, (i) authorized and approved by a vote of the Board
of Directors, including a majority of the members of the Board of
Directors who are not "interested persons" of the Company (as defined
in the 1940 Act), or (ii) authorized and approved by such other
procedures as may be permitted or required by the 1940 Act.
(e) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Company
without the written consent of the Custodian, or by the Custodian
without the written consent of the Company authorized or approved by a
vote of the Board of Directors, and any attempted assignment without
such written consent shall be null and void.
(f) This Agreement shall be construed in accordance with the laws of
the State of Illinois.
(g) The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(h) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective representatives duly authorized as of the day
and year first above written.
SIT MUTUAL FUNDS II, INC.
By: /s/ Paul E. Rasmussen
Name: Paul E. Rasmussen
Title: V.P., Treasurer
THE NORTHERN TRUST COMPANY
By: /s/ Peggy O'Leary
Name: Peggy O'Leaery
Title: Vice President
Schedule A
to
Custody Agreement
Between
SIT Mutual Funds II, Inc. and
The Northern Trust Company
Authorized Persons
Written Instructions Only
Erik S. Anderson Vice President - Investments
Ronald D. Sit Vice President - Investments
Debra A Sit Vice President - Investments,
Assistant Treasurer
Michael P. Eckert Vice President - Group Manager
Michael J. Radmer Secretary
Parnell M. Kingsley Assistant Secretary
Carla J. Rose Assistant Secretary
Written and Oral Instructions
Eugene C. Sit Chairman
Peter L. Mitchelson Vice President
Mary K. Stern President
Michael C. Brilley Senior Vice President
Paul E. Rasmussen Vice President & Treasurer
SIT Mutual Funds II, Inc.
Exhibit 1
SIT Tax-Free Income Fund (series A)
SIT Minnesota Tax-Free Income Fund (series B)
SIT Bond Fund (series C)
EXHIBIT 8.1
Custodian Agreement
SIT Money Market Fund, Inc.
(This is a Specimen Documents DO NOT DELETE OR MODIFY)
CUSTODY AGREEMENT
AGREEMENT dated as of April 1, 1996, between SIT Money Market Fund,
Inc., a corporation organized under the laws of the State of Minnesota, having
its principal office and place of business at 4600 Norwest Center, 90 South
Seven Street, Minneapolis, Minnesota 554022-4130 (the "Company"), and THE
NORTHERN TRUST COMPANY (the "Custodian"), an Illinois Company with its principal
place of business at 50 South LaSalle Street, Chicago, Illinois 60675.
WITNESSETH:
That for and in consideration of the mutual promises hereinafter set
forth, the Company and the Custodian agree as follows:
1. Definitions.
Whenever used in this Agreement or in any Schedules to this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings
(a) The "1940 Act" shall mean the Investment Company Act of 1940, and
the Rules and Regulations thereunder, all as amended from time to time.
(b) "Authorized Person" shall be deemed to include the Chairman of the
Board of Directors, the President, and any Vice President, the
Secretary, the Treasurer or any other person, whether or not any such
person is an officer or employee of the Company, duly authorized by the
Board of Directors to give Oral Instructions and Written Instructions
on behalf of the Company and listed in the certification annexed hereto
as Schedule A or such other certification as may be received by the
Custodian from time to time.
(c) "Board of Directors" shall mean the Board of Directors of the
Company.
(d) "Book-Entry System" shall mean the Federal Reserve/ Treasury
book-entry system for United States and federal agency Securities, its
successor or successors and its nominee or nominees.
(e) "Certificate" shall mean any notice, instruction or other
instrument in writing, authorized or required by this Agreement to be
given to the Custodian, which is actually received by the Custodian and
signed on behalf of the Company by any two Authorized Persons or any
two officers thereof.
(f) "Articles of Incorporation and Certificate of Designation" shall
mean the Articles of Incorporation and Certificate of Designation of
the Company dated July 30, 1991, as amended.
(g) "Depository" shall mean The Depository Trust Company, a clearing
agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended, its
successor or successors and its nominee or nominees, in which the
Custodian is hereby specifically authorized to make deposits. The term
"Depository" shall further mean and include any other person to be
named in a Certificate authorized to act as a depository under the 1940
Act, its successor or successors and its nominee or nominees.
(h) "Fund Accountant" shall mean the person appointed by the Company
who performs the daily calculations of the net asset values of the
Portfolios and determines the amount of cash available in each
Portfolio on a daily basis for investment. The Fund Accountant shall be
identified to the Custodian in writing.
(i) "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and
principal by the Government of the United States or agencies or
instrumentalities thereof, commercial paper, bank certificates of
deposit, bankers' acceptances and short-term corporate obligations,
where the purchase or sale of such securities normally requires
settlement in federal funds on the same day as such purchase or sale,
and repurchase agreements with respect to any of the foregoing types of
securities.
(j) "Oral Instructions" shall mean an oral communication actually
received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person.
(k) "Portfolio" refers to the portfolios identified in the attached
Exhibit 1, or any such other separate and distinct investment portfolio
as may from time to time be created and designated by the Company in
accordance with the provisions of Articles of Incorporation and
certificate of designation and which the Company and Custodian shall
have agreed in writing shall be subject to this Agreement pursuant to
the provisions of section 5(b).
(l) "Prospectus" shall mean the Company's current prospectus and
statement of additional information relating to the registration of the
Portfolio's Shares under the Securities Act of 1933, as amended.
(m) "Shares" refers to the shares of the Portfolio.
(n) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and other
securities, commodity interests and investments from time to time owned
by the Portfolio.
(o) "Sub-Custodian" shall mean and include (i) any branch of the
Custodian, (ii) any branch of a "qualified U.S. bank," as that term is
defined in Rule 17f-5 under the 1940 Act, (iii) any "eligible foreign
custodian," as that term is defined in Rule 17f-5 under the 1940 Act,
approved by the Board of Directors and having a contract with the
Custodian which contract has been approved by the Board of Directors,
and (iv) any securities depository or clearing agency, incorporated or
organized under the laws of a country other than the United States,
which operates the central system for handling of securities or
equivalent book-entries in that country or a transnational system for
the central handling of securities or equivalent book-entries, which
securities depository or clearing agency has been approved by the Board
of Directors; provided, that the Custodian or a SubCustodian has
entered into an agreement with such securities depository or clearing
agency.
(p) "Transfer Agent" shall mean the person which performs as the
transfer agent, dividend disbursing agent and shareholder servicing
agent for the Company.
(q) "Written Instructions" shall mean a written communication actually
received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person by any system whereby the receiver
of such communication is able to verify through codes or otherwise with
a reasonable degree of certainty the authenticity of the sender of such
communication; however, "Written Instructions" from the Company to the
Custodian shall mean a facsimile or electronic communication
transmitted by the Company or the Fund Accountant (who has been
provided an access code by the Company) and actually received by the
Custodian. Except as otherwise provided in this Agreement, "Written
Instructions" may include instructions given on a standing basis.
2. Appointment of Custodian.
(a) The Company hereby constitutes and appoints the Custodian as
custodian of all the Securities and monies owned by or in the
possession of the Portfolio during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
3. Appointment and Removal of Sub-Custodians.
(a) The Custodian may appoint one or more Sub-Custodians to act as
Depository or Depositories or as sub-custodian or sub-custodians of
Securities and moneys at any time owned by any Portfolio, upon terms
and conditions as are specified in this Agreement. The Custodian shall
oversee the maintenance of any Securities or moneys of any Portfolio by
any Sub-Custodian.
(b) If, after the initial approval of Sub-Custodians by the Board of
Directors in connection with this Agreement, the Custodian wishes to
appoint other SubCustodians to hold property of the Portfolios, it will
so notify the Company and provide it with information reasonably
necessary to determine any such new SubCustodian's eligibility under
Rule 17f-5 under the 1940 Act, including a copy of the proposed
agreement with such Sub-Custodian. The Company shall at the meeting of
the Board of Directors 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) If the Custodian intends to remove any Sub-Custodian previously
approved by the Board of Directors, it shall so notify the Company and
move the property of the Portfolio(s) deposited with such Sub-Custodian
to another Sub-Custodian previously approved by the Board of Directors.
The Custodian shall promptly take such steps as may be required to
remove any Sub-Custodian that has ceased to meet the requirements of
Rule 17f-5 under the 1940 Act.
(e) The Custodian hereby warrants to the Company that in its opinion,
after due inquiry, the established procedures to be followed by each
Sub-Custodian (that is not being used as a foreign securities
depository or clearing agency) in connection with the safekeeping of
property of the Portfolio pursuant to this Agreement afford protection
for such property not materially different from that afforded by the
Custodian's established safekeeping procedures with respect to similar
property held by it (and its securities depositories) in Chicago,
Illinois.
4. Use of Sub-Custodians.
With respect to property of a Portfolio which is maintained by the
Custodian in the custody of a Sub-Custodian pursuant to Section 3:
(a) The Custodian will identify on its books as belonging to the
particular Portfolio any property held by such Sub-Custodian.
(b) In the event that a Sub-Custodian permits any of the Securities
placed in its care to be held in an eligible foreign securities
depository, such Sub-Custodian will be required by its agreement with
the Custodian to identify on its books such Securities as being held
for the account of the Custodian as a custodian for its customers.
(c) Any Securities held by a Sub-Custodian will be subject only to the
instructions of the Custodian or its agents; and any Securities held in
an eligible foreign securities depository for the account of a
Sub-Custodian will be subject only to the instructions of such
Sub-Custodian.
(d) The Custodian will only deposit property of a Portfolio in an
account with a Sub-Custodian which includes exclusively the assets held
by the Custodian for its customers, and will cause such account to be
designated by such Sub-Custodian as a special custody account for the
exclusive benefit of customers of the Custodian.
5. Compensation.
(a) The Custodian shall be entitled to compensation for its services
hereunder as set forth in a separate agreement between the Custodian
and the Fund Accountant. The Custodian will bill the Fund Accountant
directly for all such amounts.
6. Custody of Cash and Securities
(a) Receipt and Holding of Assets. The Company will deliver or cause to
be delivered to the Custodian and the Sub-Custodians all Securities and
monies owned by the Portfolio at any time during the period of this
Agreement and shall specify the Portfolio to which the Securities and
monies are to be specifically allocated. The Custodian will not be
responsible for such Securities and monies until actually received by
it or by a Sub-Custodian. The Company shall instruct the Custodian from
time to time in its sole discretion, by means of Written Instructions,
as to the manner in which and in what amounts Securities, and monies of
a Portfolio are to be deposited on behalf of such Portfolio in the
Book-Entry System or a Depository; provided, however, that prior to the
deposit of Securities of a Portfolio in the Book-Entry System or a
Depository, including a deposit in connection with the settlement of a
purchase or sale, the Custodian shall have received a Certificate
specifically approving such deposits by the Custodian or a
Sub-Custodian in the Book-Entry System or a Depository. Securities and
monies of a Portfolio deposited in the Book-Entry System or a
Depository will be deposited in accounts which include only assets held
by the Custodian for its customers.
(b) Accounts and Disbursements. The Custodian shall establish and
maintain a separate account for each Portfolio and shall credit to the
separate account all monies received by it or a Sub-Custodian for the
account of such Portfolio and shall disburse, or cause a Sub-Custodian
to disburse, the same only:
1. In payment for Securities purchased for the Portfolio, as
provided in Section 7 hereof;
2. In payment of dividends or distributions with respect to the
Shares of such Portfolio, as provided in Section 10 hereof;
3. In payment of original issue or other taxes with respect to the
Shares of such Portfolio, as provided in Section 11(c) hereof;
4. In payment for Shares which have been redeemed by such
Portfolio, as provided in Section 11 hereof;
5. In payment of fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to the Company, as
provided in Sections 5 and 15(h) hereof;
6. Pursuant to Written Instructions setting forth the name of the
Portfolio and the name and address of the person to whom the
payment is to be made, the amount to be paid and the purpose for
which payment is to be made.
(c) Fail Float. In the event that any payment made for a Portfolio
under this Section 6 exceeds the funds available in that Portfolio's
account, the Custodian or relevant Sub-Custodian, as the case may be,
may, in its discretion, advance the Company on behalf of that Portfolio
an amount equal to such excess and such advance shall be deemed an
overdraft from the Custodian or such Sub-Custodian to that Portfolio
payable on demand, bearing interest at the rate of interest customarily
charged by the Custodian or such Sub-Custodian on similar overdrafts.
(d) Confirmation and Statements. Promptly after the close of business
on each business day, the Custodian shall furnish the Company with
confirmations and a summary of all transfers to or from the account of
each Portfolio during said day. Such summary shall include without
limitation, as to property acquired for a Portfolio, the identity of
the entity having physical possession of such property. Where
securities purchased by a Portfolio are in a fungible bulk of
securities registered in the name of the Custodian (or its nominee) or
shown on the Custodian's account on the books of a Depository, the
Book-Entry System or a Sub-Custodian, the Custodian shall by book entry
or otherwise identify the quantity of those securities belonging to
such Portfolio. At least monthly, the Custodian shall furnish the
Company with a detailed statement of the Securities and monies held by
it and all Sub-Custodians for each Portfolio. In the absence of the
filing in writing with the Custodian by the Company of exceptions or
objections to any such statement within 60 days after the date that a
material defect is reasonably discoverable, the Company shall be deemed
to have approved such statement; and in such case or upon written
approval of the Company of any such statement the Custodian shall, to
the extent permitted by law and provided the Custodian has met the
standard of care in Section 14 hereof, be released, relieved and
discharged with respect to all matters and things set forth in such
statement as though such statement had been settled by the decree of a
court of competent jurisdiction in an action in which the Company and
all persons having any equity interest in the Company were parties.
(e) Registration of Securities and Physical Separation. All Securities
held for a Portfolio which are issued or issuable only in bearer form,
except such Securities as are held in the Book-Entry System, shall be
held by the Custodian or a SubCustodian in that form; all other
Securities held for a Portfolio may be registered in the name of that
Portfolio, in the name of any duly appointed registered nominee of the
Custodian or a Sub-Custodian as the Custodian or such Sub-Custodian may
from time to time determine, or in the name of the Book-Entry System or
a Depository or their successor or successors, or their nominee or
nominees. The Company reserves the right to instruct the Custodian as
to the method of registration and safekeeping of the Securities. The
Company agrees to furnish to the Custodian appropriate instruments to
enable the Custodian or any SubCustodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee
or in the name of the Book-Entry System or a Depository, any Securities
which the Custodian of a Sub-Custodian may hold for the account of a
Portfolio and which may from time to time be registered in the name of
a Portfolio. The Custodian shall hold all such Securities specifically
allocated to a Portfolio which are not held in the Book-Entry System or
a Depository in a separate account for such Portfolio in the name of
such Portfolio physically segregated at all times from those of any
other person or persons.
(f) Segregated Accounts. Upon receipt of a Written Instruction, the
Custodian will establish segregated accounts on behalf of a Portfolio
to hold liquid or other assets as it shall be directed by a Written
Instruction and shall increase or decrease the assets in such
Segregated Accounts only as it shall be directed by subsequent Written
Instruction.
(g) Collection of Income and Other Matters Affecting Securities. Unless
otherwise instructed to the contrary by a Written Instruction, the
Custodian, by itself or through the use of the Book-Entry System or a
Depository with respect to Securities therein deposited, shall, or
shall instruct the relevant Sub-Custodian to:
1. Collect all income due or payable with respect to Securities
held for a Portfolio in accordance with this Agreement;
2. Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed or retired, or
otherwise become payable;
3. Surrender Securities in temporary form for derivative
Securities;
4. Execute 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
5. Hold directly, or through the Book-Entry System or a Depository
with respect to Securities therein deposited, for the account of
each Portfolio all rights and similar Securities issued with
respect to any Securities held by the Custodian or relevant
Sub-Custodian for each Portfolio.
If the Custodian or any Sub-Custodian causes the account of a
Portfolio to be credited on the payable date for interest,
dividends or redemptions, the particular Portfolio involved will
promptly return to the Custodian any such amount or property so
credited upon oral or written notification that neither the
custodian nor the relevant Sub-Custodian can collect such amount
or property in the ordinary course of business. The Custodian or
such Sub-Custodian, as the case may be, shall have no duty or
obligation to institute legal proceedings, file a claim or proof
of claim in any insolvency proceeding or take any other action
with respect to the collection of such amount or property beyond
its ordinary collection procedures unless it is specifically
requested to do so by the Company and indemnified to its
satisfaction for any liability, cost or expense arising therefrom.
(h) Delivery of Securities and Evidence of Authority. Upon receipt of a
Written Instruction and not otherwise, except for subparagraphs 5, 6,
7, and 8 of this section 6(h) which may be effected by Oral or Written
Instructions, the Custodian, directly or through the use of the
Book-Entry System or a Depository, shall, or shall instruct the
relevant Sub-Custodian to:
1. Execute and deliver or cause to be executed and delivered to
such persons as may be designated in such Written Instructions,
proxies, consents, authorizations, and any other instruments
whereby the authority of the Company as owner of any Securities
may be exercised;
2. Deliver or cause to be delivered any Securities held for a
Portfolio in exchange for other Securities or cash issued or paid
in connection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege;
3. Deliver or cause to be delivered any Securities held for a
Portfolio to any protective committee, reorganization committee or
other person in connection with the reorganization, refinancing,
merger, consolidation or recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this
Agreement in the separate account for each such Portfolio
certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
4. Make or cause to be made such transfers or exchanges of the
assets specifically allocated to the separate account of a
Portfolio and take such other steps as shall be stated in Written
Instructions to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Company;
5. Deliver Securities upon sale of such Securities for the account
of a Portfolio pursuant to Section 7;
6. Deliver Securities upon the receipt of payment in connection
with any repurchase agreement related to such Securities entered
into by a Portfolio;
7. Deliver Securities owned by a Portfolio to the issuer thereof
or its agent when such Securities are called, redeemed, retired or
otherwise become payable; provided, however, that in any such case
the cash or other consideration is to be delivered to the
Custodian or Sub-Custodian, as the case may be;
8. Deliver Securities for delivery in connection with any loans of
securities made by a Portfolio but only against receipt of
adequate collateral as agreed upon from time to time by the
Custodian and the Company which may be in the form of cash or
obligations issued by the United States Government, its agencies
or instrumentalities;
9. Deliver Securities for delivery as security in connection with
any borrowings by a Portfolio requiring a pledge of Portfolio
assets, but only against receipt of the amounts borrowed;
10. Deliver Securities to the Transfer Agent or to the holders of
Shares in connection with distributions in kind, as may be
described from time to in the Prospectus, in satisfaction of
requests by holders of Shares for repurchase or redemption;
11. Deliver Securities owned by any Portfolio for any purpose
expressly permitted by and in accordance with procedures described
in the Prospectus; and
12. Deliver Securities owned by any Portfolio for any other proper
business purpose, but only upon receipt of, in addition to Written
Instructions, a certified copy of a resolution of the Board of
Directors signed by an Authorized Person and certified by the
Secretary of the Company, 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 business purpose,
and naming the person or persons to whom delivery of such
Securities shall be made.
(i) Endorsement and Collection of Checks. Etc. The Custodian is hereby
authorized to endorse and collect all checks, drafts or other orders
for the payment of money received by the Custodian for the account of a
Portfolio.
7. Purchase and Sale of Investments of a Portfolio.
(a) Promptly after each purchase of Securities for a Portfolio, the
Company shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, a Written
Instruction and (ii) with respect to each purchase of Money Market
Securities, either a Written Instruction or Oral Instruction, in either
case specifying with respect to each purchase: (1) the name of the
Portfolio to which such Securities are to be specifically allocated;
(2) the name of the issuer and the title of the Securities; (3) the
number of shares or the principal amount purchased and accrued
interest, if any; (4) the date of purchase and settlement; (5) the
purchase price per unit; (6) the total amount payable upon such
purchase; and 7) the name of the person from whom or the broker through
whom the purchase was made, if any. The Custodian or specified
Sub-Custodian shall receive the Securities purchased by or for a
Portfolio and upon receipt thereof shall pay to the broker or other
person designated by the Company out of the monies held for the account
of such Portfolio the total amount payable upon such purchase, provided
that the same conforms to the total amount payable as set forth in such
Written or Oral Instruction.
(b) Promptly after each sale of Securities of a Portfolio, the Company
shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, a Written
Instruction, and (ii) with respect to each sale of Money Market
Securities, either Written Instructions or Oral Instructions, in either
case specifying with respect to such sale: (1) the name of the
Portfolio to which the Securities sold were specifically allocated; (2)
the name of the issuer and the title of the Securities; (3) the number
of shares or principal amount sold, and accrued interest, if any; (4)
the date of sale; (5) the sale price per unit; (6) the total amount
payable to the Portfolio upon such sale; and (7) the name of the broker
through whom or the person to whom the sale was made. The Custodian or
relevant Sub-Custodian shall deliver or cause to be delivered the
Securities to the broker or other person designated by the Company upon
receipt of the total amount payable to such Portfolio upon such sale,
provided that the same conforms to the total amount payable to such
Portfolio as set forth in such Written or Oral Instruction. Subject to
the foregoing, the Custodian or relevant Sub-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.
(c) Notwithstanding (a) and (b) above, cash in any of the Portfolios
may be invested by the Custodian for short term purposes pursuant to
standing Written Instructions from the Company.
8. Lending of Securities.
If any Portfolio is permitted by the terms of the Articles of
Incorporation and Certificate of Designation and the Prospectus to lend
Securities, then the Board of Directors may approve a separate written
agreement between the Company and the Custodian authorizing the
Custodian to lend such Securities. Such agreement may provide for the
payment of additional reasonable compensation to the Custodian.
9. Investment in Futures and Options
The Custodian shall pursuant to Written Instructions (which may be
standing instructions) from an Authorized Person (i) transfer initial
margin to a safekeeping bank or, with respect to options, broker, (ii)
pay or demand variation margin to or from a designated futures
commission merchant or other broker based on daily marking to market
calculations and in accordance with accepted industry practices, and
(iii) subject to the consent of the Custodian, enter into separate
procedural, safekeeping or other agreements with safekeeping banks,
futures commission merchants and other brokers pursuant to which such
banks and, in the case of options, brokers, will act as custodian for
initial margin deposits in transactions involving futures contracts and
options. The Custodian shall have no custodial or investment
responsibility for any assets transferred to a safekeeping bank,
futures commission merchant or broker pursuant to this paragraph.
10. Payment of Dividends or Distributions.
(a) The Company shall furnish to the Custodian the vote of the Board of
Directors or the Dividend Committee thereof, as the case may be,
certified by the Secretary of the Company (i) authorizing the
declaration of distributions with respect to a Portfolio on a specified
periodic basis and authorizing the Custodian to rely on Oral or Written
Instructions specifying the date of the declaration of such
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per Share to the shareholders of record as of the record date
and the total amount payable to the Transfer Agent on the payment date,
or (ii) setting forth the date of declaration of any distribution by a
Portfolio, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per share to the shareholders of record as of the record date
and the total amount payable to the Transfer Agent on the Payment date.
(b) Upon the payment date specified in such vote, Oral Instructions, or
Written Instructions, as the case may be, the Custodian shall pay the
total amount payable to the Transfer Agent out of the monies
specifically allocated to and held for the account of the appropriate
Portfolio.
11. Sale and Redemption of Shares of the Company.
(a) Whenever the Company shall sell any Shares of a Portfolio, the
Company shall deliver or cause to be delivered to the Custodian a
Written Instruction duly specifying:
1. The name of the Portfolio whose Shares were sold;
2. The number of Shares sold, trade date, and price; and
3. The amount of money to be received by the Custodian for the
sale of such Shares.
The Custodian understands and agrees that Written Instructions may be
furnished subsequent to the purchase of Shares of a Portfolio and that
the information contained therein will be derived from the sales of
Shares as reported to the Company by the Transfer Agent.
(b) Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account of the Portfolio
specified in (a)(1) above.
(c) Upon issuance of any Shares of a Portfolio in accordance with the
foregoing provisions of this Section 11, the Custodian shall pay all
original issue or other taxes required to be paid in connection with
such issuance upon the receipt of a Written Instruction specifying the
amount to be paid.
(d) Except as provided hereafter, whenever any Shares of a Portfolio
are redeemed, the Company shall cause the Transfer Agent to promptly
furnish to the Custodian Written Instructions specifying:
1. The name of the Portfolio whose Shares were redeemed;
2. The number of Shares redeemed; and
3. The amount to be paid for the Shares redeemed.
The Custodian further understands that the information
contained in such Written Instructions will be derived from the
redemption of Shares as reported to the Company by the Transfer Agent.
(e) Upon receipt from the Transfer Agent of advice setting forth the
number of Shares of a Portfolio being redeemed pursuant to valid
instructions as described in the Prospectus, the Custodian shall make
payment to the Transfer Agent out of the monies specifically allocated
to and held for the account of the Portfolio specified in (d)(l) above
of the total amount specified in a Written Instruction issued pursuant
to paragraph (d) of this Section 11.
12. Indebtedness.
(a) The Company will cause to be delivered to the Custodian by any bank
(excluding the Custodian) from which the Company borrows money, using
Securities as collateral, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such bank will
loan to the Company against delivery of a stated amount of collateral.
The Company shall promptly deliver to the Custodian Written
Instructions stating with respect to each such borrowing: (1) the name
of the Portfolio for which the borrowing is to be made; (2) the name of
the bank; (3) the amount and terms of the borrowing, which may be set
forth by incorporating by reference an attached promissory note, duly
endorsed by the Company, or other loan agreement; (4) the time and
date, if known, on which the loan is to be entered into (the "borrowing
date"); (5) the date on which the loan becomes due and payable; (6) the
total amount payable to the Company for the separate account of the
Portfolio on the borrowing date; (7) the market value of Securities to
be delivered as collateral for such loan, including the name of the
issuer, the title and the number of shares or the principal amount of
any particular Securities; (8) whether the Custodian is to deliver such
collateral through the Book-Entry System or a Depository; and (9) a
statement that such loan is in conformance with the 1940 Act and the
Prospectus.
(b) Upon receipt of the Written Instruction referred to in paragraph
(a) above, the Custodian shall deliver on the borrowing date the
specified collateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set
forth in the Written Instruction. The Custodian may, at the option of
the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending
bank by virtue of any promissory note or loan agreement. The Custodian
shall deliver as additional collateral in the manner directed by the
Company from time to time such Securities specifically allocated to
such Portfolio as may be specified in Written Instruction to
collateralize further any transaction described in this Section 12. The
Company shall cause all Securities released from collateral status to
be returned directly to the Custodian, and the Custodian shall receive
from time to time such return of collateral as may be tendered to it.
In the event that the Company fails to specify in Written Instruction
all of the information required by this Section 12, the Custodian shall
not be under any obligation to deliver any Securities. Collateral
returned to the Custodian shall be held hereunder as it was prior to
being used as collateral.
13. Corporate Action
Whenever the Custodian or any Sub-Custodian (other than a foreign
securities depository or clearing agency) receives information
concerning Securities held for a Portfolio which requires discretionary
action by the beneficial owner of the Securities (other than a proxy),
such as subscription rights, bond issues, stock repurchase plans and
rights offerings, or legal notices or other material intended to be
transmitted to Securities holders ("Corporate Actions"), the Custodian
will give the Fund Accountant notice of such Corporate Actions to the
extent that the Custodian's central corporate actions department has
actual knowledge of a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action
is received which bears an expiration date, the Custodian will endeavor
to obtain Written or Oral Instructions from the Company or the Fund
Accountant, but if such Instructions are not received in time for the
Custodian to take timely action, or actual notice of such Corporate
Action was received too late to seek such Instructions, the Custodian
is authorized to sell, or cause a Sub-Custodian to sell, such rights
entitlement or fractional interest and to credit the applicable account
with the proceeds and to take any other action it deems, in good faith,
to be appropriate, in which case, provided it has met the standard of
care in Section 15 hereof, it shall be held harmless by the particular
Portfolio involved for any such action.
The Custodian will deliver proxies to the Company or its designated
agent pursuant to special arrangements which may have been agreed to in
writing between the parties hereto. Such proxies shall be executed in
the appropriate nominee name relating to Securities registered in the
name of such nominee but without indicating the manner in which such
proxies are to be voted; and where bearer Securities are involved,
proxies will be delivered in accordance with Written or Oral
Instructions from Authorized Persons.
14. Persons Having Access of the Portfolios.
(a) No Company or agent of the Company, and no officer, director,
employee or agent of the Company's investment adviser, of any
sub-investment adviser of the Company, shall have physical access to
the assets of any Portfolio held by the Custodian or any Sub-Custodian
or be authorized or permitted to withdraw any investments of a
Portfolio, nor shall the Custodian or any Sub-Custodian deliver any
assets of a Portfolio to any such person. No officer, director,
employee or agent of the Custodian who holds any similar position with
the Company's investment adviser, with any sub-investment adviser of
the Company or with the Administrator shall have access to the assets
of any Portfolio.
(b) Nothing in this Section 14 shall prohibit any officer, employee or
agent of the Company, or any officer, director, employee or agent of
the investment adviser, of any sub investment adviser of the Company,
from giving Oral Instructions or Written Instructions to the Custodian
or executing a Certificate so long as it does not result in delivery of
or access to assets of a Portfolio prohibited by paragraph (a) of this
Section 14.
(c) The Custodian represents that it maintains a system that is
reasonably designed to prevent unauthorized persons from having access
to the assets that it holds (by any means) for its customers.
15. Concerning the Custodian.
(a) Scope of Services. The Custodian shall be obligated to perform only
such services as are set forth in this Agreement or expressly contained
in a Certificate, Written Instructions or Oral Instructions given to
the Custodian which are not contrary.
(b) Standard of Care.
1. The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of
property of the Portfolios. The Custodian shall be liable to,
and shall indemnify and hold harmless the Company from and
against any loss which shall occur as the result of the
failure of the Custodian or a Sub-Custodian (other than a
foreign securities depository or clearing agency) to exercise
reasonable care with respect to their respective obligations
under this Agreement and the safekeeping of such property. The
determination of whether the Custodian or Sub-Custodian has
exercised reasonable care in connection with the safekeeping
of Portfolio property shall be made in light of the standards
applicable to the Custodian with respect to similar property
held by it in Chicago, Illinois. The determination of whether
the Custodian or Sub-Custodian has exercised reasonable care
in connection with their other obligations under this
Agreement shall be made in light of prevailing standards
applicable to professional custodians in the jurisdiction in
which such custodial services are performed. In the event of
any loss to the Company by reason of the failure of the
Custodian or a Sub-Custodian (other than a foreign securities
depository or clearing agency) to exercise reasonable care,
the Custodian shall be liable to the Company only to the
extent of the Company's direct damages and expenses, which
damages, for purposes of property only, shall be determined
based on the market value of the property which is the subject
of the loss at the date of discovery of such loss and without
reference to any special condition or circumstances.
2. The Custodian will not be responsible for any act,
omission, default or for the solvency of any foreign
securities depository or clearing agency approved by the Board
of Directors pursuant to Section (l)(n) or Section 3 hereof.
3. The Custodian will not be responsible for any act,
omission, default or for the solvency of any broker or agent
(not referred to in paragraph (b)(2) above) which it or a
Sub-Custodian appoints and uses unless such appointment and
use is made or done negligently or in bad faith. In the event
such an appointment and use is made or done negligently or in
bad faith, the Custodian shall be liable to the Company only
for direct damages and expenses (determined in the manner
described in paragraph (b)(1) above) resulting from such
appointment and use and, in the case of any loss due to an
act, omission or default of such agent or broker, only to the
extent that such loss occurs as a result of the failure of the
agent or broker to exercise reasonable care ("reasonable care"
for this purpose to be determined in light of the prevailing
standards applicable to agents or brokers, as appropriate, in
the jurisdiction where services are performed).
4. The Custodian shall be entitled to rely, and may act upon
the advice of counsel (who may be counsel for the Company) on
all matters and shall be without liability for any action
reasonably taken or omitted in good faith and without
negligence pursuant to such advice.
5. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by
the Custodian and reasonably believed by the Custodian to be
genuine and to be signed by two officers of the Company. The
Custodian shall be entitled to rely upon any Written
Instructions or Oral Instructions actually received by the
Custodian pursuant to the applicable Sections of this
Agreement and reasonably believed by the Custodian to be
genuine and to be given by an Authorized Person. The Company
agrees to forward to the Custodian Written Instructions from
an Authorized Person confirming such Oral Instructions in such
manner so that such Written Instructions are received by the
Custodian, whether by hand delivery, telex or otherwise, by
the close of business on the same day that such Oral
Instructions are given to the Custodian. The Company agrees
that the fact that such confirming instructions are not
received by the Custodian shall in no way affect the validity
of the transactions or enforceability of the transactions
hereby authorized by the Company. The Company agrees that the
Custodian shall incur no liability to the Company in (i)
acting upon Oral Instructions given to the Custodian hereunder
concerning such transactions provided such instructions
reasonably appear to have been received from a duly Authorized
Person or (ii) deciding not to act solely upon Oral
Instructions, provided that the Custodian shall be required to
contact the giver of such Oral Instructions and request
written confirmation immediately following any such decision
not to act.
6. The Custodian shall supply the Fund Accountant with such
daily information regarding the cash and securities positions
and activity of each Portfolio as the Custodian and the Fund
Accountant shall from time to time agree. It is understood
that such information will not be audited by Custodian and
Custodian represents that such information will be the best
information then available to the Custodian. The Custodian
shall have no responsibility whatsoever for the pricing of
Portfolio Securities or for the failure of the Fund Accountant
to reconcile differences between the information supplied by
the Custodian and information obtained by the Fund Accountant
from other sources, including but not limited to pricing
vendors and the Company's investment adviser. Subject to the
foregoing, to the extent that any miscalculation by the Fund
Accountant of a Portfolio's net asset value is attributable to
the willful misfeasance, bad faith or negligence of the
Custodian (including any Sub-Custodian other than a foreign
securities depository or clearing agency) in supplying or
omitting to supply the Fund Accountant with information as
aforesaid, the Custodian shall be liable to the Company for
any resulting loss (subject to such de minims rule of change
in value as the Board of Directors may from time to time
adopt).
(c) Limit of Duties. Without limiting the generality of the foregoing,
the Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any Securities purchased by any
Portfolio, the legality of the purchase thereof, or the propriety
of the amount specified by the Company for payment therefor;
2. The legality of the sale of any Securities by any Portfolio or
the propriety of the amount of consideration for which the same
are sold;
3. The legality of the issue or sale of any Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the redemption of any Shares, or the propriety
of the amount to be paid therefor;
5. The legality of the declaration or payment of any distribution
of any Portfolio;
6. The legality of any borrowing.
(d) The Custodian need not maintain any insurance for the exclusive
benefit of the Company, but hereby warrants that as of the date of this
Agreement it is maintaining a bankers Blanket Bond and hereby agrees to
notify the Company in the event that such bond is canceled or otherwise
lapses.
(e) Consistent with and without limiting the language contained in
Section 1 5(b), it is specifically acknowledged that the Custodian
shall have no duty or responsibility to:
1. Question Written Instructions or Oral Instructions or make any
suggestions to the Company or an Authorized Person regarding such
Instructions;
2. Supervise or make recommendations with respect to investments
or the retention of Securities:
3. Subject to Section 15(b)(3) hereof, evaluate or report to the
Company or an Authorized Person regarding the financial condition
of any broker, agent or other party to which Securities are
delivered or payments are made pursuant to this Agreement: or
4. Review or reconcile trade confirmations received from brokers.
(f) Amounts Due for Transfer Agent. The Custodian shall not be under
any duty or obligation to take action to effect collection of any
amount due to any Portfolio from the Transfer Agent nor to take any
action to effect payment or distribution by the Transfer Agent of any
amount paid by the Custodian to the Transfer Agent in accordance with
this Agreement.
(g) No Duty to Ascertain Authority. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any time
delivered to or held by it for the Company and specifically allocated
to a Portfolio are such as may properly be held by the Company under
the provisions of the Articles of Incorporation and Certificate of
Designation and the Prospectus.
(h) Indemnification. The Company agrees to indemnify and hold the
Custodian harmless from all loss, cost, taxes, charges, assessments,
claims, and liabilities (including, without limitation, liabilities
arising under the Securities Act of 1933, the Securities Exchange Act
of 1934 and the 1940 Act and state or foreign securities laws) and
expenses (including reasonable attorneys fees and disbursements)
arising directly or indirectly from any action taken or omitted by the
Custodian (i) at the request or on the direction of or in reliance on
the advice of the Company or in reasonable reliance upon the Prospectus
or (ii) upon a Certificate or Oral or Written Instructions; provided,
that the aforegoing indemnity shall not apply to any loss, cost, tax,
charge, assessment, claim, liability or expense to the extent the same
is attributable to the Custodian's or any Sub-Custodian's (other than a
foreign securities depository or clearing agency) negligence, willful
misconduct, bad faith or reckless disregard of duties and obligations
under this Agreement or any other agreement relating to the custody of
Company property.
(i) The Company on behalf of the particular Portfolio involved agrees
to hold the Custodian harmless from any liability or loss resulting
from the imposition or assessment of any taxes or other governmental
charges on a Portfolio.
(j) Without limiting the foregoing, the Custodian shall not be liable
for any loss which results from:
1. the general risk of investing, or
2. subject to Section 15(b) hereof, investing or holding property
in a particular country including, but not limited to, losses
resulting from nationalization, expropriation or other
governmental actions; regulation of the banking or securities
industry; currency restrictions, devaluations or fluctuations; and
market conditions which prevent the orderly execution of
securities transactions or affect the value of property held
pursuant to this Agreement.
(k) No party shall be liable to the other for any loss due to forces
beyond their control including but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, or acts of
(1) Inspection of Books and Records. The books and records of the
Custodian shall be open to inspection and audit at reasonable times by
officers and auditors employed by the Company and by the appropriate
employees of the Securities and Exchange Commission.
(m) Accounting Control Reports. The Custodian shall provide the Company
with any report obtained by the Custodian on the system of internal
accounting control of the Book-Entry System, each Depository, and each
Sub-Custodian and with an annual report on its own systems of internal
accounting control.
16. Term and Termination.
(a) This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter as
the parties may, mutually agree.
(b) Either of the parties hereto may terminate this Agreement with
respect to any Portfolio by giving to the other party a notice in
writing specifying the date of such termination, which, in case the
Company is the terminating party, shall be not less than 60 days after
the date of receipt of such notice or, in case the Custodian is the
terminating party, shall be not less than 90 days after the date of
receipt of such notice. In the event such notice is given by the
Company, it shall be accompanied by a certified vote of the Board of
Directors, electing to terminate this Agreement with respect to any
Portfolio and designating a successor custodian or custodians, which
shall be a person qualified to so act under the 1940 Act.
In the event such notice is given by the Custodian, the Company shall,
on or before the termination date, deliver to the Custodian a certified
vote of the Board of Directors, designating a successor custodian or
custodians. In the absence of such designation by the Company, the
Custodian may designate a successor custodian, which shall be a person
qualified to so act under the 1940 Act. If the Company fails to
designate a successor custodian with respect to any Portfolio, the
Company shall upon the date specified in the notice of termination of
this Agreement and upon the delivery by the Custodian of all Securities
(other than Securities held in the Book-Entry System which cannot be
delivered to the Company) and monies then owned by such Portfolio, be
deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement,
other than the duty with respect to Securities held in the Book-Entry
System which cannot be delivered to the Company.
(c) Upon the date set forth in such notice under paragraph (b) of this
Section 16, this Agreement shall terminate to the extent specified in
such notice, and the Custodian shall upon receipt of a notice of
acceptance by the successor custodian on that date deliver directly to
the successor custodian all Securities and monies then held by the
Custodian and specifically allocated to the Portfolio or Portfolios
specified, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled with
respect to such Portfolio or Portfolios.
17. Limitation of Liability.
The Company and the Custodian agree that the obligations of the Company
under this Agreement shall not be binding upon any of the Directors,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Company individually, but are binding only
upon the assets and property of the Company or of the appropriate
Portfolio(s) thereof. The execution and delivery of this Agreement have
been authorized by the Board of Directors of the Company, and signed by
an authorized officer of the Company, acting as such, and neither such
authorization by such the Board of Directors nor such execution and
delivery by such officer shall be deemed to have been made by any of
them or any shareholder of the Company individually or to impose any
liability on any of them or any shareholder of the Company personally,
but shall bind only the assets and property of the Company or of the
appropriate Portfolio(s) thereof.
18. Miscellaneous.
(a) Annexed hereto as Schedule A is a certification signed by two of
the present officers of the Company setting forth the names and the
signatures of the present Authorized Persons. The Company agrees to
furnish to the Custodian a new certification in similar form in the
event that any such present Authorized Person ceases to be such an
Authorized Person or in the event that other or additional Authorized
Persons are elected or appointed. Until such new certification shall be
received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon Oral Instructions or signatures of
the present Authorized Persons as set forth in the last delivered
certification.
(b) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at
its offices at its address stated on the first page hereof or at such
other place as the Custodian may from time to time designate in
writing.
(c) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Company, shall be sufficiently
given if addressed to the Company and mailed or delivered to it at its
offices at its address shown on the first page hereof or at such other
place as the Company may from time to time designate in writing, with a
copy to:
(d) This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality
as this Agreement, (i) authorized and approved by a vote of the Board
of Directors, including a majority of the members of the Board of
Directors who are not "interested persons" of the Company (as defined
in the 1940 Act), or (ii) authorized and approved by such other
procedures as may be permitted or required by the 1940 Act.
(e) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Company
without the written consent of the Custodian, or by the Custodian
without the written consent of the Company authorized or approved by a
vote of the Board of Directors, and any attempted assignment without
such written consent shall be null and void.
(f) This Agreement shall be construed in accordance with the laws of
the State of Illinois.
(g) The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(h) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective representatives duly authorized as of the day
and year first above written.
SIT MONEY MARKET FUND, INC.
By: /s/ Paul E. Rasmussen
Name: Paul E. Rasmussen
Title: V.P., Treasurer
THE NORTHERN TRUST COMPANY
By: /s/ Peggy O'Leary
Name: Peggy O'Leaery
Title: Vice President
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Schedule A
to
Custody Agreement
Between
SIT Money Market Fund, Inc. and
The Northern Trust Company
Authorized Persons
Written Instructions Only
Erik S. Anderson Vice President - Investments
Ronald D. Sit Vice President - Investments
Debra A Sit Vice President - Investments,
Assistant Treasurer
Michael P. Eckert Vice President - Group Manager
Michael J. Radmer Secretary
Parnell M. Kingsley Assistant Secretary
Carla J. Rose Assistant Secretary
Written and Oral Instructions
Eugene C. Sit Chairman
Peter L. Mitchelson Vice President
Mary K. Stern President
Michael C. Brilley Senior Vice President
Paul E. Rasmussen Vice President & Treasurer
EXHIBIT 8.2
Transfer Agency and Services Agreement
SIT U.S. Government Securities Fund, Inc.
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 31st day of December, 1995 between SIT
U.S. GOVERNMENT SECURITIES FUND, INC. (the "Fund"), a Minnesota corporation,
having its principal place of business at 4600 Norwest Center, Minneapolis,
Minnesota 55402 and FIRST DATA INVESTOR SERVICES GROUP, INC. ("FDISG"), a
Massachusetts corporation with principal offices at One Exchange Place, 53 State
Street, Boston, Massachusetts 02109.
WITNESSETH
WHEREAS, the Fund desires to appoint FDISG as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities
and FDISG desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and FDISG agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to FDISG from time to time.
(c) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
(f) "1934 Act" shall mean the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder, all as amended from
time to time.
(g) "1940 Act" shall mean the Investment Company Act of 1940 and
the rules and regulations promulgated thereunder, all as amended from
time to time.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by FDISG from a person
reasonably believed by FDISG to be an Authorized Person;
(i) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which have become effective under the
Securities Act of 1933 and the 1940 Act.
(j) "Shares" refers collectively to such shares of capital stock
or beneficial interest, as the case may be, or class thereof, of the
Fund as may be issued from time to time.
(k) "Shareholder" shall mean a record owner of Shares of the Fund.
(l) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by FDISG to be an Authorized
Person and actually received by FDISG. Written Instructions shall
include manually executed originals and authorized electronic
transmissions, including telefacsimile of a manually executed original
or other process.
Article 2 Appointment of FDISG.
The Fund hereby appoints and constitutes FDISG as transfer agent and
dividend disbursing agent for Shares of the Fund and as shareholder servicing
agent for the Fund and FDISG hereby accepts such appointments and agrees to
perform the duties hereinafter set forth.
Article 3 Duties of FDISG.
3.1 FDISG shall be responsible for:
(a) Administering and/or performing the customary services of a
transfer agent; acting as service agent in connection with dividend and
distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with the
Custodian) of Shares of the Fund, as more fully described in the
written schedule of Duties of FDISG annexed hereto as Schedule A and
incorporated herein, and in accordance with the terms of the Prospectus
of the Fund, applicable law and the procedures established from time to
time between FDISG and the Fund.
(b) Recording the issuance of Shares and maintaining pursuant to
Rule 17Ad-10(e) of the 1934 Act a record of the total number of Shares
of the Fund which are authorized, based upon data provided to it by the
Fund, and issued and outstanding. FDISG shall provide the Fund on a
regular basis with the total number of Shares of the Fund which are
authorized and issued and outstanding and shall have no obligation,
when recording the issuance of Shares, to monitor the issuance of such
Shares or to take cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole responsibility of the
Fund.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, FDISG shall be under no duty or obligation to inquire into,
and shall not be liable for: (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be received therefor;
(ii) the legality of the redemption of any Shares, or the propriety of
the amount to be paid therefor; (iii) the legality of the declaration
of any dividend by the Board of Directors, or the legality of the
issuance of any Shares in payment of any dividend; or (iv) the legality
of any recapitalization or readjustment of the Shares.
3.2 FDISG agrees that it shall perform the services set forth herein in
accordance with the written schedule of Quality Standard Levels annexed hereto
as Schedule B.
3.3 In addition, the Fund shall (i) identify to FDISG in writing those
transactions and assets to be treated as exempt from blue sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of FDISG for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions subject to
blue sky compliance by the Fund and the reporting of such transactions to the
Fund as provided above.
3.4 In addition to the duties set forth herein, FDISG shall perform
such other duties and functions, and shall be paid such amounts therefor, as may
from time to time be agreed upon in writing between the Fund and FDISG.
Article 4 Recordkeeping and Other Information.
4.1 FDISG shall create and maintain all records required of it pursuant
to its duties hereunder and as set forth in Schedule A in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. Where applicable, such records shall be maintained by
FDISG for the periods and in the places required by Rule 31a-2 under the 1940
Act.
4.2 To the extent required by Section 31 of the 1940 Act, FDISG agrees
that all such records prepared or maintained by FDISG relating to the services
to be performed by FDISG hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such section, and
will be surrendered promptly to the Fund on and in accordance with the Fund's
request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Fund, FDISG will endeavor to notify the Fund of such
request and secure Written Instructions as to the handling of such request.
FDISG reserves the right, however, to exhibit the Shareholder records to any
person whenever it is advised by its counsel that it may be held liable for the
failure to comply with such request.
Article 5 Fund Instructions.
5.1 FDISG will have no liability when acting upon Written or Oral
Instructions believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Fund. FDISG will also have no liability when processing Share certificates which
it reasonably believes to bear the proper manual or facsimile signatures of the
officers of the Fund and the proper countersignature of FDISG.
5.2 At any time, FDISG may request Written Instructions from the Fund
and may seek advice from legal counsel for the Fund, or its own legal counsel,
with respect to any matter arising in connection with this Agreement, and it
shall not be liable for any action taken or not taken or suffered by it in good
faith in accordance with such Written Instructions or in accordance with the
opinion of counsel for the Fund or for FDISG. Written Instructions requested by
FDISG will be provided by the Fund within a reasonable period of time.
5.3 FDISG, its officers, agents or employees, shall accept Oral
Instructions or Written Instructions given to them by any person representing or
acting on behalf of the Fund only if said representative is an Authorized
Person. The Fund agrees that all Oral Instructions shall be followed within one
business day by confirming Written Instructions, and that the Fund's failure to
so confirm shall not impair in any respect FDISG's right to rely on Oral
Instructions.
Article 6 Compensation.
6.1 The Fund will compensate FDISG for the performance of its
obligations hereunder in accordance with the fees set forth in the written Fee
Schedule annexed hereto as Schedule C and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
agrees to pay, and will be billed separately for, out-of-pocket expenses
incurred by FDISG in the performance of its duties hereunder. Out-of-pocket
expenses shall include, but shall not be limited to, the items specified in the
written schedule of out-of-pocket charges annexed hereto as Schedule D and
incorporated herein. Schedule C may be modified by written agreement between the
parties. Unspecified out-of-pocket expenses shall be limited to those
out-of-pocket expenses reasonably incurred by FDISG in the performance of its
obligations hereunder.
6.3 The Fund agrees to pay all fees and out-of-pocket expenses within
fifteen (15) days following the receipt of the respective invoice.
6.4 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule C, a revised Fee Schedule executed and dated by
the parties hereto.
6.5 The Fund acknowledges that the fees that FDISG charges the Fund
under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 9.3 and the limitations on
liability and exclusion of remedies in Section 11.2 and Article 12. Modifying
the allocation of risk from what is stated here would affect the fees that FDISG
charges, and in consideration of those fees, the Fund agrees to the stated
allocation of risk.
Article 7 Documents.
In connection with the appointment of FDISG, the Fund shall, on or
before the date this Agreement goes into effect, but in any case within a
reasonable period of time for FDISG to prepare to perform its duties hereunder,
deliver or caused to be delivered to FDISG the documents set forth in the
written schedule of Fund Documents annexed hereto as Schedule E.
Article 8 Transfer Agent System.
8.1 FDISG shall retain title to and ownership of any and all data
bases, computer programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by FDISG in connection with the services
provided by FDISG to the Fund herein (the "FDISG System").
8.2 FDISG hereby grants to the Fund a limited license to the FDISG
System for the sole and limited purpose of having FDISG provide the services
contemplated hereunder and nothing contained in this Agreement shall be
construed or interpreted otherwise and such license shall immediately terminate
with the termination of this Agreement.
Article 9 Representations and Warranties.
9.1 FDISG represents and warrants to the Fund that:
(a) it is a corporation duly organized an existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorized it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory agency
as a transfer agent and such registration will remain in effect for the
duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
9.2 The Fund represents and warrants to FDISG that:
(a) it is duly organized and existing and in good standing under
the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Article of
Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to
authorized it to enter into this Agreement;
(d) a registration statement under the Securities Act of 1933, as
amended, and the 1940 Act on behalf of each of the Fund is currently
effective and will remain effective, and all appropriate state
securities law filings have been made and will continue to be made,
with respect to all Shares of the Fund being offered for sale;
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with
the terms of the Fund's Articles of Incorporation and its Prospectus,
such Shares shall be validly issued, fully paid and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTIES REGARDING QUALITY, SUITABILITY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF ANY COURSE OF DEALING, CUSTOM
OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS PROVIDED INCIDENTAL TO SERVICES
PROVIDED UNDER THIS AGREEMENT. FDISG DISCLAIMS ANY WARRANTY OF TITLE OR
NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT.
Article 10 Indemnification.
10.1 FDISG shall not be responsible for and the Fund shall indemnify
and hold FDISG harmless from and against any and all claims, costs, expenses
(including reasonable attorneys' fees), losses, damages, charges, payments and
liabilities of any sort or kind which may be asserted against FDISG or for which
FDISG may be held to be liable (a "Claim") arising out of or attributable to any
of the following:
(a) Any actions of FDISG required to be taken pursuant to this
Agreement unless such Claim resulted from a negligent act or omission
to act or bad faith by FDISG in the performance of its duties
hereunder.
(b) FDISG's reasonable reliance on, or reasonable use of
information, data, records and documents (including but not limited to
magnetic tapes, computer printouts, hard copies and microfilm copies)
received by FDISG from the Fund, or any authorized third party acting
on behalf of the Fund, including but not limited the prior transfer
agent for the Fund, in the performance of FDISG's duties and
obligations hereunder.
(c) The reliance on, or the implementation of, any Written or Oral
Instructions or any other instructions or requests of the Fund.
(d) The offer or sales of shares in violation of any requirement
under the securities laws or regulations of any state that such shares
be registered in such state or in violation of any stop order or other
determination or ruling by any state with respect to the offer or sale
of such shares in such state.
(e) The Fund's refusal or failure to comply with the terms of this
Agreement, or any Claim which arises out of the Fund's negligence or
misconduct or the breach of any representation or warranty of the Fund
made herein.
10.2 The Fund shall not be responsible for and FDISG shall indemnify
and hold the Fund harmless from and against any and all Claims made by third
parties which result from a negligent act or omission to act or bad faith by
FDISG in the performance of its duties hereunder.
10.3 In any case in which the either party (the "Indemnifying Party")
may be asked to indemnify or hold the other (the "Indemnified Party") harmless,
the Indemnified Party will notify the Indemnifying Party promptly after
identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Indemnifying Party although the
failure to do so shall not prevent recovery by the Indemnified Party and shall
keep the Indemnifying Party advised with respect to all developments concerning
such situation. The Indemnifying Party shall have the option to defend the
Indemnified Party against any Claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the Indemnifying Party and
satisfactory to the Indemnified Party, and thereupon the Indemnifying Party
shall take over complete defense of the Claim and the Indemnified Party shall
sustain no further legal or other expenses in respect of such Claim. The
Indemnified Party will not confess any Claim or make any compromise in any case
in which the Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent. The obligations of the
parties hereto under this Article 10 shall survive the termination of this
Agreement.
10.4 Any claim for indemnification under this Agreement must be made
prior to one year after the applicable party becomes aware of the event for
which indemnification is claimed.
10.5 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
FDISG's sole and exclusive remedy for claims or other actions or proceedings to
which the Fund's indemnification obligations pursuant to this Article 10 may
apply.
Article 11 Standard of Care.
11.1 FDISG shall at all times act in good faith and agrees to use its
best efforts within commercially reasonable limits to ensure the accuracy of all
services performed under this Agreement, but assumes no responsibility for loss
or damage to the Fund unless said errors are caused by FDISG's own negligence,
bad faith or willful misconduct or that of its employees.
11.2 Notwithstanding the foregoing Section 11.1 or anything else
contained in this Agreement to the contrary, FDISG's entire liability to the
Fund for any loss or damage, direct or indirect for any cause whatsoever
(including but not limited to those arising out of this Agreement), and
regardless of the form of action, shall be limited to the Fund's actual direct
out-of-pocket expenses which are reasonably incurred by the Fund, but shall not
under any circumstances exceed the lesser of (i) an amount equivalent to the
average of twelve month's fees paid to FDISG under this Agreement; or (ii)
one-million dollars ($1,000,000). The foregoing limitation of liability shall
not apply to damages occasioned by the intentional misconduct or gross
negligence of either party.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL FDISG, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF TORT,
CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST PROFITS,
EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF
WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written above
and shall continue for a period of five (5) years (the "Initial Term"), unless
earlier terminated pursuant to the terms of this Agreement. Thereafter, this
Agreement shall automatically be renewed for successive terms of three (3) years
("Renewal Terms") each.
13.2 Either party may terminate this Agreement at the end of the
Initial Term or any subsequent Renewal Term upon not less than ninety (90) days
or more than one-hundred eighty (180) days prior written notice to the other
party.
13.3 Nothwithstanding the foregoing provisions in Section 13.1 and
13.2, the Fund may terminate this Agreement as follows:
(a) the Fund may terminate this Agreement after year three upon
ninety (90) days written notice to FDISG. Such notice must be
received by FDISG no earlier than ninety (90) days prior to the
end of the third year of the Agreement and no later than the end
of the third year of the Agreement, otherwise the Agreement shall
continue in full force and effect; or
(b) the Fund may terminate this Agreement after year four upon
ninety (90) days written notice to FDISG. Such notice must be
received by FDISG no earlier than ninety (90) days prior to the
end of the fourth year of the Agreement and no later than the end
of the fourth year of the Agreement, otherwise the Agreement shall
continue in full force and effect.
13.4 In the event that this Agreement is terminated pursuant to
provisions in Sections 13.3 (a) or (b) above, the Fund shall pay to FDISG its
allocable portion of the aggregate early termination fee prior to the effective
date of such termination such that the total termination fee paid by investment
companies within the SIT Mutual Fund Group (SIT Mutual Fund Group as used in
Section 13 is defined as investment companies for which SIT Investment
Associates, Inc. serves as the investment manager and sponsor and which have
entered into similar transfer agency and services agreements as this Agreement
with FDISG) equals:
(a) if termination under Section 13.3(a) - $150,000.00; or
(b) if termination under Section 13.3(b) - $100,000.00.
13.5 The early termination rights set forth in Section 13.3 applies to
the extent that all of the SIT sponsored mutual funds serviced by FDISG are
terminating their respective Transfer Agency and Services Agreement under the
same provision and the early termination fee set forth in Section 13.4 shall be
a one time payment made on behalf of all such SIT sponsored mutual funds.
13.6 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Fund.
13.7 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party; provided however, that no such cure period shall be
allowed for any such material breach which occurs more than twice in any one
year period. If FDISG is the Non-Defaulting Party, its termination of this
Agreement shall not constitute a waiver of any other rights or remedies of FDISG
with respect to services performed prior to such termination or rights of FDISG
to be reimbursed for out-of-pocket expenses. In all cases, termination by the
Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party
of any other rights it might have under this Agreement or otherwise against the
Defaulting Party.
Article 14 Confidentiality.
14.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and FDISG shall exercise at least the same degree of care, but not less than
reasonable care, to safeguard the confidentiality of the Confidential
Information of the other as it would exercise to protect it's own confidential
information of a similar nature. The Fund and FDISG may use the Confidential
Information only to exercise its rights under this Agreement. The Fund and FDISG
shall not duplicate, sell or disclose to others the Confidential Information of
the other, in whole or in part, without the prior written permission of the
other party. The Fund and FDISG may, however, disclose Confidential Information
to its employees who have a need to know the Confidential Information to perform
work for the other, provided that each shall use reasonable efforts to ensure
that the Confidential Information is not duplicated or disclosed by its
employees in breach of this Agreement. The Fund and FDISG may also disclose the
Confidential Information to independent contractors, auditors, and professional
advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 14.1.
Notwithstanding the previous sentence, in no event shall either the Fund or
FDISG disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
14.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but
not limited to, information about product plans, marketing
strategies, finance, operations, customer relationships, customer
profiles, sales estimates, business plans, and internal
performance results relating to the past, present or future
business activities of the Fund or FDISG, their respective
subsidiaries and affiliated companies and the customers, clients
and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable
and secret in the sense that its confidentiality affords the Fund
or FDISG a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code,
object code, flow charts, databases, inventions, know-how,
show-how and trade secrets, whether or not patentable or
copyrightable.
14.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
Article 15 Force Majeure.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country, (iii) any act or omission of the other party or
any governmental authority; (iv) any labor disputes (whether or not the
employees' demands are reasonable or within the party's power to satisfy); or
(v) nonperformance by a third party or any similar cause beyond the reasonable
control of such party, including without limitation, failures or fluctuations in
telecommunications or other equipment. In any such event, the non-performing
party shall be excused from any further performance and observance of the
obligations so affected only for as long as such circumstances prevail and such
party continues to use commercially reasonable efforts to recommence performance
or observance as soon as practicable.
Article 16 Amendments.
No change, termination, modification, or waiver of any term or
condition of the Agreement shall be valid unless in writing signed by each
party. A party's waiver of a breach of any term or condition in the Agreement
shall not be deemed a waiver of any subsequent breach of the same or another
term or condition.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld. FDISG may, in its sole
discretion, engage subcontractors to perform any of the obligations contained in
this Agreement to be performed by FDISG.
Article 18 Notice.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or FDISG, shall be sufficiently given if
addressed to that party and received by it at its office set forth below or at
such other place as it may from time to time designate in writing.
To the Fund:
SIT U.S. Government Securities Fund, Inc.
4600 Norwest Center
Minneapolis, MN 55402
Attention: President
To FDISG:
First Data Investor Services Group, Inc.
One Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: President
with a copy to FDISG's General Counsel
Article 19 Successors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however, that
this Agreement shall not be assigned to any person other than a person
controlling, controlled by or under common control with the assignor without the
written consent of the other party, which consent shall not be unreasonably
withheld.
Article 20 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and FDISG
and the Fund hereby submit themselves to the exclusive jurisdiction of those
courts.
Article 21 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 22 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 Publicity.
Neither FDISG nor the Fund shall release or publish news releases,
public announcements, advertising or other publicity relating to this Agreement
or to the transactions contemplated by it without the prior review and written
approval of the other party; provided, however, that either party may make such
disclosures as are required by legal, accounting or regulatory requirements
after making reasonable efforts in the circumstances to consult in advance with
the other party.
Article 24 Relationship of Parties.
The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
Article 25 Entire Agreement; Severability.
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. A party's waiver of a
breach of any term or condition in the Agreement shall not be deemed a waiver of
any subsequent breach of the same or another term or condition.
25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
SIT U.S. GOVERNMENT SECURITIES FUND, INC.
By: /s/ Mary K. Stern
Title: President
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Gerald Kokos
Title: Executive Vice President
Schedule A
DUTIES OF FDISG
1. Shareholder Information. FDISG shall maintain a record of the number
of Shares held by each Shareholder of record which shall include name, address,
taxpayer identification and which shall indicate whether such Shares are held in
certificates or uncertificated form.
2. Shareholder Services. FDISG shall respond as appropriate to all
inquiries and communications from Shareholders relating to Shareholder accounts
with respect to its duties hereunder and as may be from time to time mutually
agreed upon between FDISG and the Fund.
3. Share Certificates.
(a) At the expense of the Fund, the Fund shall supply FDISG with an
adequate supply of blank share certificates to meet FDISG requirements therefor.
Such Share certificates shall be properly signed by facsimile. The Fund agrees
that, notwithstanding the death, resignation, or removal of any officer of the
Fund whose signature appears on such certificates, FDISG or its agent may
continue to countersign certificates which bear such signatures until otherwise
directed by Written Instructions.
(b) FDISG shall issue replacement Share certificates in lieu of
certificates which have been lost, stolen or destroyed, upon receipt by FDISG of
properly executed affidavits and lost certificate bonds, in form satisfactory to
FDISG, with the Fund and FDISG as obligees under the bond.
(c) FDISG shall also maintain a record of each certificate issued,
the number of Shares represented thereby and the Shareholder of record. With
respect to Shares held in open accounts or uncertificated form (i.e., no
certificate being issued with respect thereto) FDISG shall maintain comparable
records of the Shareholders thereof, including their names, addresses and
taxpayer identification. FDISG shall further maintain a stop transfer record on
lost and/or replaced certificates.
4. Mailing Communications to Shareholders; Proxy Materials. FDISG will
address and mail to Shareholders of the Fund, all reports to Shareholders,
dividend and distribution notices and proxy material for the Fund's meetings of
Shareholders. In connection with meetings of Shareholders, FDISG will prepare
Shareholder lists, mail and certify as to the mailing of proxy materials,
process and tabulate returned proxy cards, report on proxies voted prior to
meetings, act as inspector of election at meetings and certify Shares voted at
meetings.
5. Sale of Shares
(a) FDISG shall not be required to issue any Shares of the Fund
where it has received a Written Instruction from the Fund or official notice
from any appropriate authority that the sale of the Shares of the Fund has been
suspended or discontinued. The existence of such Written Instructions or such
official notice shall be conclusive evidence of the right of FDISG to rely on
such Written Instructions or official notice.
(b) In the event that any check or other order for the payment of
money is returned unpaid for any reason, FDISG will endeavor to: (i) give prompt
notice of such return to the Fund or its designee; (ii) place a stop transfer
order against all Shares issued as a result of such check or order; and (iii)
take such actions as FDISG may from time to time deem appropriate.
6. Transfer and Repurchase
(a) FDISG shall process all requests to transfer or redeem Shares in
accordance with the transfer or repurchase procedures set forth in the Fund's
Prospectus.
(b) FDISG will transfer or repurchase Shares upon receipt of Oral or
Written Instructions or otherwise pursuant to the Prospectus and Share
certificates, if any, properly endorsed for transfer or redemption, accompanied
by such documents as FDISG reasonably may deem necessary.
(c) FDISG reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the endorsement on the instructions is valid
and genuine. FDISG also reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the requested transfer or repurchase is
legally authorized, and it shall incur no liability for the refusal, in good
faith, to make transfers or repurchases which FDISG, in its good judgement,
deems improper or unauthorized, or until it is reasonably satisfied that there
is no basis to any claims adverse to such transfer or repurchase.
(d) When Shares are redeemed, FDISG shall, upon receipt of the
instructions and documents in proper form, deliver to the Custodian and the Fund
or its designee a notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on appropriate accounts
maintained by FDISG reflecting outstanding Shares of the Fund and Shares
attributed to individual accounts.
(e) FDISG, upon receipt of the monies paid to it by the Custodian
for the repurchase of Shares, pay such monies as are received from the
Custodian, all in accordance with the procedures described in the written
instruction received by FDISG from the Fund.
(f) FDISG shall not process or effect any repurchase with respect to
Shares of the Fund after receipt by FDISG or its agent of notification of the
suspension of the determination of the net asset value of the Fund.
7. Dividends
(a) Upon the declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund with respect to Shares of the
Fund, the Fund shall furnish or cause to be furnished to FDISG Written
Instructions setting forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof, the record date
as of which Shareholders entitled to payment shall be determined, the amount
payable per Share to the Shareholders of record as of that date, the total
amount payable to FDISG on the payment date and whether such dividend or
distribution is to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution of
the Board of Directors, the Fund will pay to FDISG sufficient cash to make
payment to the Shareholders of record as of such payment date.
(c) If FDISG does not receive sufficient cash from the Fund to make
total dividend and/or distribution payments to all Shareholders of the Fund as
of the record date, FDISG will, upon notifying the Fund, withhold payment to all
Shareholders of record as of the record date until sufficient cash is provided
to FDISG.
8. In addition to and neither in lieu nor in contravention of the
services set forth above, FDISG shall: (i) perform all the customary services of
a transfer agent, registrar, dividend disbursing agent and agent of the dividend
reinvestment and cash purchase plan as described herein consistent with those
requirements in effect as at the date of this Agreement. The detailed
definition, frequency, limitations and associated costs (if any) set out in the
attached fee schedule, include but are not limited to: maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
tabulating proxies, mailing Shareholder reports to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts where
applicable, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders.
Schedule B
QUALITY STANDARD LEVELS
1. TIMELINESS OF RESEARCH REQUESTS
SERVICE DESCRIPTION:
FDISG will provide a research and problem resolution service to the
Shareholders. On a daily basis, the Fund, using either the Impress CSS
system or by fax, will communicate research requests to FDISG.
FDISG'S OBJECTIVE:
FDISG's objective is to accurately respond to 98% of the research
requests within the periods set forth below.
Wire: Complete within 24 hours
Financial: Complete within 48 hours
Non-Financial: Complete within 72 hours
2. MANUAL DATA ENTRY
SERVICE DESCRIPTION:
FDISG provides a manual data entry service to the Fund for establishing
new Shareholder accounts and monitoring existing account records.
FDISG'S OBJECTIVE:
FDISG's objective is to establish new accounts with a data accuracy
rate of 98%.
3. ACCURACY AND TIMELINESS OF SHAREHOLDER STATEMENTS
SERVICE DESCRIPTION:
Based on the mail frequency of the Fund, FDISG will produce and mail
periodic statements to Shareholders. FDISG will provide the Fund with a
mailing report from its Print/Mail vendor which will indicate the date
on which all Shareholder statements were mailed.
FDISG'S OBJECTIVE:
FDISG's objective is to manage this service so that 99% of all
statements from the Fund are accurate and are mailed no later than five
(5) business days after the statement date.
4. ACCURACY AND TIMELINESS OF DAILY ADVICE MAILINGS
SERVICE DESCRIPTION:
FDISG will produce and send, deliver or distribute an advice to the
Shareholder's account, except where suppressed pursuant to instructions
received from the Fund. FDISG will provide the Fund with a mailing
report from its Print/Mail vendor which will indicate the date on which
all advises were mailed.
FDISG'S OBJECTIVES:
FDISG's objective is to manage this service so that 99% of such advices
are accurate and are mailed no later than two (2) business days
following the date of the transaction.
5. TIMELINESS OF DISTRIBUTION CHECKS AND DIVIDEND MAILINGS
SERVICE DESCRIPTION:
Periodically, FDISG will create and mail checks for Fund's respective
Shareholders. FDISG will provide the Fund with a mailing report from
its Print/ Mail vendor indicating the date on which all dividend or
distribution checks were mailed.
FDISG'S OBJECTIVE:
FDISG's objective is to manage this service so that 99% of such advices
are accurate and are mailed no later than two (2) business days
following the date of the transaction.
6. FINANCIAL CONTROL
SERVICE DESCRIPTION:
FDISG will provide daily fund settlement reports to the Fund's
accounting and custodian service providers. FDISG will reconcile the
Fund's Demand Deposit Accounts on a daily basis, including investments
and disbursements. Acceptable DDA Item Exceptions beyond five days
include:
- Client Originated Item
- Shareholder Reclaim
- Bank (Cash Manager) Error
- Shareholder Fraudulent Activity
- Fed Wire Recall
- System Data Processing Limitations
- Miscellaneous Funding Issues with Shareholder,
Cash Manager, or Custodian
FDISG'S OBJECTIVE:
FDISG's objective is to reconcile all DDA transactions within five (5) business
days of the transaction post date. Any exceptions, including items greater than
five (5) business days, will be reported to the Fund with a general item
description. Any exception must be approved by the Fund to be considered within
standard.
Schedule C
FEE SCHEDULE
SIT U.S. GOVERNMENT SECURITIES FUND, INC.
Annual Fees:
Open Account Fees: $13.50 per open account
Closed Account Fees: $ 2.40 per closed account
Fund Minimums: $24,000 per fund per year
Conversion Costs: Free set-up fee
Value Added Services:
Cost Basis Accounting: Free set-up fee
Adhoc SQL: Free set-up fee; $1,000 per hour
AVR Solution: Free set-up fee
$.2125 per minute charge
$.0775 per minute telecom charge
$.10 per call
FundServ: Free set-up fee, $.15 per trade plus $.10
same day trades
Asset Allocation/Reallocation: Free set-up fee, $.25 per trade via NSCC
Direct Access Zip Link: Free set-up fee, $1,000 per month, $.03/
record plus $.015/price record
CONSOLIDATED STATEMENTS PRICE DETERMINED BY PROJECT SCOPE. CUSTOMIZED
PROGRAMMING BILLABLE AT $100/HOUR.
General:
1.1 FDISG may charge a service fee equal to the lesser of (i) one and one
half percent (1 1/2%) per month of (ii) the highest interest rate
legally permitted on any unpaid amounts, unless such amounts are
ultimately determined not due in accordance with the Payment Dispute
Procedure. The Fund shall also reimburse FDISG for all reasonable
expenses to collect delinquent amounts, including reasonable attorneys'
fees and court costs.
1.2 FDISG may adjust any annual or monthly fees once per calendar year,
upon thirty (30) days prior written notice, in an amount not to exceed
the cumulative percentage increase in the Consumer Price Index for All
Urban Consumers (CIP-U) U.S. City Average, All Items (unadjusted) -
(1982-84 = 100), published by the U.S. Department of Labor since the
last such adjustment in Client's monthly fees (or the effective Date
absent a prior such adjustment).
Schedule D
OUT-OF-POCKET EXPENSES
The Fund shall reimburse FDISG monthly for applicable out-of-pocket
expenses, including, but not limited to the following items:
- Microfiche/microfilm production - Magnetic media tapes and
freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct
pass through to the Fund
- Due diligence mailings - Telephone and telecommunication
costs, including all lease, maintenance and line costs
- Special Ad hoc reports requested by the Fund
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings - Shipping, Certified and
Overnight mail and insurance
- Year-end form production and mailings
- Duplicating services - Courier services - Incoming and
outgoing wire charges
- Federal Reserve charges for check clearance
- Overtime, as approved by the Fund
- Temporary staff, as approved by the Fund
- Travel and entertainment, as approved by the Fund
- Record retention, retrieval and destruction costs, including,
but not limited to exit fees charged by third party record
keeping vendors
- Third party audit reviews
- All Systems enhancements after the conversion at the rate of
$100.00 per hour - Insurance - Such other miscellaneous
expenses reasonably incurred by FDISG in performing its duties
and responsibilities under this Agreement.
The Fund agrees that postage and mailing expenses will be paid on the day of or
prior to mailing as agreed with FDISG. In addition, the Fund will promptly
reimburse FDISG for any other unscheduled expenses incurred by FDISG whenever
the Fund and FDISG mutually agree that such expenses are not otherwise properly
borne by FDISG as part of its duties and obligations under the Agreement.
Schedule E
FUND DOCUMENTS
- Certified copy of the Articles of Incorporation of the Fund,
as amended
- Certified copy of the By-laws of the Fund, as amended,
- Copy of the resolution of the Board of Directors authorizing
the execution and delivery of this Agreement
- Specimens of the certificates for Shares of the Fund, if
applicable, in the form approved by the Board of Directors of
the Fund, with a certificate of the Secretary of the Fund as
to such approval
- All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service
offered by the Fund
- Certified list of Shareholders of the Fund with the name,
address and taxpayer identification number of each
Shareholder, and the number of Shares of the Fund held by
each, certificate numbers and denominations (if any
certificates have been issued), lists of any accounts against
which stop transfer orders have been placed, together with the
reasons therefore, and the number of Shares redeemed by the
Fund
- All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation
or By-laws of the Fund or as required by law and shall perform
such other specific duties as are set forth in the Articles of
Incorporation including the giving of notice of any special or
annual meetings of shareholders and any other notices required
thereby.
EXHIBIT 8.2
Transfer Agency and Services Agreement
SIT Mutual Funds II, Inc.
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 31st day of December, 1995 between SIT
MUTUAL FUNDS II, INC. (the "Fund"), a Minnesota corporation, having its
principal place of business at 4600 Norwest Center, Minneapolis, Minnesota 55402
and FIRST DATA INVESTOR SERVICES GROUP, INC. ("FDISG"), a Massachusetts
corporation with principal offices at One Exchange Place, 53 State Street,
Boston, Massachusetts 02109.
WITNESSETH
WHEREAS, the Fund is authorized to issue Shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets;
WHEREAS, the Fund initially intends to offer shares in those Portfolios
identified in the attached Exhibit 1, each such Portfolio, together with all
other Portfolios subsequently established by the Fund shall be subject to this
Agreement in accordance with Article 14;
WHEREAS, the Fund on behalf of the Portfolios, desires to appoint FDISG
as its transfer agent, dividend disbursing agent and agent in connection with
certain other activities and FDISG desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and FDISG agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to FDISG from time to time.
(c) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
(f) "1934 Act" shall mean the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder, all as amended from
time to time.
(g) "1940 Act" shall mean the Investment Company Act of 1940 and
the rules and regulations promulgated thereunder, all as amended from
time to time.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by FDISG from a person
reasonably believed by FDISG to be an Authorized Person;
(i) "Portfolio" shall mean each separate series of shares offered
by the Fund representing an interest in a separate portfolio of
securities and other assets;
(j) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which have become effective under the
Securities Act of 1933 and the 1940 Act.
(k) "Shares" refers collectively to such shares of capital stock
or beneficial interest, as the case may be, or class thereof, of each
respective Portfolio of the Fund as may be issued from time to time.
(l) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Fund.
(m) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by FDISG to be an Authorized
Person and actually received by FDISG. Written Instructions shall
include manually executed originals and authorized electronic
transmissions, including telefacsimile of a manually executed original
or other process.
Article 2 Appointment of FDISG.
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
FDISG as transfer agent and dividend disbursing agent for Shares of each
respective Portfolio of the Fund and as shareholder servicing agent for the Fund
and FDISG hereby accepts such appointments and agrees to perform the duties
hereinafter set forth.
Article 3 Duties of FDISG.
3.1 FDISG shall be responsible for:
(a) Administering and/or performing the customary services of a
transfer agent; acting as service agent in connection with dividend and
distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with the
Custodian) of Shares of each Portfolio, as more fully described in the
written schedule of Duties of FDISG annexed hereto as Schedule A and
incorporated herein, and in accordance with the terms of the Prospectus
of the Fund on behalf of the applicable Portfolio, applicable law and
the procedures established from time to time between FDISG and the
Fund.
(b) Recording the issuance of Shares and maintaining pursuant to
Rule 17Ad-10(e) of the 1934 Act a record of the total number of Shares
of each Portfolio which are authorized, based upon data provided to it
by the Fund, and issued and outstanding. FDISG shall provide the Fund
on a regular basis with the total number of Shares of each Portfolio
which are authorized and issued and outstanding and shall have no
obligation, when recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of any laws relating to
the issue or sale of such Shares, which functions shall be the sole
responsibility of the Fund.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, FDISG shall be under no duty or obligation to inquire into,
and shall not be liable for: (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be received therefor;
(ii) the legality of the redemption of any Shares, or the propriety of
the amount to be paid therefor; (iii) the legality of the declaration
of any dividend by the Board of Directors, or the legality of the
issuance of any Shares in payment of any dividend; or (iv) the legality
of any recapitalization or readjustment of the Shares.
3.2 FDISG agrees that it shall perform the services set forth herein in
accordance with the written schedule of Quality Standard Levels annexed hereto
as Schedule B.
3.3 In addition, the Fund shall (i) identify to FDISG in writing those
transactions and assets to be treated as exempt from blue sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of FDISG for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions subject to
blue sky compliance by the Fund and the reporting of such transactions to the
Fund as provided above.
3.4 In addition to the duties set forth herein, FDISG shall perform
such other duties and functions, and shall be paid such amounts therefor, as may
from time to time be agreed upon in writing between the Fund and FDISG.
Article 4 Recordkeeping and Other Information.
4.1 FDISG shall create and maintain all records required of it pursuant
to its duties hereunder and as set forth in Schedule A in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. Where applicable, such records shall be maintained by
FDISG for the periods and in the places required by Rule 31a-2 under the 1940
Act.
4.2 To the extent required by Section 31 of the 1940 Act, FDISG agrees
that all such records prepared or maintained by FDISG relating to the services
to be performed by FDISG hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such section, and
will be surrendered promptly to the Fund on and in accordance with the Fund's
request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Fund, FDISG will endeavor to notify the Fund of such
request and secure Written Instructions as to the handling of such request.
FDISG reserves the right, however, to exhibit the Shareholder records to any
person whenever it is advised by its counsel that it may be held liable for the
failure to comply with such request.
Article 5 Fund Instructions.
5.1 FDISG will have no liability when acting upon Written or Oral
Instructions believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Fund. FDISG will also have no liability when processing Share certificates which
it reasonably believes to bear the proper manual or facsimile signatures of the
officers of the Fund and the proper countersignature of FDISG.
5.2 At any time, FDISG may request Written Instructions from the Fund
and may seek advice from legal counsel for the Fund, or its own legal counsel,
with respect to any matter arising in connection with this Agreement, and it
shall not be liable for any action taken or not taken or suffered by it in good
faith in accordance with such Written Instructions or in accordance with the
opinion of counsel for the Fund or for FDISG. Written Instructions requested by
FDISG will be provided by the Fund within a reasonable period of time.
5.3 FDISG, its officers, agents or employees, shall accept Oral
Instructions or Written Instructions given to them by any person representing or
acting on behalf of the Fund only if said representative is an Authorized
Person. The Fund agrees that all Oral Instructions shall be followed within one
business day by confirming Written Instructions, and that the Fund's failure to
so confirm shall not impair in any respect FDISG's right to rely on Oral
Instructions.
Article 6 Compensation.
6.1 The Fund on behalf of each of the Portfolios will compensate FDISG
for the performance of its obligations hereunder in accordance with the fees set
forth in the written Fee Schedule annexed hereto as Schedule C and incorporated
herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
on behalf of each of the Portfolios agrees to pay, and will be billed separately
for, out-of-pocket expenses incurred by FDISG in the performance of its duties
hereunder. Out-of-pocket expenses shall include, but shall not be limited to,
the items specified in the written schedule of out-of-pocket charges annexed
hereto as Schedule D and incorporated herein. Schedule C may be modified by
written agreement between the parties. Unspecified out-of-pocket expenses shall
be limited to those out-of-pocket expenses reasonably incurred by FDISG in the
performance of its obligations hereunder.
6.3 The Fund on behalf of each of the Portfolios agrees to pay all fees
and out-of-pocket expenses within fifteen (15) days following the receipt of the
respective invoice.
6.4 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule C, a revised Fee Schedule executed and dated by
the parties hereto.
6.5 The Fund acknowledges that the fees that FDISG charges the Fund
under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 9.3 and the limitations on
liability and exclusion of remedies in Section 11.2 and Article 12. Modifying
the allocation of risk from what is stated here would affect the fees that FDISG
charges, and in consideration of those fees, the Fund agrees to the stated
allocation of risk.
Article 7 Documents.
In connection with the appointment of FDISG, the Fund shall, on or
before the date this Agreement goes into effect, but in any case within a
reasonable period of time for FDISG to prepare to perform its duties hereunder,
deliver or caused to be delivered to FDISG the documents set forth in the
written schedule of Fund Documents annexed hereto as Schedule E.
Article 8 Transfer Agent System.
8.1 FDISG shall retain title to and ownership of any and all data
bases, computer programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by FDISG in connection with the services
provided by FDISG to the Fund herein (the "FDISG System").
8.2 FDISG hereby grants to the Fund a limited license to the FDISG
System for the sole and limited purpose of having FDISG provide the services
contemplated hereunder and nothing contained in this Agreement shall be
construed or interpreted otherwise and such license shall immediately terminate
with the termination of this Agreement.
Article 9 Representations and Warranties.
9.1 FDISG represents and warrants to the Fund that:
(a) it is a corporation duly organized an existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorized it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory agency
as a transfer agent and such registration will remain in effect for the
duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
9.2 The Fund represents and warrants to FDISG that:
(a) it is duly organized and existing and in good standing under
the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Article of
Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to
authorized it to enter into this Agreement;
(d) a registration statement under the Securities Act of 1933, as
amended, and the 1940 Act on behalf of each of the Portfolios is
currently effective and will remain effective, and all appropriate
state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale;
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with
the terms of the Fund's Articles of Incorporation and its Prospectus
with respect to each Portfolio, such Shares shall be validly issued,
fully paid and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTIES REGARDING QUALITY, SUITABILITY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF ANY COURSE OF DEALING, CUSTOM
OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS PROVIDED INCIDENTAL TO SERVICES
PROVIDED UNDER THIS AGREEMENT. FDISG DISCLAIMS ANY WARRANTY OF TITLE OR
NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT.
Article 10 Indemnification.
10.1 FDISG shall not be responsible for and the Fund on behalf of each
Portfolio shall indemnify and hold FDISG harmless from and against any and all
claims, costs, expenses (including reasonable attorneys' fees), losses, damages,
charges, payments and liabilities of any sort or kind which may be asserted
against FDISG or for which FDISG may be held to be liable (a "Claim") arising
out of or attributable to any of the following:
(a) Any actions of FDISG required to be taken pursuant to this
Agreement unless such Claim resulted from a negligent act or omission
to act or bad faith by FDISG in the performance of its duties
hereunder.
(b) FDISG's reasonable reliance on, or reasonable use of
information, data, records and documents (including but not limited to
magnetic tapes, computer printouts, hard copies and microfilm copies)
received by FDISG from the Fund, or any authorized third party acting
on behalf of the Fund, including but not limited the prior transfer
agent for the Fund, in the performance of FDISG's duties and
obligations hereunder.
(c) The reliance on, or the implementation of, any Written or Oral
Instructions or any other instructions or requests of the Fund on
behalf of the applicable Portfolio.
(d) The offer or sales of shares in violation of any requirement
under the securities laws or regulations of any state that such shares
be registered in such state or in violation of any stop order or other
determination or ruling by any state with respect to the offer or sale
of such shares in such state.
(e) The Fund's refusal or failure to comply with the terms of this
Agreement, or any Claim which arises out of the Fund's negligence or
misconduct or the breach of any representation or warranty of the Fund
made herein.
10.2 The Fund shall not be responsible for and FDISG shall indemnify
and hold the Fund and each Portfolio harmless from and against any and all
Claims made by third parties which result from a negligent act or omission to
act or bad faith by FDISG in the performance of its duties hereunder.
10.3 In any case in which the either party (the "Indemnifying Party")
may be asked to indemnify or hold the other (the "Indemnified Party") harmless,
the Indemnified Party will notify the Indemnifying Party promptly after
identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Indemnifying Party although the
failure to do so shall not prevent recovery by the Indemnified Party and shall
keep the Indemnifying Party advised with respect to all developments concerning
such situation. The Indemnifying Party shall have the option to defend the
Indemnified Party against any Claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the Indemnifying Party and
satisfactory to the Indemnified Party, and thereupon the Indemnifying Party
shall take over complete defense of the Claim and the Indemnified Party shall
sustain no further legal or other expenses in respect of such Claim. The
Indemnified Party will not confess any Claim or make any compromise in any case
in which the Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent. The obligations of the
parties hereto under this Article 10 shall survive the termination of this
Agreement.
10.4 Any claim for indemnification under this Agreement must be made
prior to one year after the applicable party becomes aware of the event for
which indemnification is claimed.
10.5 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
FDISG's sole and exclusive remedy for claims or other actions or proceedings to
which the Fund's indemnification obligations pursuant to this Article 10 may
apply.
Article 11 Standard of Care.
11.1 FDISG shall at all times act in good faith and agrees to use its
best efforts within commercially reasonable limits to ensure the accuracy of all
services performed under this Agreement, but assumes no responsibility for loss
or damage to the Fund unless said errors are caused by FDISG's own negligence,
bad faith or willful misconduct or that of its employees.
11.2 Notwithstanding the foregoing Section 11.1 or anything else
contained in this Agreement to the contrary, FDISG's entire liability to the
Fund for any loss or damage, direct or indirect for any cause whatsoever
(including but not limited to those arising out of this Agreement), and
regardless of the form of action, shall be limited to the Fund's actual direct
out-of-pocket expenses which are reasonably incurred by the Fund, but shall not
under any circumstances exceed the lesser of (i) an amount equivalent to the
average of twelve month's fees paid to FDISG under this Agreement; or (ii)
one-million dollars ($1,000,000). The foregoing limitation of liability shall
not apply to damages occasioned by the intentional misconduct or gross
negligence of either party.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL FDISG, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF TORT,
CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST PROFITS,
EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF
WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written above
and shall continue for a period of five (5) years (the "Initial Term"), unless
earlier terminated pursuant to the terms of this Agreement. Thereafter, this
Agreement shall automatically be renewed for successive terms of three (3) years
("Renewal Terms") each.
13.2 Either party may terminate this Agreement at the end of the
Initial Term or any subsequent Renewal Term upon not less than ninety (90) days
or more than one-hundred eighty (180) days prior written notice to the other
party.
13.3 Nothwithstanding the foregoing provisions in Section 13.1 and
13.2, the Fund may terminate this Agreement as follows:
(a) the Fund may terminate this Agreement after year three upon
ninety (90) days written notice to FDISG. Such notice must be received
by FDISG no earlier than ninety (90) days prior to the end of the third
year of the Agreement and no later than the end of the third year of
the Agreement, otherwise the Agreement shall continue in full force and
effect; or
(b) the Fund may terminate this Agreement after year four upon
ninety (90) days written notice to FDISG. Such notice must be received
by FDISG no earlier than ninety (90) days prior to the end of the
fourth year of the Agreement and no later than the end of the fourth
year of the Agreement, otherwise the Agreement shall continue in full
force and effect.
13.4 In the event that this Agreement is terminated pursuant to
provisions in Sections 13.3 (a) or (b) above, the Fund shall pay to FDISG its
allocable portion of the aggregate early termination fee prior to the effective
date of such termination such that the total termination fee paid by investment
companies within the SIT Mutual Fund Group (SIT Mutual Fund Group as used in
Section 13 is defined as investment companies for which SIT Investment
Associates, Inc. serves as the investment manager and sponsor and which have
entered into similar transfer agency and services agreements as this Agreement
with FDISG) equals:
(a) if termination under Section 13.3(a) - $150,000.00; or
(b) if termination under Section 13.3(b) - $100,000.00.
13.5 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Fund.
13.6 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party; provided however, that no such cure period shall be
allowed for any such material breach which occurs more than twice in any one
year period. If FDISG is the Non-Defaulting Party, its termination of this
Agreement shall not constitute a waiver of any other rights or remedies of FDISG
with respect to services performed prior to such termination or rights of FDISG
to be reimbursed for out-of-pocket expenses. In all cases, termination by the
Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party
of any other rights it might have under this Agreement or otherwise against the
Defaulting Party.
Article 14 Additional Portfolios.
In the event that the Fund establishes one or more Portfolios in
addition to those identified in Exhibit 1, with respect to which the Fund
desires to have FDISG render services as transfer agent under the terms hereof,
the Fund shall so notify FDISG in writing, and if FDISG agrees in writing to
provide such services, Exhibit 1 shall be amended to include such additional
Portfolios.
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and FDISG shall exercise at least the same degree of care, but not less than
reasonable care, to safeguard the confidentiality of the Confidential
Information of the other as it would exercise to protect it's own confidential
information of a similar nature. The Fund and FDISG may use the Confidential
Information only to exercise its rights under this Agreement. The Fund and FDISG
shall not duplicate, sell or disclose to others the Confidential Information of
the other, in whole or in part, without the prior written permission of the
other party. The Fund and FDISG may, however, disclose Confidential Information
to its employees who have a need to know the Confidential Information to perform
work for the other, provided that each shall use reasonable efforts to ensure
that the Confidential Information is not duplicated or disclosed by its
employees in breach of this Agreement. The Fund and FDISG may also disclose the
Confidential Information to independent contractors, auditors, and professional
advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 15.1.
Notwithstanding the previous sentence, in no event shall either the Fund or
FDISG disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating to
the past, present or future business activities of the Fund or FDISG,
their respective subsidiaries and affiliated companies and the
customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Fund or FDISG
a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
Article 16 Force Majeure.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country, (iii) any act or omission of the other party or
any governmental authority; (iv) any labor disputes (whether or not the
employees' demands are reasonable or within the party's power to satisfy); or
(v) nonperformance by a third party or any similar cause beyond the reasonable
control of such party, including without limitation, failures or fluctuations in
telecommunications or other equipment. In any such event, the non-performing
party shall be excused from any further performance and observance of the
obligations so affected only for as long as such circumstances prevail and such
party continues to use commercially reasonable efforts to recommence performance
or observance as soon as practicable.
Article 17 Amendments.
No change, termination, modification, or waiver of any term or
condition of the Agreement shall be valid unless in writing signed by each
party. A party's waiver of a breach of any term or condition in the Agreement
shall not be deemed a waiver of any subsequent breach of the same or another
term or condition.
Article 18 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld. FDISG may, in its sole
discretion, engage subcontractors to perform any of the obligations contained in
this Agreement to be performed by FDISG.
Article 19 Notice.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or FDISG, shall be sufficiently given if
addressed to that party and received by it at its office set forth below or at
such other place as it may from time to time designate in writing.
To the Fund:
SIT Mutual Funds II, Inc.
4600 Norwest Center
Minneapolis, MN 55402
Attention: President
To FDISG:
First Data Investor Services Group, Inc.
One Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: President
with a copy to FDISG's General Counsel
Article 20 Successors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however, that
this Agreement shall not be assigned to any person other than a person
controlling, controlled by or under common control with the assignor without the
written consent of the other party, which consent shall not be unreasonably
withheld.
Article 21 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and FDISG
and the Fund hereby submit themselves to the exclusive jurisdiction of those
courts.
Article 22 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 23 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 24 Publicity.
Neither FDISG nor the Fund shall release or publish news releases,
public announcements, advertising or other publicity relating to this Agreement
or to the transactions contemplated by it without the prior review and written
approval of the other party; provided, however, that either party may make such
disclosures as are required by legal, accounting or regulatory requirements
after making reasonable efforts in the circumstances to consult in advance with
the other party.
Article 25 Relationship of Parties.
The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
Article 26 Entire Agreement; Severability.
26.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. A party's waiver of a
breach of any term or condition in the Agreement shall not be deemed a waiver of
any subsequent breach of the same or another term or condition.
26.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
SIT MUTUAL FUNDS II, INC.
By: /s/ Mary K. Stern
Title: President
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Gerald Kokos
Title: Executive Vice President
Exhibit 1
LIST OF PORTFOLIOS
Dated as of December 31, 1995
SIT Tax-Free Income Fund (series A)
SIT Minnesota Tax-Free Income Fund (series B)
SIT Bond Fund (series C)
Schedule A
DUTIES OF FDISG
1. Shareholder Information. FDISG shall maintain a record of the number
of Shares held by each Shareholder of record which shall include name, address,
taxpayer identification and which shall indicate whether such Shares are held in
certificates or uncertificated form.
2. Shareholder Services. FDISG shall respond as appropriate to all
inquiries and communications from Shareholders relating to Shareholder accounts
with respect to its duties hereunder and as may be from time to time mutually
agreed upon between FDISG and the Fund.
3. Share Certificates.
(a) At the expense of the Fund, the Fund shall supply FDISG with an
adequate supply of blank share certificates to meet FDISG requirements therefor.
Such Share certificates shall be properly signed by facsimile. The Fund agrees
that, notwithstanding the death, resignation, or removal of any officer of the
Fund whose signature appears on such certificates, FDISG or its agent may
continue to countersign certificates which bear such signatures until otherwise
directed by Written Instructions.
(b) FDISG shall issue replacement Share certificates in lieu of
certificates which have been lost, stolen or destroyed, upon receipt by FDISG of
properly executed affidavits and lost certificate bonds, in form satisfactory to
FDISG, with the Fund and FDISG as obligees under the bond.
(c) FDISG shall also maintain a record of each certificate issued,
the number of Shares represented thereby and the Shareholder of record. With
respect to Shares held in open accounts or uncertificated form (i.e., no
certificate being issued with respect thereto) FDISG shall maintain comparable
records of the Shareholders thereof, including their names, addresses and
taxpayer identification. FDISG shall further maintain a stop transfer record on
lost and/or replaced certificates.
4. Mailing Communications to Shareholders; Proxy Materials. FDISG will
address and mail to Shareholders of the Fund, all reports to Shareholders,
dividend and distribution notices and proxy material for the Fund's meetings of
Shareholders. In connection with meetings of Shareholders, FDISG will prepare
Shareholder lists, mail and certify as to the mailing of proxy materials,
process and tabulate returned proxy cards, report on proxies voted prior to
meetings, act as inspector of election at meetings and certify Shares voted at
meetings.
5. Sale of Shares
(a) FDISG shall not be required to issue any Shares of the Fund
where it has received a Written Instruction from the Fund or official notice
from any appropriate authority that the sale of the Shares of the Fund has been
suspended or discontinued. The existence of such Written Instructions or such
official notice shall be conclusive evidence of the right of FDISG to rely on
such Written Instructions or official notice.
(b) In the event that any check or other order for the payment of
money is returned unpaid for any reason, FDISG will endeavor to: (i) give prompt
notice of such return to the Fund or its designee; (ii) place a stop transfer
order against all Shares issued as a result of such check or order; and (iii)
take such actions as FDISG may from time to time deem appropriate.
6. Transfer and Repurchase
(a) FDISG shall process all requests to transfer or redeem Shares in
accordance with the transfer or repurchase procedures set forth in the Fund's
Prospectus.
(b) FDISG will transfer or repurchase Shares upon receipt of Oral or
Written Instructions or otherwise pursuant to the Prospectus and Share
certificates, if any, properly endorsed for transfer or redemption, accompanied
by such documents as FDISG reasonably may deem necessary.
(c) FDISG reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the endorsement on the instructions is valid
and genuine. FDISG also reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the requested transfer or repurchase is
legally authorized, and it shall incur no liability for the refusal, in good
faith, to make transfers or repurchases which FDISG, in its good judgement,
deems improper or unauthorized, or until it is reasonably satisfied that there
is no basis to any claims adverse to such transfer or repurchase.
(d) When Shares are redeemed, FDISG shall, upon receipt of the
instructions and documents in proper form, deliver to the Custodian and the Fund
or its designee a notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on appropriate accounts
maintained by FDISG reflecting outstanding Shares of the Fund and Shares
attributed to individual accounts.
(e) FDISG, upon receipt of the monies paid to it by the Custodian
for the repurchase of Shares, pay such monies as are received from the
Custodian, all in accordance with the procedures described in the written
instruction received by FDISG from the Fund.
(f) FDISG shall not process or effect any repurchase with respect to
Shares of the Fund after receipt by FDISG or its agent of notification of the
suspension of the determination of the net asset value of the Fund.
7. Dividends
(a) Upon the declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund with respect to Shares of the
Fund, the Fund shall furnish or cause to be furnished to FDISG Written
Instructions setting forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof, the record date
as of which Shareholders entitled to payment shall be determined, the amount
payable per Share to the Shareholders of record as of that date, the total
amount payable to FDISG on the payment date and whether such dividend or
distribution is to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution of
the Board of Directors, the Fund will pay to FDISG sufficient cash to make
payment to the Shareholders of record as of such payment date.
(c) If FDISG does not receive sufficient cash from the Fund to make
total dividend and/or distribution payments to all Shareholders of the Fund as
of the record date, FDISG will, upon notifying the Fund, withhold payment to all
Shareholders of record as of the record date until sufficient cash is provided
to FDISG.
8. In addition to and neither in lieu nor in contravention of the
services set forth above, FDISG shall: (i) perform all the customary services of
a transfer agent, registrar, dividend disbursing agent and agent of the dividend
reinvestment and cash purchase plan as described herein consistent with those
requirements in effect as at the date of this Agreement. The detailed
definition, frequency, limitations and associated costs (if any) set out in the
attached fee schedule, include but are not limited to: maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
tabulating proxies, mailing Shareholder reports to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts where
applicable, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders.
Schedule B
QUALITY STANDARD LEVELS
1. TIMELINESS OF RESEARCH REQUESTS
SERVICE DESCRIPTION:
FDISG will provide a research and problem resolution service to the
Shareholders. On a daily basis, the Fund, using either the Impress CSS
system or by fax, will communicate research requests to FDISG.
FDISG'S OBJECTIVE:
FDISG's objective is to accurately respond to 98% of the research
requests within the periods set forth below.
Wire: Complete within 24 hours
Financial: Complete within 48 hours
Non-Financial: Complete within 72 hours
2. MANUAL DATA ENTRY
SERVICE DESCRIPTION:
FDISG provides a manual data entry service to the Fund for establishing
new Shareholder accounts and monitoring existing account records.
FDISG'S OBJECTIVE:
FDISG's objective is to establish new accounts with a data accuracy
rate of 98%.
3. ACCURACY AND TIMELINESS OF SHAREHOLDER STATEMENTS
SERVICE DESCRIPTION:
Based on the mail frequency of the Fund, FDISG will produce and mail
periodic statements to Shareholders. FDISG will provide the Fund with a
mailing report from its Print/Mail vendor which will indicate the date
on which all Shareholder statements were mailed.
FDISG'S OBJECTIVE:
FDISG's objective is to manage this service so that 99% of all
statements from the Fund are accurate and are mailed no later than five
(5) business days after the statement date.
4. ACCURACY AND TIMELINESS OF DAILY ADVICE MAILINGS
SERVICE DESCRIPTION:
FDISG will produce and send, deliver or distribute an advice to the
Shareholder's account, except where suppressed pursuant to instructions
received from the Fund. FDISG will provide the Fund with a mailing
report from its Print/Mail vendor which will indicate the date on which
all advises were mailed.
FDISG'S OBJECTIVES:
FDISG's objective is to manage this service so that 99% of such advices
are accurate and are mailed no later than two (2) business days
following the date of the transaction.
5. TIMELINESS OF DISTRIBUTION CHECKS AND DIVIDEND MAILINGS
SERVICE DESCRIPTION:
Periodically, FDISG will create and mail checks for Fund's respective
Shareholders. FDISG will provide the Fund with a mailing report from
its Print/ Mail vendor indicating the date on which all dividend or
distribution checks were mailed.
FDISG'S OBJECTIVE:
FDISG's objective is to manage this service so that 99% of such advices
are accurate and are mailed no later than two (2) business days
following the date of the transaction.
6. FINANCIAL CONTROL
SERVICE DESCRIPTION:
FDISG will provide daily fund settlement reports to the Fund's
accounting and custodian service providers. FDISG will reconcile the
Fund's Demand Deposit Accounts on a daily basis, including investments
and disbursements. Acceptable DDA Item Exceptions beyond five days
include:
- Client Originated Item
- Shareholder Reclaim
- Bank (Cash Manager) Error
- Shareholder Fraudulent Activity
- Fed Wire Recall
- System Data Processing Limitations
- Miscellaneous Funding Issues with Shareholder, Cash Manager,
or Custodian
FDISG'S OBJECTIVE:
FDISG's objective is to reconcile all DDA transactions within five (5) business
days of the transaction post date. Any exceptions, including items greater than
five (5) business days, will be reported to the Fund with a general item
description. Any exception must be approved by the Fund to be considered within
standard.
Schedule C
FEE SCHEDULE
Annual Fees:
Open Account Fees: $13.50 per open account
Closed Account Fees: $ 2.40 per closed account
Fund Minimums: $24,000 per fund per year
Conversion Costs: Free set-up fee
Value Added Services:
Cost Basis Accounting: Free set-up fee
Adhoc SQL: Free set-up fee; $1,000 per hour
AVR Solution: Free set-up fee
$.2125 per minute charge
$.0775 per minute telecom charge
$.10 per call
FundServ: Free set-up fee, $.15 per trade plus $.10
same day trades
Asset Allocation/Reallocation: Free set-up fee, $.25 per trade via NSCC
Direct Access Zip Link: Free set-up fee, $1,000 per month, $.03/
record plus $.015/price record
CONSOLIDATED STATEMENTS PRICE DETERMINED BY PROJECT SCOPE. CUSTOMIZED
PROGRAMMING BILLABLE AT $100/HOUR.
General:
1.1 FDISG may charge a service fee equal to the lesser of (i) one and one
half percent (1 1/2%) per month of (ii) the highest interest rate
legally permitted on any unpaid amounts, unless such amounts are
ultimately determined not due in accordance with the Payment Dispute
Procedure. The Fund shall also reimburse FDISG for all reasonable
expenses to collect delinquent amounts, including reasonable attorneys'
fees and court costs.
1.2 FDISG may adjust any annual or monthly fees once per calendar year,
upon thirty (30) days prior written notice, in an amount not to exceed
the cumulative percentage increase in the Consumer Price Index for All
Urban Consumers (CIP-U) U.S. City Average, All Items (unadjusted) -
(1982-84 = 100), published by the U.S. Department of Labor since the
last such adjustment in Client's monthly fees (or the effective Date
absent a prior such adjustment).
Schedule D
OUT-OF-POCKET EXPENSES
The Fund shall reimburse FDISG monthly for applicable out-of-pocket
expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct
pass through to the Fund
- Due diligence mailings - Telephone and telecommunication costs,
including all lease, maintenance and line costs
- Special Ad hoc reports requested by the Fund
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Overtime, as approved by the Fund
- Temporary staff, as approved by the Fund
- Travel and entertainment, as approved by the Fund
- Record retention, retrieval and destruction costs, including, but
not limited to exit fees charged by third party record keeping
vendors
- Third party audit reviews
- All Systems enhancements after the conversion at the rate of
$100.00 per hour
- Insurance
- Such other miscellaneous expenses reasonably incurred by FDISG in
performing its duties and responsibilities under this Agreement.
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with FDISG. In addition, the Fund will
promptly reimburse FDISG for any other unscheduled expenses incurred by FDISG
whenever the Fund and FDISG mutually agree that such expenses are not otherwise
properly borne by FDISG as part of its duties and obligations under the
Agreement.
Schedule E
FUND DOCUMENTS
- Certified copy of the Articles of Incorporation of the Fund, as
amended
- Certified copy of the By-laws of the Fund, as amended,
- Copy of the resolution of the Board of Directors authorizing the
execution and delivery of this Agreement
- Specimens of the certificates for Shares of the Fund, if
applicable, in the form approved by the Board of Directors of the
Fund, with a certificate of the Secretary of the Fund as to such
approval
- All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered
by the Fund
- Certified list of Shareholders of the Fund with the name, address
and taxpayer identification number of each Shareholder, and the
number of Shares of the Fund held by each, certificate numbers
and denominations (if any certificates have been issued), lists
of any accounts against which stop transfer orders have been
placed, together with the reasons therefore, and the number of
Shares redeemed by the Fund
- All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation or
By-laws of the Fund or as required by law and shall perform such
other specific duties as are set forth in the Articles of
Incorporation including the giving of notice of any special or
annual meetings of shareholders and any other notices required
thereby.
EXHIBIT 8.2
Transfer Agency and Services Agreement
SIT Money Market Fund, Inc.
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 31st day of December, 1995 between SIT
MONEY MARKET FUND, INC. (the "Fund"), a Minnesota corporation, having its
principal place of business at 4600 Norwest Center, Minneapolis, Minnesota 55402
and FIRST DATA INVESTOR SERVICES GROUP, INC. ("FDISG"), a Massachusetts
corporation with principal offices at One Exchange Place, 53 State Street,
Boston, Massachusetts 02109.
WITNESSETH
WHEREAS, the Fund desires to appoint FDISG as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities
and FDISG desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and FDISG agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to FDISG from time to time.
(c) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
(f) "1934 Act" shall mean the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(g) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by FDISG from a person
reasonably believed by FDISG to be an Authorized Person;
(i) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which have become effective under the
Securities Act of 1933 and the 1940 Act.
(j) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class thereof, of
the Fund as may be issued from time to time.
(k) "Shareholder" shall mean a record owner of Shares of the
Fund.
(l) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by FDISG to be an Authorized
Person and actually received by FDISG. Written Instructions shall
include manually executed originals and authorized electronic
transmissions, including telefacsimile of a manually executed original
or other process.
Article 2 Appointment of FDISG.
The Fund hereby appoints and constitutes FDISG as transfer agent and
dividend disbursing agent for Shares of the Fund and as shareholder servicing
agent for the Fund and FDISG hereby accepts such appointments and agrees to
perform the duties hereinafter set forth.
Article 3 Duties of FDISG.
3.1 FDISG shall be responsible for:
(a) Administering and/or performing the customary services of
a transfer agent; acting as service agent in connection with dividend
and distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with the
Custodian) of Shares of the Fund, as more fully described in the
written schedule of Duties of FDISG annexed hereto as Schedule A and
incorporated herein, and in accordance with the terms of the Prospectus
of the Fund, applicable law and the procedures established from time to
time between FDISG and the Fund.
(b) Recording the issuance of Shares and maintaining pursuant
to Rule 17Ad-10(e) of the 1934 Act a record of the total number of
Shares of the Fund which are authorized, based upon data provided to it
by the Fund, and issued and outstanding. FDISG shall provide the Fund
on a regular basis with the total number of Shares of the Fund which
are authorized and issued and outstanding and shall have no obligation,
when recording the issuance of Shares, to monitor the issuance of such
Shares or to take cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole responsibility of the
Fund.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, FDISG shall be under no duty or obligation to inquire into,
and shall not be liable for: (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be received therefor;
(ii) the legality of the redemption of any Shares, or the propriety of
the amount to be paid therefor; (iii) the legality of the declaration
of any dividend by the Board of Directors, or the legality of the
issuance of any Shares in payment of any dividend; or (iv) the legality
of any recapitalization or readjustment of the Shares.
3.2 FDISG agrees that it shall perform the services set forth herein in
accordance with the written schedule of Quality Standard Levels annexed hereto
as Schedule B.
3.3 In addition, the Fund shall (i) identify to FDISG in writing those
transactions and assets to be treated as exempt from blue sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of FDISG for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions subject to
blue sky compliance by the Fund and the reporting of such transactions to the
Fund as provided above.
3.4 In addition to the duties set forth herein, FDISG shall perform
such other duties and functions, and shall be paid such amounts therefor, as may
from time to time be agreed upon in writing between the Fund and FDISG.
Article 4 Recordkeeping and Other Information.
4.1 FDISG shall create and maintain all records required of it pursuant
to its duties hereunder and as set forth in Schedule A in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. Where applicable, such records shall be maintained by
FDISG for the periods and in the places required by Rule 31a-2 under the 1940
Act.
4.2 To the extent required by Section 31 of the 1940 Act, FDISG agrees
that all such records prepared or maintained by FDISG relating to the services
to be performed by FDISG hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such section, and
will be surrendered promptly to the Fund on and in accordance with the Fund's
request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Fund, FDISG will endeavor to notify the Fund of such
request and secure Written Instructions as to the handling of such request.
FDISG reserves the right, however, to exhibit the Shareholder records to any
person whenever it is advised by its counsel that it may be held liable for the
failure to comply with such request.
Article 5 Fund Instructions.
5.1 FDISG will have no liability when acting upon Written or Oral
Instructions believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Fund. FDISG will also have no liability when processing Share certificates which
it reasonably believes to bear the proper manual or facsimile signatures of the
officers of the Fund and the proper countersignature of FDISG.
5.2 At any time, FDISG may request Written Instructions from the Fund
and may seek advice from legal counsel for the Fund, or its own legal counsel,
with respect to any matter arising in connection with this Agreement, and it
shall not be liable for any action taken or not taken or suffered by it in good
faith in accordance with such Written Instructions or in accordance with the
opinion of counsel for the Fund or for FDISG. Written Instructions requested by
FDISG will be provided by the Fund within a reasonable period of time.
5.3 FDISG, its officers, agents or employees, shall accept Oral
Instructions or Written Instructions given to them by any person representing or
acting on behalf of the Fund only if said representative is an Authorized
Person. The Fund agrees that all Oral Instructions shall be followed within one
business day by confirming Written Instructions, and that the Fund's failure to
so confirm shall not impair in any respect FDISG's right to rely on Oral
Instructions.
Article 6 Compensation.
6.1 The Fund will compensate FDISG for the performance of its
obligations hereunder in accordance with the fees set forth in the written Fee
Schedule annexed hereto as Schedule C and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
agrees to pay, and will be billed separately for, out-of-pocket expenses
incurred by FDISG in the performance of its duties hereunder. Out-of-pocket
expenses shall include, but shall not be limited to, the items specified in the
written schedule of out-of-pocket charges annexed hereto as Schedule D and
incorporated herein. Schedule C may be modified by written agreement between the
parties. Unspecified out-of-pocket expenses shall be limited to those
out-of-pocket expenses reasonably incurred by FDISG in the performance of its
obligations hereunder.
6.3 The Fund agrees to pay all fees and out-of-pocket expenses within
fifteen (15) days following the receipt of the respective invoice.
6.4 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule C, a revised Fee Schedule executed and dated by
the parties hereto.
6.5 The Fund acknowledges that the fees that FDISG charges the Fund
under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 9.3 and the limitations on
liability and exclusion of remedies in Section 11.2 and Article 12. Modifying
the allocation of risk from what is stated here would affect the fees that FDISG
charges, and in consideration of those fees, the Fund agrees to the stated
allocation of risk.
Article 7 Documents.
In connection with the appointment of FDISG, the Fund shall, on or
before the date this Agreement goes into effect, but in any case within a
reasonable period of time for FDISG to prepare to perform its duties hereunder,
deliver or caused to be delivered to FDISG the documents set forth in the
written schedule of Fund Documents annexed hereto as Schedule E.
Article 8 Transfer Agent System.
8.1 FDISG shall retain title to and ownership of any and all data
bases, computer programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by FDISG in connection with the services
provided by FDISG to the Fund herein (the "FDISG System").
8.2 FDISG hereby grants to the Fund a limited license to the FDISG
System for the sole and limited purpose of having FDISG provide the services
contemplated hereunder and nothing contained in this Agreement shall be
construed or interpreted otherwise and such license shall immediately terminate
with the termination of this Agreement.
Article 9 Representations and Warranties.
9.1 FDISG represents and warrants to the Fund that:
(a) it is a corporation duly organized an existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorized it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
9.2 The Fund represents and warrants to FDISG that:
(a) it is duly organized and existing and in good standing
under the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Article
of Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to
authorized it to enter into this Agreement;
(d) a registration statement under the Securities Act of 1933,
as amended, and the 1940 Act on behalf of each of the Fund is currently
effective and will remain effective, and all appropriate state
securities law filings have been made and will continue to be made,
with respect to all Shares of the Fund being offered for sale;
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with
the terms of the Fund's Articles of Incorporation and its Prospectus,
such Shares shall be validly issued, fully paid and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTIES REGARDING QUALITY, SUITABILITY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF ANY COURSE OF DEALING, CUSTOM
OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS PROVIDED INCIDENTAL TO SERVICES
PROVIDED UNDER THIS AGREEMENT. FDISG DISCLAIMS ANY WARRANTY OF TITLE OR
NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT.
Article 10 Indemnification.
10.1 FDISG shall not be responsible for and the Fund shall indemnify
and hold FDISG harmless from and against any and all claims, costs, expenses
(including reasonable attorneys' fees), losses, damages, charges, payments and
liabilities of any sort or kind which may be asserted against FDISG or for which
FDISG may be held to be liable (a "Claim") arising out of or attributable to any
of the following:
(a) Any actions of FDISG required to be taken pursuant to this
Agreement unless such Claim resulted from a negligent act or omission
to act or bad faith by FDISG in the performance of its duties
hereunder.
(b) FDISG's reasonable reliance on, or reasonable use of
information, data, records and documents (including but not limited to
magnetic tapes, computer printouts, hard copies and microfilm copies)
received by FDISG from the Fund, or any authorized third party acting
on behalf of the Fund, including but not limited the prior transfer
agent for the Fund, in the performance of FDISG's duties and
obligations hereunder.
(c) The reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Fund.
(d) The offer or sales of shares in violation of any
requirement under the securities laws or regulations of any state that
such shares be registered in such state or in violation of any stop
order or other determination or ruling by any state with respect to the
offer or sale of such shares in such state.
(e) The Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Fund's negligence
or misconduct or the breach of any representation or warranty of the
Fund made herein.
10.2 The Fund shall not be responsible for and FDISG shall indemnify
and hold the Fund harmless from and against any and all Claims made by third
parties which result from a negligent act or omission to act or bad faith by
FDISG in the performance of its duties hereunder.
10.3 In any case in which the either party (the "Indemnifying Party")
may be asked to indemnify or hold the other (the "Indemnified Party") harmless,
the Indemnified Party will notify the Indemnifying Party promptly after
identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Indemnifying Party although the
failure to do so shall not prevent recovery by the Indemnified Party and shall
keep the Indemnifying Party advised with respect to all developments concerning
such situation. The Indemnifying Party shall have the option to defend the
Indemnified Party against any Claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the Indemnifying Party and
satisfactory to the Indemnified Party, and thereupon the Indemnifying Party
shall take over complete defense of the Claim and the Indemnified Party shall
sustain no further legal or other expenses in respect of such Claim. The
Indemnified Party will not confess any Claim or make any compromise in any case
in which the Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent. The obligations of the
parties hereto under this Article 10 shall survive the termination of this
Agreement.
10.4 Any claim for indemnification under this Agreement must be made
prior to one year after the applicable party becomes aware of the event for
which indemnification is claimed.
10.5 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
FDISG's sole and exclusive remedy for claims or other actions or proceedings to
which the Fund's indemnification obligations pursuant to this Article 10 may
apply.
Article 11 Standard of Care.
11.1 FDISG shall at all times act in good faith and agrees to use its
best efforts within commercially reasonable limits to ensure the accuracy of all
services performed under this Agreement, but assumes no responsibility for loss
or damage to the Fund unless said errors are caused by FDISG's own negligence,
bad faith or willful misconduct or that of its employees.
11.2 Notwithstanding the foregoing Section 11.1 or anything else
contained in this Agreement to the contrary, FDISG's entire liability to the
Fund for any loss or damage, direct or indirect for any cause whatsoever
(including but not limited to those arising out of this Agreement), and
regardless of the form of action, shall be limited to the Fund's actual direct
out-of-pocket expenses which are reasonably incurred by the Fund, but shall not
under any circumstances exceed the lesser of (i) an amount equivalent to the
average of twelve month's fees paid to FDISG under this Agreement; or (ii)
one-million dollars ($1,000,000). The foregoing limitation of liability shall
not apply to damages occasioned by the intentional misconduct or gross
negligence of either party.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL FDISG, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF TORT,
CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST PROFITS,
EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF
WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written above
and shall continue for a period of five (5) years (the "Initial Term"), unless
earlier terminated pursuant to the terms of this Agreement. Thereafter, this
Agreement shall automatically be renewed for successive terms of three (3) years
("Renewal Terms") each.
13.2 Either party may terminate this Agreement at the end of the
Initial Term or any subsequent Renewal Term upon not less than ninety (90) days
or more than one-hundred eighty (180) days prior written notice to the other
party.
13.3 Nothwithstanding the foregoing provisions in Section 13.1 and
13.2, the Fund may terminate this Agreement as follows:
(a) the Fund may terminate this Agreement after year three
upon ninety (90) days written notice to FDISG. Such notice
must be received by FDISG no earlier than ninety (90) days
prior to the end of the third year of the Agreement and no
later than the end of the third year of the Agreement,
otherwise the Agreement shall continue in full force and
effect; or
(b) the Fund may terminate this Agreement after year four upon
ninety (90) days written notice to FDISG. Such notice must be
received by FDISG no earlier than ninety (90) days prior to
the end of the fourth year of the Agreement and no later than
the end of the fourth year of the Agreement, otherwise the
Agreement shall continue in full force and effect.
13.4 In the event that this Agreement is terminated pursuant to
provisions in Sections 13.3 (a) or (b) above, the Fund shall pay to FDISG its
allocable portion of the aggregate early termination fee prior to the effective
date of such termination such that the total termination fee paid by investment
companies within the SIT Mutual Fund Group (SIT Mutual Fund Group as used in
Section 13 is defined as investment companies for which SIT Investment
Associates, Inc. serves as the investment manager and sponsor and which have
entered into similar transfer agency and services agreements as this Agreement
with FDISG) equals:
(a) if termination under Section 13.3(a) - $150,000.00; or
(b) if termination under Section 13.3(b) - $100,000.00.
13.5 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Fund.
13.6 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party; provided however, that no such cure period shall be
allowed for any such material breach which occurs more than twice in any one
year period. If FDISG is the Non-Defaulting Party, its termination of this
Agreement shall not constitute a waiver of any other rights or remedies of FDISG
with respect to services performed prior to such termination or rights of FDISG
to be reimbursed for out-of-pocket expenses. In all cases, termination by the
Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party
of any other rights it might have under this Agreement or otherwise against the
Defaulting Party.
Article 14 Confidentiality.
14.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and FDISG shall exercise at least the same degree of care, but not less than
reasonable care, to safeguard the confidentiality of the Confidential
Information of the other as it would exercise to protect it's own confidential
information of a similar nature. The Fund and FDISG may use the Confidential
Information only to exercise its rights under this Agreement. The Fund and FDISG
shall not duplicate, sell or disclose to others the Confidential Information of
the other, in whole or in part, without the prior written permission of the
other party. The Fund and FDISG may, however, disclose Confidential Information
to its employees who have a need to know the Confidential Information to perform
work for the other, provided that each shall use reasonable efforts to ensure
that the Confidential Information is not duplicated or disclosed by its
employees in breach of this Agreement. The Fund and FDISG may also disclose the
Confidential Information to independent contractors, auditors, and professional
advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 14.1.
Notwithstanding the previous sentence, in no event shall either the Fund or
FDISG disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
14.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating to
the past, present or future business activities of the Fund or FDISG,
their respective subsidiaries and affiliated companies and the
customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Fund or FDISG
a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
14.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
Article 15 Force Majeure.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country, (iii) any act or omission of the other party or
any governmental authority; (iv) any labor disputes (whether or not the
employees' demands are reasonable or within the party's power to satisfy); or
(v) nonperformance by a third party or any similar cause beyond the reasonable
control of such party, including without limitation, failures or fluctuations in
telecommunications or other equipment. In any such event, the non-performing
party shall be excused from any further performance and observance of the
obligations so affected only for as long as such circumstances prevail and such
party continues to use commercially reasonable efforts to recommence performance
or observance as soon as practicable.
Article 16 Amendments.
No change, termination, modification, or waiver of any term or
condition of the Agreement shall be valid unless in writing signed by each
party. A party's waiver of a breach of any term or condition in the Agreement
shall not be deemed a waiver of any subsequent breach of the same or another
term or condition.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld. FDISG may, in its sole
discretion, engage subcontractors to perform any of the obligations contained in
this Agreement to be performed by FDISG.
Article 18 Notice.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or FDISG, shall be sufficiently given if
addressed to that party and received by it at its office set forth below or at
such other place as it may from time to time designate in writing.
To the Fund:
SIT Money Market Fund, Inc.
4600 Norwest Center
Minneapolis, MN 55402
Attention: President
To FDISG:
First Data Investor Services Group, Inc.
One Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: President
with a copy to FDISG's General Counsel
Article 19 Successors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however, that
this Agreement shall not be assigned to any person other than a person
controlling, controlled by or under common control with the assignor without the
written consent of the other party, which consent shall not be unreasonably
withheld.
Article 20 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and FDISG
and the Fund hereby submit themselves to the exclusive jurisdiction of those
courts.
Article 21 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 22 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 Publicity.
Neither FDISG nor the Fund shall release or publish news releases,
public announcements, advertising or other publicity relating to this Agreement
or to the transactions contemplated by it without the prior review and written
approval of the other party; provided, however, that either party may make such
disclosures as are required by legal, accounting or regulatory requirements
after making reasonable efforts in the circumstances to consult in advance with
the other party.
Article 24 Relationship of Parties.
The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
Article 25 Entire Agreement; Severability.
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. A party's waiver of a
breach of any term or condition in the Agreement shall not be deemed a waiver of
any subsequent breach of the same or another term or condition.
25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
SIT MONEY MARKET FUND, INC.
By:
Title:
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
Title:
Schedule A
DUTIES OF FDISG
1. Shareholder Information. FDISG shall maintain a record of the number
of Shares held by each Shareholder of record which shall include name, address,
taxpayer identification and which shall indicate whether such Shares are held in
certificates or uncertificated form.
2. Shareholder Services. FDISG shall respond as appropriate to all
inquiries and communications from Shareholders relating to Shareholder accounts
with respect to its duties hereunder and as may be from time to time
mutually agreed upon between FDISG and the Fund.
3. Share Certificates.
(a) At the expense of the Fund, the Fund shall supply FDISG
with an adequate supply of blank share certificates to meet FDISG requirements
therefor. Such Share certificates shall be properly signed by facsimile. The
Fund agrees that, notwithstanding the death, resignation, or removal of any
officer of the Fund whose signature appears on such certificates, FDISG or its
agent may continue to countersign certificates which bear such signatures until
otherwise directed by Written Instructions.
(b) FDISG shall issue replacement Share certificates in lieu
of certificates which have been lost, stolen or destroyed, upon receipt by FDISG
of properly executed affidavits and lost certificate bonds, in form satisfactory
to FDISG, with the Fund and FDISG as obligees under the bond.
(c) FDISG shall also maintain a record of each certificate
issued, the number of Shares represented thereby and the Shareholder of record.
With respect to Shares held in open accounts or uncertificated form (i.e., no
certificate being issued with respect thereto) FDISG shall maintain comparable
records of the Shareholders thereof, including their names, addresses and
taxpayer identification. FDISG shall further maintain a stop transfer record on
lost and/or replaced certificates.
4. Mailing Communications to Shareholders; Proxy Materials. FDISG will
address and mail to Shareholders of the Fund, all reports to Shareholders,
dividend and distribution notices and proxy material for the Fund's meetings of
Shareholders. In connection with meetings of Shareholders, FDISG will prepare
Shareholder lists, mail and certify as to the mailing of proxy materials,
process and tabulate returned proxy cards, report on proxies voted prior to
meetings, act as inspector of election at meetings and certify Shares voted at
meetings.
5. Sale of Shares
(a) FDISG shall not be required to issue any Shares of the
Fund where it has received a Written Instruction from the Fund or official
notice from any appropriate authority that the sale of the Shares of the Fund
has been suspended or discontinued. The existence of such Written Instructions
or such official notice shall be conclusive evidence of the right of FDISG to
rely on such Written Instructions or official notice.
(b) In the event that any check or other order for the payment
of money is returned unpaid for any reason, FDISG will endeavor to: (i) give
prompt notice of such return to the Fund or its designee; (ii) place a stop
transfer order against all Shares issued as a result of such check or order; and
(iii) take such actions as FDISG may from time to time deem appropriate.
6. Transfer and Repurchase
(a) FDISG shall process all requests to transfer or redeem
Shares in accordance with the transfer or repurchase procedures set forth in the
Fund's Prospectus.
(b) FDISG will transfer or repurchase Shares upon receipt of
Oral or Written Instructions or otherwise pursuant to the Prospectus and Share
certificates, if any, properly endorsed for transfer or redemption, accompanied
by such documents as FDISG reasonably may deem necessary.
(c) FDISG reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the endorsement on the instructions
is valid and genuine. FDISG also reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the requested transfer or
repurchase is legally authorized, and it shall incur no liability for the
refusal, in good faith, to make transfers or repurchases which FDISG, in its
good judgement, deems improper or unauthorized, or until it is reasonably
satisfied that there is no basis to any claims adverse to such transfer or
repurchase.
(d) When Shares are redeemed, FDISG shall, upon receipt of the
instructions and documents in proper form, deliver to the Custodian and the Fund
or its designee a notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on appropriate accounts
maintained by FDISG reflecting outstanding Shares of the Fund and Shares
attributed to individual accounts.
(e) FDISG, upon receipt of the monies paid to it by the
Custodian for the repurchase of Shares, pay such monies as are received from the
Custodian, all in accordance with the procedures described in the written
instruction received by FDISG from the Fund.
(f) FDISG shall not process or effect any repurchase with
respect to Shares of the Fund after receipt by FDISG or its agent of
notification of the suspension of the determination of the net asset value of
the Fund.
7. Dividends
(a) Upon the declaration of each dividend and each capital
gains distribution by the Board of Directors of the Fund with respect to Shares
of the Fund, the Fund shall furnish or cause to be furnished to FDISG Written
Instructions setting forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof, the record date
as of which Shareholders entitled to payment shall be determined, the amount
payable per Share to the Shareholders of record as of that date, the total
amount payable to FDISG on the payment date and whether such dividend or
distribution is to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution
of the Board of Directors, the Fund will pay to FDISG sufficient cash to make
payment to the Shareholders of record as of such payment date.
(c) If FDISG does not receive sufficient cash from the Fund to
make total dividend and/or distribution payments to all Shareholders of the Fund
as of the record date, FDISG will, upon notifying the Fund, withhold payment to
all Shareholders of record as of the record date until sufficient cash is
provided to FDISG.
8. In addition to and neither in lieu nor in contravention of the
services set forth above, FDISG shall: (i) perform all the customary services of
a transfer agent, registrar, dividend disbursing agent and agent of the dividend
reinvestment and cash purchase plan as described herein consistent with those
requirements in effect as at the date of this Agreement. The detailed
definition, frequency, limitations and associated costs (if any) set out in the
attached fee schedule, include but are not limited to: maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
tabulating proxies, mailing Shareholder reports to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts where
applicable, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders.
Schedule B
QUALITY STANDARD LEVELS
1. TIMELINESS OF RESEARCH REQUESTS
SERVICE DESCRIPTION:
FDISG will provide a research and problem resolution service to the
Shareholders. On a daily basis, the Fund, using either the Impress CSS
system or by fax, will communicate research requests to FDISG.
FDISG'S OBJECTIVE:
FDISG's objective is to accurately respond to 98% of the research
requests within the periods set forth below.
Wire: Complete within 24 hours
Financial: Complete within 48 hours
Non-Financial: Complete within 72 hours
2. MANUAL DATA ENTRY
SERVICE DESCRIPTION:
FDISG provides a manual data entry service to the Fund for establishing
new Shareholder accounts and monitoring existing account records.
FDISG'S OBJECTIVE:
FDISG's objective is to establish new accounts with a data accuracy
rate of 98%.
3. ACCURACY AND TIMELINESS OF SHAREHOLDER STATEMENTS
SERVICE DESCRIPTION:
Based on the mail frequency of the Fund, FDISG will produce and mail
periodic statements to Shareholders. FDISG will provide the Fund with a
mailing report from its Print/Mail vendor which will indicate the date
on which all Shareholder statements were mailed.
FDISG'S OBJECTIVE:
FDISG's objective is to manage this service so that 99% of all
statements from the Fund are accurate and are mailed no later than five
(5) business days after the statement date.
4. ACCURACY AND TIMELINESS OF DAILY ADVICE MAILINGS
SERVICE DESCRIPTION:
FDISG will produce and send, deliver or distribute an advice to the
Shareholder's account, except where suppressed pursuant to instructions
received from the Fund. FDISG will provide the Fund with a mailing
report from its Print/Mail vendor which will indicate the date on which
all advises were mailed.
FDISG'S OBJECTIVES:
FDISG's objective is to manage this service so that 99% of such advices
are accurate and are mailed no later than two (2) business days
following the date of the transaction.
5. TIMELINESS OF DISTRIBUTION CHECKS AND DIVIDEND MAILINGS
SERVICE DESCRIPTION:
Periodically, FDISG will create and mail checks for Fund's respective
Shareholders. FDISG will provide the Fund with a mailing report from
its Print/ Mail vendor indicating the date on which all dividend or
distribution checks were mailed.
FDISG'S OBJECTIVE:
FDISG's objective is to manage this service so that 99% of such advices
are accurate and are mailed no later than two (2) business days
following the date of the transaction.
6. FINANCIAL CONTROL
SERVICE DESCRIPTION:
FDISG will provide daily fund settlement reports to the Fund's
accounting and custodian service providers. FDISG will reconcile the
Fund's Demand Deposit Accounts on a daily basis, including investments
and disbursements. Acceptable DDA Item Exceptions beyond five days
include:
- Client Originated Item
- Shareholder Reclaim
- Bank (Cash Manager) Error
- Shareholder Fraudulent Activity
- Fed Wire Recall
- System Data Processing Limitations
- Miscellaneous Funding Issues with Shareholder, Cash
Manager, or Custodian
FDISG'S OBJECTIVE:
FDISG's objective is to reconcile all DDA transactions within five (5)
business days of the transaction post date. Any exceptions, including
items greater than five (5) business days, will be reported to the Fund
with a general item description. Any exception must be approved by the
Fund to be considered within standard.
Schedule C
FEE SCHEDULE
SIT MONEY MARKET FUND, INC.
Annual Fees:
Open Account Fees: $13.50 per open account
Closed Account Fees: $ 2.40 per closed account
Fund Minimums: $24,000 per fund per year
Conversion Costs: Free set-up fee
Value Added Services:
Cost Basis Accounting: Free set-up fee
Adhoc SQL: Free set-up fee; $1,000 per hour
AVR Solution: Free set-up fee
$.2125 per minute charge
$.0775 per minute telecom charge
$.10 per call
FundServ: Free set-up fee, $.15 per trade
plus $.10 same day trades
Asset Allocation/Reallocation: Free set-up fee, $.25 per trade
via NSCC
Direct Access Zip Link: Free set-up fee, $1,000 per month,
$.03/record plus $.015/price
record
CONSOLIDATED STATEMENTS PRICE DETERMINED BY PROJECT SCOPE. CUSTOMIZED
PROGRAMMING BILLABLE AT $100/HOUR.
General:
1.1 FDISG may charge a service fee equal to the lesser of (i) one and one
half percent (1 1/2%) per month of (ii) the highest interest rate
legally permitted on any unpaid amounts, unless such amounts are
ultimately determined not due in accordance with the Payment Dispute
Procedure. The Fund shall also reimburse FDISG for all reasonable
expenses to collect delinquent amounts, including reasonable attorneys'
fees and court costs.
1.2 FDISG may adjust any annual or monthly fees once per calendar year,
upon thirty (30) days prior written notice, in an amount not to exceed
the cumulative percentage increase in the Consumer Price Index for All
Urban Consumers (CIP-U) U.S. City Average, All Items (unadjusted) -
(1982-84 = 100), published by the U.S. Department of Labor since the
last such adjustment in Client's monthly fees (or the effective Date
absent a prior such adjustment).
Schedule D
OUT-OF-POCKET EXPENSES
The Fund shall reimburse FDISG monthly for applicable out-of-pocket
expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct
pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including all lease,
maintenance and line costs
- Special Ad hoc reports requested by the Fund
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Overtime, as approved by the Fund
- Temporary staff, as approved by the Fund
- Travel and entertainment, as approved by the Fund
- Record retention, retrieval and destruction costs, including,
but not limited to exit fees charged by third party record
keeping vendors
- Third party audit reviews
- All Systems enhancements after the conversion at the rate of
$100.00 per hour
- Insurance
- Such other miscellaneous expenses reasonably incurred by FDISG
in performing its duties and responsibilities under this
Agreement.
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with FDISG. In addition, the Fund will
promptly reimburse FDISG for any other unscheduled expenses incurred by FDISG
whenever the Fund and FDISG mutually agree that such expenses are not otherwise
properly borne by FDISG as part of its duties and obligations under the
Agreement.
Schedule E
FUND DOCUMENTS
- Certified copy of the Articles of Incorporation of the Fund,
as amended
- Certified copy of the By-laws of the Fund, as amended,
- Copy of the resolution of the Board of Directors authorizing
the execution and delivery of this Agreement
- Specimens of the certificates for Shares of the Fund, if
applicable, in the form approved by the Board of Directors of
the Fund, with a certificate of the Secretary of the Fund as
to such approval
- All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service
offered by the Fund
- Certified list of Shareholders of the Fund with the name,
address and taxpayer identification number of each
Shareholder, and the number of Shares of the Fund held by
each, certificate numbers and denominations (if any
certificates have been issued), lists of any accounts against
which stop transfer orders have been placed, together with the
reasons therefore, and the number of Shares redeemed by the
Fund
- All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation
or By-laws of the Fund or as required by law and shall perform
such other specific duties as are set forth in the Articles of
Incorporation including the giving of notice of any special or
annual meetings of shareholders and any other notices required
thereby.
EXHIBIT 8.3
Accounting Services Agreement
SIT U.S. Government Securities Fund, Inc.
ACCOUNTING SERVICES AGREEMENT
THIS ACCOUNTING SERVICES AGREEMENT is made as of April 1, 1996 (the
"Agreement"), by and between SIT U.S. Government Securities Fund, Inc., a
Minnesota corporation (the "Company"), and First Data Investor Services Group,
Inc., a Massachusetts corporation ("FDISG").
WHEREAS, the Company is registered as a diversified open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Company wishes to retain FDISG to provide certain fund
accounting services with respect to each investment portfolio listed in Schedule
A hereto, as the same may be amended from time to time by the parties hereto
(collectively, the "Funds"), and FDISG is willing to furnish such services;
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Company hereby appoints FDISG to provide certain
fund accounting services required by the Company for each Fund for the period
and on the terms set forth in this Agreement. FDISG accepts such appointment and
agrees to furnish the services herein set forth in return for the compensation
as provided in Section 4 of this Agreement. In the event that the Company
decides to retain FDISG to act as fund accountant hereunder with respect to one
or more portfolios other than the Funds, the Company shall notify FDISG in
writing. If FDISG is willing to render such services, it shall notify the
Company in writing whereupon such portfolio shall become a Fund hereunder.
2. Delivery of Documents. The Company has furnished FDISG with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Directors authorizing
FDISG to provide certain fund accounting services to the Company and approving
this Agreement;
(b) The Company's Articles of Incorporation (the "Articles")
filed with the State of Minnesota and all amendments thereto;
(c) The Company's By-Laws and all amendments thereto (the
"By-Laws");
(d) The Investment Advisory Agreement between SIT Investment
Associates, Inc. (the "Adviser") and the Company dated as of November 1, 1992
and all amendments thereto (the "Advisory Agreement");
(e) The Custody Agreement between The Northern Trust Company (the
"Custodian") and the Company dated as of April 1, 1996 and all amendments
thereto (the "Custody Agreement");
(f) The Transfer Agency and Registrar Agreement between First
Data Investor Services Group, Inc. (the "Transfer Agent") and the Company dated
as of January 1, 1996 and all amendments thereto;
(g) The Company's Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 and under the
Investment Company Act of 1940 (the "1940 Act") (File Nos. 33-11549 and
811-04995), as declared effective by the Securities and Exchange Commission (the
"SEC") on June 2, 1987, relating to shares of beneficial interest of the Company
(the "Shares"), and all amendments thereto; and
(h) Each Fund's most recent prospectus and statement of
additional information and all amendments and supplements thereto (collectively,
the "Prospectuses").
The Company will furnish FDISG from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any. Furthermore, the Company will provide FDISG with any other
documents that FDISG may reasonably request and will notify FDISG as soon as
possible of any matter materially affecting the performance by FDISG of its
services under this Agreement.
3. Services and Duties. Subject to the supervision and control of the
Company, FDISG undertakes to provide the following specific services:
(a) Accounting and bookkeeping services (including the
maintenance of such accounts, books and records of the Company as may be
required by Section 31(a) of the 1940 Act and the rules thereunder);
(b) Internal auditing;
(c) Valuing the assets of each Fund and calculating the net asset
value of the shares of the Fund at the close of trading on the New York Stock
Exchange ("NYSE") on each day on which the NYSE is open for trading, and at such
other times as the Board of Directors may reasonably request;
(d) Accumulating information for and, subject to approval by the
Company's Treasurer, preparing reports to the Company's shareholders of record
and the SEC including, but not necessarily limited to, Annual Reports and
Semi-Annual Reports on Form N-SAR;
(e) Assisting the Adviser, at the Adviser's request, in
monitoring and developing compliance procedures for the Company which will
include, among other matters, procedures to assist the Adviser in monitoring
compliance with each Fund's investment objective, policies, restrictions, tax
matters and applicable laws and regulations; and
(f) Preparing and furnishing the Company (at the Company's
request) with performance information (including yield and total return
information) calculated in accordance with applicable U.S. securities laws and
reporting to external databases such information as may reasonably be requested.
In performing its duties under this Agreement, FDISG: (a) will act in
accordance with the Articles, By-Laws, Prospectuses and with the instructions
and directions of the Company and will conform to and comply with the
requirements of the 1940 Act and all other applicable Federal or state laws and
regulations; and (b) will consult with legal counsel to the Company, as
necessary and appropriate. Furthermore, FDISG shall not have or be required to
have any authority to supervise the investment or reinvestment of the securities
or other properties which comprise the assets of the Company or any of its Funds
and shall not provide any investment advisory services to the Company or any of
its Funds.
4. Compensation and Allocation of Expenses.
(a) For the services to be rendered, the facilities to be
furnished and the payments to be made by FDISG, as provided for in this
Agreement, the Company, on behalf of each Fund, will pay FDISG on the first
business day of each month a fee for the previous month at the annual rate of
.055 of 1.00% of the value of the Fund's average daily net assets. Within
fifteen (15) days after FDISG has received both the monthly fee set forth herein
from the Company and the monthly bill from the Custodian, FDISG shall (pursuant
to the Client Services Agreement, dated as of April 1, 1996, between FDISG and
the Custodian (the "Client Services Agreement") and the Custody Agreement) pay
to the Custodian, with respect to each Fund, a fee which shall serve as full
payment for the Custodian's services to the Fund under the Custody Agreement and
the Client Services Agreement for the preceding month at the annual rate of .01
of 1.00% of the value of the Fund's average daily net assets (plus out-of-pocket
expenses). For the purposes of calculating the fees described herein, the Fund's
average daily net assets will be deemed to be the average daily value of the
Fund's total assets minus the sum of the Fund's liabilities (excluding the
aggregate liquidation preference on the outstanding shares of the Fund's auction
rate preferred stock and accumulated dividends, if any, thereon). Fees for the
period from the date the Registration Statement is declared effective by the SEC
to the end of the month during which the Registration Statement is declared
effective shall be prorated according to the proportion that such period bears
to the full monthly period.
(b) The Company shall compensate FDISG for its services rendered
pursuant to this Agreement in accordance with the fees set forth above. Such
fees do not include out-of-pocket disbursements of FDISG for which FDISG shall
be entitled to bill separately. Out-of-pocket disbursements shall include, but
shall not be limited to, the items specified in Schedule B annexed hereto and
incorporated herein. Schedule B may be modified by FDISG upon not less than
thirty days' prior written notice to the Company.
(c) FDISG shall not be required to pay any of the following
expenses incurred by the Company: membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses; investment
advisory expenses; costs of printing and mailing stock certificates,
prospectuses, reports and notices; interest on borrowed money; brokerage
commissions; taxes and fees payable to Federal, state and other governmental
agencies; fees of Directors of the Company who are not affiliated with FDISG;
outside auditing expenses; outside legal expenses; or other expenses not
specified in this Section 4 which may be properly payable by the Company.
(d) FDISG will bill the Company as soon as practicable after the
end of each calendar month for out-of-pocket disbursements, and said billings
will be detailed in accordance with this Section and Schedule B. The Company
will pay to FDISG the amount of such billing within 30 days of such billing.
(e) Upon any termination of this Agreement before the end of any
month, the fee for such period shall be prorated according to the proportion
which such period bears to the full month period. For purposes of determining
fees payable to FDISG, the value of each Fund's net assets shall be computed at
the time and in the manner specified in the most recent Prospectuses.
(f) The Company acknowledges that the fees that FDISG charges the
Company under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 7 and the limitations on
liability in Section 5. Modifying the allocation of risk from what is stated
here would affect the fees that FDISG charges, and in consideration of those
fees, the Company agrees to the stated allocation of risk.
(g) FDISG will from time to time employ or associate itself with
such person or persons as FDISG may believe to be particularly suited to assist
it in performing services under this Agreement. Such person or persons may be
officers and employees who are employed by both FDISG and the Company. The
compensation of such person or persons shall be paid by FDISG and no obligation
shall be incurred on behalf of the Company in such respect.
5. Limitation of Liability
(a) FDISG, its directors, officers, employees, shareholders and
agents shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Company or a Fund in connection with the performance of
this Agreement, except a loss resulting from willful misfeasance, bad faith, or
negligence on the part of FDISG in the performance of its obligations and duties
under this Agreement.
(b) Notwithstanding any provision in this Agreement to the
contrary, FDISG's cumulative liability (to the Company) for all losses, claims,
suits, controversies, breaches, or damages for any cause whatsoever (including
but not limited to those arising out of or related to this Agreement) and
regardless of the form of action or legal theory shall not exceed the lesser of
(i) $1,000,000 or (ii) the fees received by FDISG for services provided under
this Agreement during the twelve months immediately prior to the date of such
loss or damage.
(c) Neither party may assert any cause of action against the
other party under this Agreement that accrued more than two (2) years prior to
the filing of the suit (or commencement of arbitration proceedings) alleging
such cause of action.
(d) Each party shall have the duty to mitigate damages for which
the other party may become responsible.
(e) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY,
IN NO EVENT SHALL FDISG, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF
TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST
PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS
OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
6. Indemnification.
(a) The Company shall indemnify and hold FDISG harmless from and
against any and all claims, costs, expenses (including reasonable attorneys'
fees), losses, damages, charges, payments and liabilities of any sort or kind
which may be asserted against FDISG or for which FDISG may be held to be liable
in connection with this Agreement or FDISG's performance hereunder (a "Claim"),
unless such Claim resulted from a negligent act or omission to act or bad faith
by FDISG in the performance of its duties hereunder.
(b) The Company or a Fund, its officers, employees, shareholders
and agents shall not be liable for, and FDISG shall indemnify and hold the
Company and each Fund harmless from and against any and all claims, made by
third parties, including costs, expenses (including reasonable attorneys' fees),
losses, damages, charges, payments and liabilities of any sort or kind, which
result from a negligent act or omission to act or bad faith by FDISG in the
performance of its duties hereunder.
(c) In any case in which either party (the "Indemnifying Party")
may be asked to indemnify or hold the other party (the "Indemnified Party")
harmless, the Indemnified Party will notify the Indemnifying Party promptly
after identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Indemnifying Party, although the
failure to do so shall not prevent recovery by the Indemnified Party, and shall
keep the Indemnifying Party advised with respect to all developments concerning
such situation. The Indemnifying Party shall have the option to defend the
Indemnified Party against any claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the Indemnifying Party and
satisfactory to the Indemnified Party, and thereupon the Indemnifying Party
shall take over complete defense of the claim and the Indemnified Party shall
sustain no further legal or other expenses in respect of such claim. The
Indemnified Party will not confess any claim or make any compromise in any case
in which the Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent. The obligations of the
parties hereto under this Section 6 shall survive the termination of this
Agreement.
7. EXCLUSION OF WARRANTIES. THIS IS A SERVICE AGREEMENT. EXCEPT AS
EXPRESSLY PROVIDED IN THIS AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF
ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS
PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. FDISG DISCLAIMS
ANY WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT.
8. Termination of Agreement.
(a) This Agreement shall be effective on the date first written
above and shall continue for a period of three (3) years (the "Initial Term"),
unless earlier terminated pursuant to the terms of this Agreement. Thereafter,
this Agreement shall automatically be renewed for successive terms of three (3)
years ("Renewal Terms") each.
(b) Either party may terminate this Agreement at the end of the
Initial Term or at the end of any subsequent Renewal Term upon not than less
than ninety (90) days or more than one hundred-eighty (180) days prior written
notice to the other party.
(c) In the event a termination notice is given by the Company,
all expenses associated with movement of records and materials and conversion
thereof will be borne by the Company.
(d) If a party hereto is guilty of a material failure to perform
its duties and obligations hereunder (a "Defaulting Party") resulting in a
material loss to the other party, such other party (the "Non-Defaulting Party")
may give written notice thereof to the Defaulting Party, and if such material
breach shall not have been remedied within thirty (30) days after such written
notice is given, then the Non-Defaulting Party may terminate this Agreement by
giving thirty (30) days written notice of such termination to the Defaulting
Party. If FDISG is the Non-Defaulting Party, its termination of this Agreement
shall not constitute a waiver of any other rights or remedies of FDISG with
respect to services performed prior to such termination or rights of FDISG to be
reimbursed for out-of-pocket expenses. In all cases, termination by the
Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party
of any other rights it might have under this Agreement or otherwise against the
Defaulting Party.
9. Modifications and Waivers. No change, termination, modification, or
waiver of any term or condition of the Agreement shall be valid unless in
writing signed by each party. No such writing shall be effective as against
FDISG unless said writing is executed by a Senior Vice President, Executive Vice
President or President of FDISG. A party's waiver of a breach of any term or
condition in the Agreement shall not be deemed a waiver of any subsequent breach
of the same or another term or condition.
10. No Presumption Against Drafter. FDISG and the Company have jointly
participated in the negotiation and drafting of this Agreement. The Agreement
shall be construed as if drafted jointly by the Company and FDISG, and no
presumptions arise favoring any party by virtue of the authorship of any
provision of this Agreement.
11. Publicity. Neither FDISG nor the Company shall release or publish
news releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without prior review
and written approval of the other party; provided, however, that either party
may make such disclosures as are required by legal, accounting or regulatory
requirements after making reasonable efforts in the circumstances to consult in
advance with the other party.
12. Severability. The parties intend every provision of this Agreement to
be severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
13. Miscellaneous.
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Company or FDISG shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Company:
SIT Mutual Fund Group
4600 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Attention: President
To FDISG:
First Data Investor Services Group, Inc.
53 State Street BOS 425
Boston, Massachusetts 02109-2873
Attention: Patricia Bickimer, Esq.
(b) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns and
is not intended to confer upon any other person any rights or remedies
hereunder. This Agreement may not be assigned or otherwise transferred by either
party hereto, without the prior written consent of the other party, which
consent shall not be unreasonably withheld; provided, however, that FDISG may,
in its sole discretion, assign all its right, title and interest in this
Agreement to an affiliate, parent or subsidiary, or to the purchaser of
substantially all of its business. FDISG may, in its sole discretion, engage
subcontractors to perform any of the obligations contained in this Agreement to
be performed by FDISG.
(c) The laws of the Commonwealth of Massachusetts, excluding the
laws on conflicts of laws, shall govern the interpretation, validity, and
enforcement of this Agreement. All actions arising from or related to this
Agreement shall be brought in the state and federal courts sitting in the City
of Boston, and FDISG and the Company hereby submit themselves to the exclusive
jurisdiction of those courts.
(d) This Agreement may be executed in any number of counterparts
each of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
14. Confidentiality.
(a) The parties agree that the Proprietary Information (defined
below) and the contents of this Agreement (collectively "Confidential
Information") are confidential information of the parties and their respective
licensers. The Company and FDISG shall exercise reasonable care to safeguard the
confidentiality of the Confidential Information of the other. The Company and
FDISG may each use the Confidential Information only to exercise its rights or
perform its duties under this Agreement. The Company and FDISG shall not
duplicate, sell or disclose to others the Confidential Information of the other,
in whole or in part, without the prior written permission of the other party.
The Company and FDISG may, however, disclose Confidential Information to its
employees who have a need to know the Confidential Information to perform work
for the other, provided that each shall use reasonable efforts to ensure that
the Confidential Information is not duplicated or disclosed by its employees in
breach of this Agreement. The Company and FDISG may also disclose the
Confidential Information to independent contractors, auditors and professional
advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 14.
Notwithstanding the previous sentence, in no event shall either the Company or
FDISG disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
(b) Proprietary Information means:
(i) any data or information that is completely sensitive
material, and not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance, operations,
customer relationships, customer profiles, sales estimates, business plans, and
internal performance results relating to the past, present or future business
activities of the Company or FDISG, their respective subsidiaries and affiliated
companies and the customers, clients and suppliers of any of them;
(ii) any scientific or technical information, design,
process, procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Company or FDISG a
competitive advantage over its competitors; and
(iii) all confidential or proprietary concepts,
documentation, reports, data, specifications, computer software, source code,
object code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
(c) Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
(d) The parties acknowledge that breach of the restrictions on
use, dissemination or disclosure of any Confidential Information would result in
immediate and irreparable harm, and money damages would be inadequate to
compensate the other party for that harm. The non-breaching party shall be
entitled to equitable relief, in addition to all other available remedies, to
redress any such breach.
15. Force Majeure. No party shall be liable for any default or delay in
the performance of its obligations under this Agreement if and to the extent
such default or delay is caused, directly or indirectly, by (i) fire, flood,
elements of nature or other acts of God; (ii) any outbreak or escalation of
hostilities, war, riots or civil disorders in any country, (iii) any act or
omission of the other party or any governmental authority; (iv) any labor
disputes (whether or not the employees' demands are reasonable or within the
party's power to satisfy); or (v) nonperformance by a third party or any similar
cause beyond the reasonable control of such party, including without limitation,
failures or fluctuations in telecommunications or other equipment. In any such
event, the non-performing party shall be excused from any further performance
and observance of the obligations so affected only for so long as such
circumstances prevail and such party continues to use commercially reasonable
efforts to recommence performance or observance as soon as practicable.
16. Entire Agreement. This Agreement, including all Schedules hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Neil Forrest
Name: Neil Forrest
Title: Vice President
SIT U.S. GOVERNMENT SECURITIES FUND, INC.
By: /s/ Mary K. Stern
Name: Mary K. Stern
Title: President
SCHEDULE A
SIT U.S. GOVERNMENT SECURITIES FUND, INC.
SCHEDULE B
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses include, but are not limited to, the following:
- Overnight delivery and courier service
- Telephone and telecommunications charges (including fax)
- Pricing services
- Terminals, transmitting lines and any expenses incurred in
connection with such lines
- Travel to and from Board Meetings outside the city of Boston,
Massachusetts (subject to prior approval from the Company)
- Any other unusual expenses in association with the operation
of the Company, such as excessive duplicating charges
FDISG RESERVES THE RIGHT TO RENEGOTIATE THE FEES SET FORTH ON THIS SCHEDULE B
AND IN SECTION 4 OF THE AGREEMENT SHOULD THE ACTUAL SERVICES VARY MATERIALLY
FROM THE ASSUMPTIONS PROVIDED.
EXHIBIT 8.3
Accounting Services Agreement
SIT Mutual Funds II, Inc.
ACCOUNTING SERVICES AGREEMENT
THIS ACCOUNTING SERVICES AGREEMENT is made as of April 1, 1996 (the
"Agreement"), by and between SIT Mutual Funds II, Inc., a Minnesota corporation
(the "Company"), and First Data Investor Services Group, Inc., a Massachusetts
corporation ("FDISG").
WHEREAS, the Company is registered as a diversified open-end management
investment company (except the Minnesota Tax-Free Income Fund (Series B) which
is non-diversified) under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Company wishes to retain FDISG to provide certain fund
accounting services with respect to each investment portfolio listed in Schedule
A hereto, as the same may be amended from time to time by the parties hereto
(collectively, the "Funds"), and FDISG is willing to furnish such services;
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Company hereby appoints FDISG to provide certain
fund accounting services required by the Company for each Fund for the period
and on the terms set forth in this Agreement. FDISG accepts such appointment and
agrees to furnish the services herein set forth in return for the compensation
as provided in Section 4 of this Agreement. In the event that the Company
decides to retain FDISG to act as fund accountant hereunder with respect to one
or more portfolios other than the Funds, the Company shall notify FDISG in
writing. If FDISG is willing to render such services, it shall notify the
Company in writing whereupon such portfolio shall become a Fund hereunder.
2. Delivery of Documents. The Company has furnished FDISG with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Directors authorizing
FDISG to provide certain fund accounting services to the Company and approving
this Agreement;
(b) The Company's Articles of Incorporation (the "Articles")
filed with the State of Minnesota and all amendments thereto;
(c) The Company's By-Laws and all amendments thereto (the
"By-Laws");
(d) The Investment Advisory Agreement between SIT Investment
Associates, Inc. (the "Adviser") and the Company dated as of April 1, 1993 and
all amendments thereto (the "Advisory Agreement");
(e) The Custody Agreement between The Northern Trust Company (the
"Custodian") and the Company dated as of April 1, 1996 and all amendments
thereto (the "Custody Agreement");
(f) The Transfer Agency and Registrar Agreement between First
Data Investor Services Group, Inc. (the "Transfer Agent") and the Company dated
as of January 1, 1996 and all amendments thereto;
(g) The Company's Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 and under the
Investment Company Act of 1940 (the "1940 Act") (File Nos. 2-91312 and
811-04033), as declared effective by the Securities and Exchange Commission (the
"SEC") on September 29, 1988, relating to shares of beneficial interest of the
Company (the "Shares"), and all amendments thereto; and
(h) Each Fund's most recent prospectus and statement of
additional information and all amendments and supplements thereto (collectively,
the "Prospectuses").
The Company will furnish FDISG from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any. Furthermore, the Company will provide FDISG with any other
documents that FDISG may reasonably request and will notify FDISG as soon as
possible of any matter materially affecting the performance by FDISG of its
services under this Agreement.
3. Services and Duties. Subject to the supervision and control of the
Company, FDISG undertakes to provide the following specific services:
(a) Accounting and bookkeeping services (including the
maintenance of such accounts, books and records of the Company as may be
required by Section 31(a) of the 1940 Act and the rules thereunder);
(b) Internal auditing;
(c) Valuing the assets of each Fund and calculating the net asset
value of the shares of the Fund at the close of trading on the New York Stock
Exchange ("NYSE") on each day on which the NYSE is open for trading, and at such
other times as the Board of Directors may reasonably request;
(d) Accumulating information for and, subject to approval by the
Company's Treasurer, preparing reports to the Company's shareholders of record
and the SEC including, but not necessarily limited to, Annual Reports and
Semi-Annual Reports on Form N-SAR;
(e) Assisting the Adviser, at the Adviser's request, in
monitoring and developing compliance procedures for the Company which will
include, among other matters, procedures to assist the Adviser in monitoring
compliance with each Fund's investment objective, policies, restrictions, tax
matters and applicable laws and regulations; and
(f) Preparing and furnishing the Company (at the Company's
request) with performance information (including yield and total return
information) calculated in accordance with applicable U.S. securities laws and
reporting to external databases such information as may reasonably be requested.
In performing its duties under this Agreement, FDISG: (a) will act in
accordance with the Articles, By-Laws, Prospectuses and with the instructions
and directions of the Company and will conform to and comply with the
requirements of the 1940 Act and all other applicable Federal or state laws and
regulations; and (b) will consult with legal counsel to the Company, as
necessary and appropriate. Furthermore, FDISG shall not have or be required to
have any authority to supervise the investment or reinvestment of the securities
or other properties which comprise the assets of the Company or any of its Funds
and shall not provide any investment advisory services to the Company or any of
its Funds.
4. Compensation and Allocation of Expenses.
(a) For the services to be rendered, the facilities to be
furnished and the payments to be made by FDISG, as provided for in this
Agreement, the Company, on behalf of each Fund, will pay FDISG on the first
business day of each month a fee for the previous month at the annual rate of
.055 of 1.00% of the value of the Fund's average daily net assets. Within
fifteen (15) days after FDISG has received both the monthly fee set forth herein
from the Company and the monthly bill from the Custodian, FDISG shall (pursuant
to the Client Services Agreement, dated as of April 1, 1996, between FDISG and
the Custodian (the "Client Services Agreement") and the Custody Agreement) pay
to the Custodian, with respect to each Fund, a fee which shall serve as full
payment for the Custodian's services to the Fund under the Custody Agreement and
the Client Services Agreement for the preceding month at the annual rate of .01
of 1.00% of the value of the Fund's average daily net assets (plus out-of-pocket
expenses). For the purposes of calculating the fees described herein, the Fund's
average daily net assets will be deemed to be the average daily value of the
Fund's total assets minus the sum of the Fund's liabilities (excluding the
aggregate liquidation preference on the outstanding shares of the Fund's auction
rate preferred stock and accumulated dividends, if any, thereon). Fees for the
period from the date the Registration Statement is declared effective by the SEC
to the end of the month during which the Registration Statement is declared
effective shall be prorated according to the proportion that such period bears
to the full monthly period.
(b) The Company shall compensate FDISG for its services rendered
pursuant to this Agreement in accordance with the fees set forth above. Such
fees do not include out-of-pocket disbursements of FDISG for which FDISG shall
be entitled to bill separately. Out-of-pocket disbursements shall include, but
shall not be limited to, the items specified in Schedule B annexed hereto and
incorporated herein. Schedule B may be modified by FDISG upon not less than
thirty days' prior written notice to the Company.
(c) FDISG shall not be required to pay any of the following
expenses incurred by the Company: membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses; investment
advisory expenses; costs of printing and mailing stock certificates,
prospectuses, reports and notices; interest on borrowed money; brokerage
commissions; taxes and fees payable to Federal, state and other governmental
agencies; fees of Directors of the Company who are not affiliated with FDISG;
outside auditing expenses; outside legal expenses; or other expenses not
specified in this Section 4 which may be properly payable by the Company.
(d) FDISG will bill the Company as soon as practicable after the
end of each calendar month for out-of-pocket disbursements, and said billings
will be detailed in accordance with this Section and Schedule B. The
Company will pay to FDISG the amount of such billing within 30 days of such
billing.
(e) Upon any termination of this Agreement before the end of any
month, the fee for such period shall be prorated according to the proportion
which such period bears to the full month period. For purposes of determining
fees payable to FDISG, the value of each Fund's net assets shall be computed at
the time and in the manner specified in the most recent Prospectuses.
(f) The Company acknowledges that the fees that FDISG charges the
Company under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 7 and the limitations on
liability in Section 5. Modifying the allocation of risk from what is stated
here would affect the fees that FDISG charges, and in consideration of those
fees, the Company agrees to the stated allocation of risk.
(g) FDISG will from time to time employ or associate itself with
such person or persons as FDISG may believe to be particularly suited to assist
it in performing services under this Agreement. Such person or persons may be
officers and employees who are employed by both FDISG and the Company. The
compensation of such person or persons shall be paid by FDISG and no obligation
shall be incurred on behalf of the Company in such respect.
(5) Limitation of Liability
(a) FDISG, its directors, officers, employees, shareholders and
agents shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Company or a Fund in connection with the performance of
this Agreement, except a loss resulting from willful misfeasance, bad faith, or
negligence on the part of FDISG in the performance of its obligations and duties
under this Agreement.
(b) Notwithstanding any provision in this Agreement to the
contrary, FDISG's cumulative liability (to the Company) for all losses, claims,
suits, controversies, breaches, or damages for any cause whatsoever (including
but not limited to those arising out of or related to this Agreement) and
regardless of the form of action or legal theory shall not exceed the lesser of
(i) $1,000,000 or (ii) the fees received by FDISG for services provided under
this Agreement during the twelve months immediately prior to the date of such
loss or damage.
(c) Neither party may assert any cause of action against the
other party under this Agreement that accrued more than two (2) years prior to
the filing of the suit (or commencement of arbitration proceedings) alleging
such cause of action.
(d) Each party shall have the duty to mitigate damages for which
the other party may become responsible.
(e) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY,
IN NO EVENT SHALL FDISG, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF
TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST
PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS
OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
6. Indemnification.
(a) The Company shall indemnify and hold FDISG harmless from and
against any and all claims, costs, expenses (including reasonable attorneys'
fees), losses, damages, charges, payments and liabilities of any sort or kind
which may be asserted against FDISG or for which FDISG may be held to be liable
in connection with this Agreement or FDISG's performance hereunder (a "Claim"),
unless such Claim resulted from a negligent act or omission to act or bad faith
by FDISG in the performance of its duties hereunder.
(b) The Company or a Fund, its officers, employees, shareholders
and agents shall not be liable for, and FDISG shall indemnify and hold the
Company and each Fund harmless from and against any and all claims, made by
third parties, including costs, expenses (including reasonable attorneys' fees),
losses, damages, charges, payments and liabilities of any sort or kind, which
result from a negligent act or omission to act or bad faith by FDISG in the
performance of its duties hereunder.
(c) In any case in which either party (the "Indemnifying Party")
may be asked to indemnify or hold the other party (the "Indemnified Party")
harmless, the Indemnified Party will notify the Indemnifying Party promptly
after identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Indemnifying Party, although the
failure to do so shall not prevent recovery by the Indemnified Party, and shall
keep the Indemnifying Party advised with respect to all developments concerning
such situation. The Indemnifying Party shall have the option to defend the
Indemnified Party against any claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the Indemnifying Party and
satisfactory to the Indemnified Party, and thereupon the Indemnifying Party
shall take over complete defense of the claim and the Indemnified Party shall
sustain no further legal or other expenses in respect of such claim. The
Indemnified Party will not confess any claim or make any compromise in any case
in which the Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent. The obligations of the
parties hereto under this Section 6 shall survive the termination of this
Agreement.
7. EXCLUSION OF WARRANTIES. THIS IS A SERVICE AGREEMENT. EXCEPT AS
EXPRESSLY PROVIDED IN THIS AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF
ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS
PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. FDISG DISCLAIMS
ANY WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT.
8. Termination of Agreement.
(a) This Agreement shall be effective on the date first written
above and shall continue for a period of three (3) years (the "Initial Term"),
unless earlier terminated pursuant to the terms of this Agreement. Thereafter,
this Agreement shall automatically be renewed for successive terms of three (3)
years ("Renewal Terms") each.
(b) Either party may terminate this Agreement at the end of the
Initial Term or at the end of any subsequent Renewal Term upon not than less
than ninety (90) days or more than one hundred-eighty (180) days prior written
notice to the other party.
(c) In the event a termination notice is given by the Company,
all expenses associated with movement of records and materials and conversion
thereof will be borne by the Company.
(d) If a party hereto is guilty of a material failure to perform
its duties and obligations hereunder (a "Defaulting Party") resulting in a
material loss to the other party, such other party (the "Non-Defaulting Party")
may give written notice thereof to the Defaulting Party, and if such material
breach shall not have been remedied within thirty (30) days after such written
notice is given, then the Non-Defaulting Party may terminate this Agreement by
giving thirty (30) days written notice of such termination to the Defaulting
Party. If FDISG is the Non-Defaulting Party, its termination of this Agreement
shall not constitute a waiver of any other rights or remedies of FDISG with
respect to services performed prior to such termination or rights of FDISG to be
reimbursed for out-of-pocket expenses. In all cases, termination by the
Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party
of any other rights it might have under this Agreement or otherwise against the
Defaulting Party.
9. Modifications and Waivers. No change, termination, modification, or
waiver of any term or condition of the Agreement shall be valid unless in
writing signed by each party. No such writing shall be effective as against
FDISG unless said writing is executed by a Senior Vice President, Executive Vice
President or President of FDISG. A party's waiver of a breach of any term or
condition in the Agreement shall not be deemed a waiver of any subsequent breach
of the same or another term or condition.
10. No Presumption Against Drafter. FDISG and the Company have jointly
participated in the negotiation and drafting of this Agreement. The Agreement
shall be construed as if drafted jointly by the Company and FDISG, and no
presumptions arise favoring any party by virtue of the authorship of any
provision of this Agreement.
11. Publicity. Neither FDISG nor the Company shall release or publish
news releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without prior review
and written approval of the other party; provided, however, that either party
may make such disclosures as are required by legal, accounting or regulatory
requirements after making reasonable efforts in the circumstances to consult in
advance with the other party.
12. Severability. The parties intend every provision of this Agreement to
be severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
13. Miscellaneous.
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Company or FDISG shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Company:
SIT Mutual Fund Group
4600 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Attention: President
To FDISG:
First Data Investor Services Group, Inc.
53 State Street BOS 425
Boston, Massachusetts 02109-2873
Attention: Patricia Bickimer, Esq.
(b) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns and
is not intended to confer upon any other person any rights or remedies
hereunder. This Agreement may not be assigned or otherwise transferred by either
party hereto, without the prior written consent of the other party, which
consent shall not be unreasonably withheld; provided, however, that FDISG may,
in its sole discretion, assign all its right, title and interest in this
Agreement to an affiliate, parent or subsidiary, or to the purchaser of
substantially all of its business. FDISG may, in its sole discretion, engage
subcontractors to perform any of the obligations contained in this Agreement to
be performed by FDISG.
(c) The laws of the Commonwealth of Massachusetts, excluding the
laws on conflicts of laws, shall govern the interpretation, validity, and
enforcement of this Agreement. All actions arising from or related to this
Agreement shall be brought in the state and federal courts sitting in the City
of Boston, and FDISG and the Company hereby submit themselves to the exclusive
jurisdiction of those courts.
(d) This Agreement may be executed in any number of counterparts
each of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
14. Confidentiality.
(a) The parties agree that the Proprietary Information (defined
below) and the contents of this Agreement (collectively "Confidential
Information") are confidential information of the parties and their respective
licensers. The Company and FDISG shall exercise reasonable care to safeguard the
confidentiality of the Confidential Information of the other. The Company and
FDISG may each use the Confidential Information only to exercise its rights or
perform its duties under this Agreement. The Company and FDISG shall not
duplicate, sell or disclose to others the Confidential Information of the other,
in whole or in part, without the prior written permission of the other party.
The Company and FDISG may, however, disclose Confidential Information to its
employees who have a need to know the Confidential Information to perform work
for the other, provided that each shall use reasonable efforts to ensure that
the Confidential Information is not duplicated or disclosed by its employees in
breach of this Agreement. The Company and FDISG may also disclose the
Confidential Information to independent contractors, auditors and professional
advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 14.
Notwithstanding the previous sentence, in no event shall either the Company or
FDISG disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
(b) Proprietary Information means:
(i) any data or information that is completely sensitive
material, and not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance, operations,
customer relationships, customer profiles, sales estimates, business plans, and
internal performance results relating to the past, present or future business
activities of the Company or FDISG, their respective subsidiaries and affiliated
companies and the customers, clients and suppliers of any of them;
(ii) any scientific or technical information, design,
process, procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Company or FDISG a
competitive advantage over its competitors; and
(iii) all confidential or proprietary concepts,
documentation, reports, data, specifications, computer software, source code,
object code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
(c) Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
(d) The parties acknowledge that breach of the restrictions on
use, dissemination or disclosure of any Confidential Information would result in
immediate and irreparable harm, and money damages would be inadequate to
compensate the other party for that harm. The non-breaching party shall be
entitled to equitable relief, in addition to all other available remedies, to
redress any such breach.
15. Force Majeure. No party shall be liable for any default or delay in
the performance of its obligations under this Agreement if and to the extent
such default or delay is caused, directly or indirectly, by (i) fire, flood,
elements of nature or other acts of God; (ii) any outbreak or escalation of
hostilities, war, riots or civil disorders in any country, (iii) any act or
omission of the other party or any governmental authority; (iv) any labor
disputes (whether or not the employees' demands are reasonable or within the
party's power to satisfy); or (v) nonperformance by a third party or any similar
cause beyond the reasonable control of such party, including without limitation,
failures or fluctuations in telecommunications or other equipment. In any such
event, the non-performing party shall be excused from any further performance
and observance of the obligations so affected only for so long as such
circumstances prevail and such party continues to use commercially reasonable
efforts to recommence performance or observance as soon as practicable.
16. Entire Agreement. This Agreement, including all Schedules hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Neil Forrest
Name: Neil Forrest
Title: Vice President
SIT MUTUAL FUNDS II, INC.
By: /s/ Mary K. Stern
Name: Mary K. Stern
Title: President
SCHEDULE A
SIT MUTUAL FUNDS II, INC.
SIT Tax-Free Income Fund (Series A)
SIT Minnesota Tax-Free Income Fund (Series B)
SIT Bond Fund (Series C)
SCHEDULE B
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses include, but are not limited to, the following:
- Overnight delivery and courier service
- Telephone and telecommunications charges (including fax)
- Pricing services
- Terminals, transmitting lines and any expenses incurred in
connection with such lines
- Travel to and from Board Meetings outside the city of Boston,
Massachusetts (subject to prior approval from the Company)
- Any other unusual expenses in association with the operation
of the Company, such as excessive duplicating charges
FDISG RESERVES THE RIGHT TO RENEGOTIATE THE FEES SET FORTH ON THIS SCHEDULE B
AND IN SECTION 4 OF THE AGREEMENT SHOULD THE ACTUAL SERVICES VARY MATERIALLY
FROM THE ASSUMPTIONS PROVIDED.
EXHIBIT 8.3
Accounting Services Agreement
SIT Money Market Fund, Inc.
ACCOUNTING SERVICES AGREEMENT
THIS ACCOUNTING SERVICES AGREEMENT is made as of April 1, 1996 (the
"Agreement"), by and between SIT Money Market Fund, Inc., a Minnesota
corporation (the "Company"), and First Data Investor Services Group, Inc., a
Massachusetts corporation ("FDISG").
WHEREAS, the Company is registered as a diversified open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Company wishes to retain FDISG to provide certain fund
accounting services with respect to each investment portfolio listed in Schedule
A hereto, as the same may be amended from time to time by the parties hereto
(collectively, the "Funds"), and FDISG is willing to furnish such services;
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Company hereby appoints FDISG to provide certain
fund accounting services required by the Company for each Fund for the period
and on the terms set forth in this Agreement. FDISG accepts such appointment and
agrees to furnish the services herein set forth in return for the compensation
as provided in Section 4 of this Agreement. In the event that the Company
decides to retain FDISG to act as fund accountant hereunder with respect to one
or more portfolios other than the Funds, the Company shall notify FDISG in
writing. If FDISG is willing to render such services, it shall notify the
Company in writing whereupon such portfolio shall become a Fund hereunder.
2. Delivery of Documents. The Company has furnished FDISG with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Directors authorizing
FDISG to provide certain fund accounting services to the Company and approving
this Agreement;
(b) The Company's Articles of Incorporation (the "Articles")
filed with the State of Minnesota and all amendments thereto;
(c) The Company's By-Laws and all amendments thereto (the
"By-Laws");
(d) The Investment Advisory Agreement between SIT Investment
Associates, Inc. (the "Adviser") and the Company dated as of November 1, 1992
and all amendments thereto (the "Advisory Agreement");
(e) The Custody Agreement between The Northern Trust Company (the
"Custodian") and the Company dated as of April 1, 1996 and all amendments
thereto (the "Custody Agreement");
(f) The Transfer Agency and Registrar Agreement between First
Data Investor Services Group, Inc. (the "Transfer Agent") and the Company dated
as of January 1, 1996 and all amendments thereto;
(g) The Company's Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 and under the
Investment Company Act of 1940 (the "1940 Act") (File Nos. 2-91313 and
811-04032), as declared effective by the Securities and Exchange Commission (the
"SEC") on November 1, 1993, relating to shares of beneficial interest of the
Company (the "Shares"), and all amendments thereto; and
(h) Each Fund's most recent prospectus and statement of
additional information and all amendments and supplements thereto (collectively,
the "Prospectuses").
The Company will furnish FDISG from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any. Furthermore, the Company will provide FDISG with any other
documents that FDISG may reasonably request and will notify FDISG as soon as
possible of any matter materially affecting the performance by FDISG of its
services under this Agreement.
3. Services and Duties. Subject to the supervision and control of the
Company, FDISG undertakes to provide the following specific services:
(a) Accounting and bookkeeping services (including the
maintenance of such accounts, books and records of the Company as may be
required by Section 31(a) of the 1940 Act and the rules thereunder);
(b) Internal auditing;
(c) Valuing the assets of each Fund and calculating the net asset
value of the shares of the Fund at the close of trading on the New York Stock
Exchange ("NYSE") on each day on which the NYSE is open for trading, and at such
other times as the Board of Directors may reasonably request;
(d) Accumulating information for and, subject to approval by the
Company's Treasurer, preparing reports to the Company's shareholders of record
and the SEC including, but not necessarily limited to, Annual Reports and
Semi-Annual Reports on Form N-SAR;
(e) Assisting the Adviser, at the Adviser's request, in
monitoring and developing compliance procedures for the Company which will
include, among other matters, procedures to assist the Adviser in monitoring
compliance with each Fund's investment objective, policies, restrictions, tax
matters and applicable laws and regulations; and
(f) Preparing and furnishing the Company (at the Company's
request) with performance information (including yield and total return
information) calculated in accordance with applicable U.S. securities laws and
reporting to external databases such information as may reasonably be requested.
In performing its duties under this Agreement, FDISG: (a) will act in
accordance with the Articles, By-Laws, Prospectuses and with the instructions
and directions of the Company and will conform to and comply with the
requirements of the 1940 Act and all other applicable Federal or state laws and
regulations; and (b) will consult with legal counsel to the Company, as
necessary and appropriate. Furthermore, FDISG shall not have or be required to
have any authority to supervise the investment or reinvestment of the securities
or other properties which comprise the assets of the Company or any of its Funds
and shall not provide any investment advisory services to the Company or any of
its Funds.
4. Compensation and Allocation of Expenses.
(a) For the services to be rendered, the facilities to be
furnished and the payments to be made by FDISG, as provided for in this
Agreement, the Company, on behalf of each Fund, will pay FDISG on the first
business day of each month a fee for the previous month at the annual rate of
.055 of 1.00% of the value of the Fund's average daily net assets. Within
fifteen (15) days after FDISG has received both the monthly fee set forth herein
from the Company and the monthly bill from the Custodian, FDISG shall (pursuant
to the Client Services Agreement, dated as of April 1, 1996, between FDISG and
the Custodian (the "Client Services Agreement") and the Custody Agreement) pay
to the Custodian, with respect to each Fund, a fee which shall serve as full
payment for the Custodian's services to the Fund under the Custody Agreement and
the Client Services Agreement for the preceding month at the annual rate of .01
of 1.00% of the value of the Fund's average daily net assets (plus out-of-pocket
expenses). For the purposes of calculating the fees described herein, the Fund's
average daily net assets will be deemed to be the average daily value of the
Fund's total assets minus the sum of the Fund's liabilities (excluding the
aggregate liquidation preference on the outstanding shares of the Fund's auction
rate preferred stock and accumulated dividends, if any, thereon). Fees for the
period from the date the Registration Statement is declared effective by the SEC
to the end of the month during which the Registration Statement is declared
effective shall be prorated according to the proportion that such period bears
to the full monthly period.
(b) The Company shall compensate FDISG for its services rendered
pursuant to this Agreement in accordance with the fees set forth above. Such
fees do not include out-of-pocket disbursements of FDISG for which FDISG shall
be entitled to bill separately. Out-of-pocket disbursements shall include, but
shall not be limited to, the items specified in Schedule B annexed hereto and
incorporated herein. Schedule B may be modified by FDISG upon not less than
thirty days' prior written notice to the Company.
(c) FDISG shall not be required to pay any of the following
expenses incurred by the Company: membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses; investment
advisory expenses; costs of printing and mailing stock certificates,
prospectuses, reports and notices; interest on borrowed money; brokerage
commissions; taxes and fees payable to Federal, state and other governmental
agencies; fees of Directors of the Company who are not affiliated with FDISG;
outside auditing expenses; outside legal expenses; or other expenses not
specified in this Section 4 which may be properly payable by the Company.
(d) FDISG will bill the Company as soon as practicable after the
end of each calendar month for out-of-pocket disbursements, and said billings
will be detailed in accordance with this Section and Schedule B. The
Company will pay to FDISG the amount of such billing within 30 days of such
billing.
(e) Upon any termination of this Agreement before the end of any
month, the fee for such period shall be prorated according to the proportion
which such period bears to the full month period. For purposes of determining
fees payable to FDISG, the value of each Fund's net assets shall be computed at
the time and in the manner specified in the most recent Prospectuses.
(f) The Company acknowledges that the fees that FDISG charges the
Company under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 7 and the limitations on
liability in Section 5. Modifying the allocation of risk from what is stated
here would affect the fees that FDISG charges, and in consideration of those
fees, the Company agrees to the stated allocation of risk.
(g) FDISG will from time to time employ or associate itself with
such person or persons as FDISG may believe to be particularly suited to assist
it in performing services under this Agreement. Such person or persons may be
officers and employees who are employed by both FDISG and the Company. The
compensation of such person or persons shall be paid by FDISG and no obligation
shall be incurred on behalf of the Company in such respect.
(5) Limitation of Liability
(a) FDISG, its directors, officers, employees, shareholders and
agents shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Company or a Fund in connection with the performance of
this Agreement, except a loss resulting from willful misfeasance, bad faith, or
negligence on the part of FDISG in the performance of its obligations and duties
under this Agreement.
(b) Notwithstanding any provision in this Agreement to the
contrary, FDISG's cumulative liability (to the Company) for all losses, claims,
suits, controversies, breaches, or damages for any cause whatsoever (including
but not limited to those arising out of or related to this Agreement) and
regardless of the form of action or legal theory shall not exceed the lesser of
(i) $1,000,000 or (ii) the fees received by FDISG for services provided under
this Agreement during the twelve months immediately prior to the date of such
loss or damage.
(c) Neither party may assert any cause of action against the
other party under this Agreement that accrued more than two (2) years prior to
the filing of the suit (or commencement of arbitration proceedings) alleging
such cause of action.
(d) Each party shall have the duty to mitigate damages for which
the other party may become responsible.
(e) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY,
IN NO EVENT SHALL FDISG, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF
TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST
PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS
OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
6. Indemnification.
(a) The Company shall indemnify and hold FDISG harmless from and
against any and all claims, costs, expenses (including reasonable attorneys'
fees), losses, damages, charges, payments and liabilities of any sort or kind
which may be asserted against FDISG or for which FDISG may be held to be liable
in connection with this Agreement or FDISG's performance hereunder (a "Claim"),
unless such Claim resulted from a negligent act or omission to act or bad faith
by FDISG in the performance of its duties hereunder.
(b) The Company or a Fund, its officers, employees, shareholders
and agents shall not be liable for, and FDISG shall indemnify and hold the
Company and each Fund harmless from and against any and all claims, made by
third parties, including costs, expenses (including reasonable attorneys' fees),
losses, damages, charges, payments and liabilities of any sort or kind, which
result from a negligent act or omission to act or bad faith by FDISG in the
performance of its duties hereunder.
(c) In any case in which either party (the "Indemnifying Party")
may be asked to indemnify or hold the other party (the "Indemnified Party")
harmless, the Indemnified Party will notify the Indemnifying Party promptly
after identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Indemnifying Party, although the
failure to do so shall not prevent recovery by the Indemnified Party, and shall
keep the Indemnifying Party advised with respect to all developments concerning
such situation. The Indemnifying Party shall have the option to defend the
Indemnified Party against any claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the Indemnifying Party and
satisfactory to the Indemnified Party, and thereupon the Indemnifying Party
shall take over complete defense of the claim and the Indemnified Party shall
sustain no further legal or other expenses in respect of such claim. The
Indemnified Party will not confess any claim or make any compromise in any case
in which the Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent. The obligations of the
parties hereto under this Section 6 shall survive the termination of this
Agreement.
7. EXCLUSION OF WARRANTIES. THIS IS A SERVICE AGREEMENT. EXCEPT AS
EXPRESSLY PROVIDED IN THIS AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF
ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS
PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. FDISG DISCLAIMS
ANY WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT.
8. Termination of Agreement.
(a) This Agreement shall be effective on the date first written
above and shall continue for a period of three (3) years (the "Initial Term"),
unless earlier terminated pursuant to the terms of this Agreement. Thereafter,
this Agreement shall automatically be renewed for successive terms of three (3)
years ("Renewal Terms") each.
(b) Either party may terminate this Agreement at the end of the
Initial Term or at the end of any subsequent Renewal Term upon not than less
than ninety (90) days or more than one hundred-eighty (180) days prior written
notice to the other party.
(c) In the event a termination notice is given by the Company,
all expenses associated with movement of records and materials and conversion
thereof will be borne by the Company.
(d) If a party hereto is guilty of a material failure to perform
its duties and obligations hereunder (a "Defaulting Party") resulting in a
material loss to the other party, such other party (the "Non-Defaulting Party")
may give written notice thereof to the Defaulting Party, and if such material
breach shall not have been remedied within thirty (30) days after such written
notice is given, then the Non-Defaulting Party may terminate this Agreement by
giving thirty (30) days written notice of such termination to the Defaulting
Party. If FDISG is the Non-Defaulting Party, its termination of this Agreement
shall not constitute a waiver of any other rights or remedies of FDISG with
respect to services performed prior to such termination or rights of FDISG to be
reimbursed for out-of-pocket expenses. In all cases, termination by the
Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party
of any other rights it might have under this Agreement or otherwise against the
Defaulting Party.
9. Modifications and Waivers. No change, termination, modification, or
waiver of any term or condition of the Agreement shall be valid unless in
writing signed by each party. No such writing shall be effective as against
FDISG unless said writing is executed by a Senior Vice President, Executive Vice
President or President of FDISG. A party's waiver of a breach of any term or
condition in the Agreement shall not be deemed a waiver of any subsequent breach
of the same or another term or condition.
10. No Presumption Against Drafter. FDISG and the Company have jointly
participated in the negotiation and drafting of this Agreement. The Agreement
shall be construed as if drafted jointly by the Company and FDISG, and no
presumptions arise favoring any party by virtue of the authorship of any
provision of this Agreement.
11. Publicity. Neither FDISG nor the Company shall release or publish
news releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without prior review
and written approval of the other party; provided, however, that either party
may make such disclosures as are required by legal, accounting or regulatory
requirements after making reasonable efforts in the circumstances to consult in
advance with the other party.
12. Severability. The parties intend every provision of this Agreement
to be severable. If a court of competent jurisdiction determines that any term
or provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
13. Miscellaneous.
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Company or FDISG shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Company:
SIT Mutual Fund Group
4600 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Attention: President
To FDISG:
First Data Investor Services Group, Inc.
53 State Street BOS 425
Boston, Massachusetts 02109-2873
Attention: Patricia Bickimer, Esq.
(b) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns and
is not intended to confer upon any other person any rights or remedies
hereunder. This Agreement may not be assigned or otherwise transferred by either
party hereto, without the prior written consent of the other party, which
consent shall not be unreasonably withheld; provided, however, that FDISG may,
in its sole discretion, assign all its right, title and interest in this
Agreement to an affiliate, parent or subsidiary, or to the purchaser of
substantially all of its business. FDISG may, in its sole discretion, engage
subcontractors to perform any of the obligations contained in this Agreement to
be performed by FDISG.
(c) The laws of the Commonwealth of Massachusetts, excluding the
laws on conflicts of laws, shall govern the interpretation, validity, and
enforcement of this Agreement. All actions arising from or related to this
Agreement shall be brought in the state and federal courts sitting in the City
of Boston, and FDISG and the Company hereby submit themselves to the exclusive
jurisdiction of those courts.
(d) This Agreement may be executed in any number of counterparts
each of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
14. Confidentiality.
(a) The parties agree that the Proprietary Information (defined
below) and the contents of this Agreement (collectively "Confidential
Information") are confidential information of the parties and their respective
licensers. The Company and FDISG shall exercise reasonable care to safeguard the
confidentiality of the Confidential Information of the other. The Company and
FDISG may each use the Confidential Information only to exercise its rights or
perform its duties under this Agreement. The Company and FDISG shall not
duplicate, sell or disclose to others the Confidential Information of the other,
in whole or in part, without the prior written permission of the other party.
The Company and FDISG may, however, disclose Confidential Information to its
employees who have a need to know the Confidential Information to perform work
for the other, provided that each shall use reasonable efforts to ensure that
the Confidential Information is not duplicated or disclosed by its employees in
breach of this Agreement. The Company and FDISG may also disclose the
Confidential Information to independent contractors, auditors and professional
advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 14.
Notwithstanding the previous sentence, in no event shall either the Company or
FDISG disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
(b) Proprietary Information means:
(i) any data or information that is completely sensitive
material, and not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance, operations,
customer relationships, customer profiles, sales estimates, business plans, and
internal performance results relating to the past, present or future business
activities of the Company or FDISG, their respective subsidiaries and affiliated
companies and the customers, clients and suppliers of any of them;
(ii) any scientific or technical information, design,
process, procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Company or FDISG a
competitive advantage over its competitors; and
(iii) all confidential or proprietary concepts,
documentation, reports, data, specifications, computer software, source code,
object code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
(c) Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
(d) The parties acknowledge that breach of the restrictions on
use, dissemination or disclosure of any Confidential Information would result in
immediate and irreparable harm, and money damages would be inadequate to
compensate the other party for that harm. The non-breaching party shall be
entitled to equitable relief, in addition to all other available remedies, to
redress any such breach.
15. Force Majeure. No party shall be liable for any default or delay in
the performance of its obligations under this Agreement if and to the extent
such default or delay is caused, directly or indirectly, by (i) fire, flood,
elements of nature or other acts of God; (ii) any outbreak or escalation of
hostilities, war, riots or civil disorders in any country, (iii) any act or
omission of the other party or any governmental authority; (iv) any labor
disputes (whether or not the employees' demands are reasonable or within the
party's power to satisfy); or (v) nonperformance by a third party or any similar
cause beyond the reasonable control of such party, including without limitation,
failures or fluctuations in telecommunications or other equipment. In any such
event, the non-performing party shall be excused from any further performance
and observance of the obligations so affected only for so long as such
circumstances prevail and such party continues to use commercially reasonable
efforts to recommence performance or observance as soon as practicable.
16. Entire Agreement. This Agreement, including all Schedules hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Neil Forrest
Name: Neil Forrest
Title: Vice President
SIT MONEY MARKET FUND, INC.
By: /s/ Mary K. Stern
Name: Mary K. Stern
Title: President
SCHEDULE A
SIT MONEY MARKET FUND, INC.
SCHEDULE B
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses include, but are not limited to, the following:
- Overnight delivery and courier service
- Telephone and telecommunications charges (including fax)
- Pricing services
- Terminals, transmitting lines and any expenses incurred in
connection with such lines
- Travel to and from Board Meetings outside the city of Boston,
Massachusetts (subject to prior approval from the Company)
- Any other unusual expenses in association with the operation
of the Company, such as excessive duplicating charges
FDISG RESERVES THE RIGHT TO RENEGOTIATE THE FEES SET FORTH ON THIS SCHEDULE B
AND IN SECTION 4 OF THE AGREEMENT SHOULD THE ACTUAL SERVICES VARY MATERIALLY
FROM THE ASSUMPTIONS PROVIDED.
EXHIBIT 11
Independent Auditors' Consent
The Board of Directors
SIT Mutual Funds II, Inc.
SIT U.S. Government Securities Fund, Inc.
SIT Money Market fund, Inc.:
We consent to the use of our report incorporated herein by reference and to the
references to our Firm under the headings "Financial Highlights" in Part A and
"Custodian; Counsel; Accountants" in Part B of the Registration Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 26, 1996
EXHIBIT 16
CALCULATIONS OF PERFORMANCE DATA
Average Annual Total Return for the period ended March 29, 1996
P(1+T)^n = ERV
<TABLE>
<CAPTION>
One Year:
Minnesota Tax-Free Tax-Free U.S. Government Money Market
Bond Fund Income Fund Income Fund Securities Fund Fund
<S> <C> <C> <C> <C> <C>
P = 1,000 1,000 1,000 1,000 1,000
n = 1.00000 1.00000 1.00000 1.00000 1.00000
ERV = 1,105.707 1,071.238 1,077.260 1,088.690 1,054.375
T = 10.570700% 7.123800% 7.726000% 8.869000% 5.437500%
Five Years:
Minnesota Tax-Free Tax-Free U.S. Government Money Market
Bond Fund Income Fund Income Fund Securities Fund Fund
P = n/a n/a 1,000 1,000 1,000
n = n/a n/a 5.00000 5.00000 n/a
ERV = n/a n/a 1,427.692 1,419.451 n/a
T = n/a n/a 7.380870% 7.256610% n/a
(not in operation (not in operation (not in operation
during period) during period) during period)
Since Inception:
Minnesota Tax-Free Tax-Free U.S. Government Money Market
Bond Fund Income Fund Income Fund Securities Fund Fund
P = 1,000 1,000 1,000 1,000 1,000
n = 2.32603 2.32603 7.50137 8.83014 2.40822
ERV = 1,141.427 1,144.272 1,724.642 2,051.573 1,115.120
T = 5.851724% 5.965071% 7.536054% 8.478427% 4.628508%
Incept.
Date: 12/1/93 12/1/93 9/29/88 6/2/87 11/1/93
</TABLE>
EXHIBIT 17
SIT U.S. GOVERNMENT SECURITIES FUND, INC.
POWER OF ATTORNEY
TO SIGN REGISTRATION STATEMENTS
The undersigned, duly elected directors and officers of SIT U.S.
Government Securities Fund, Inc. (the "Company"), appoint Eugene C. Sit, Peter
L. Mitchelson, Mary K. Stern and Paul E. Rasmussen, or any of them, as
attorney-in-fact for the purpose of signing their names and on their behalf as
directors and/or officers of the Company and filing with the Securities and
Exchange Commission or any other regulatory authority as may be desirable or
necessary, notifications, registration statements and other filings, and any and
all amendments to said notifications, registration statements and other filings,
and all exhibits thereto and other documents, for the purpose of registering
unissued shares of common stock of the Company.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Eugene C. Sit Chairman (Principal Executive Officer) October 24, 1995
Eugene C. Sit & Director
/s/ Peter L. Mitchelson Vice Chairman and Director October 24, 1995
Peter L. Mitchelson
/s/ Mary K. Stern President October 24, 1995
Mary K. Stern
/s/ Michael C. Brilley Senior Vice President & Director October 24, 1995
Michael C. Brilley
/s/ Paul E. Rasmussen Vice President & Treasurer October 24, 1995
Paul E. Rasmussen
/s/ William E. Frenzel Director October 24, 1995
William E. Frenzel
/s/ John E. Hulse Director October 24, 1995
John E. Hulse
/s/ Sidney L. Jones Director October 24, 1995
Sidney L. Jones
/s/ Donald W. Phillips Director October 24, 1995
Donald W. Phillips
</TABLE>
SIT MUTUAL FUNDS II, INC.
POWER OF ATTORNEY
TO SIGN REGISTRATION STATEMENTS
The undersigned, duly elected directors and officers of SIT Mutual Funds
II, Inc. (the "Company"), appoint Eugene C. Sit, Peter L. Mitchelson, Mary K.
Stern and Paul E. Rasmussen, or any of them, as attorney-in-fact for the purpose
of signing their names and on their behalf as directors and/or officers of the
Company and filing with the Securities and Exchange Commission or any other
regulatory authority as may be desirable or necessary, notifications,
registration statements and other filings, and any and all amendments to said
notifications, registration statements and other filings, and all exhibits
thereto and other documents, for the purpose of registering unissued shares of
common stock of the Company.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Eugene C. Sit Chairman (Principal Executive Officer) October 24, 1995
Eugene C. Sit & Director
/s/ Peter L. Mitchelson Vice Chairman and Director October 24, 1995
Peter L. Mitchelson
/s/ Mary K. Stern President October 24, 1995
Mary K. Stern
/s/ Michael C. Brilley Senior Vice President & Director October 24, 1995
Michael C. Brilley
/s/ Paul E. Rasmussen Vice President & Treasurer October 24, 1995
Paul E. Rasmussen
/s/ William E. Frenzel Director October 24, 1995
William E. Frenzel
/s/ John E. Hulse Director October 24, 1995
John E. Hulse
/s/ Sidney L. Jones Director October 24, 1995
Sidney L. Jones
/s/ Donald W. Phillips Director October 24, 1995
Donald W. Phillips
</TABLE>
SIT MONEY MARKET FUND, INC.
POWER OF ATTORNEY
TO SIGN REGISTRATION STATEMENTS
The undersigned, duly elected directors and officers of SIT Money Market
Fund, Inc. (the "Company"), appoint Eugene C. Sit, Peter L. Mitchelson, Mary K.
Stern and Paul E. Rasmussen, or any of them, as attorney-in-fact for the purpose
of signing their names and on their behalf as directors and/or officers of the
Company and filing with the Securities and Exchange Commission or any other
regulatory authority as may be desirable or necessary, notifications,
registration statements and other filings, and any and all amendments to said
notifications, registration statements and other filings, and all exhibits
thereto and other documents, for the purpose of registering unissued shares of
common stock of the Company.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Eugene C. Sit Chairman (Principal Executive Officer) October 24, 1995
Eugene C. Sit & Director
/s/ Peter L. Mitchelson Vice Chairman and Director October 24, 1995
Peter L. Mitchelson
/s/ Mary K. Stern President October 24, 1995
Mary K. Stern
/s/ Michael C. Brilley Senior Vice President & Director October 24, 1995
Michael C. Brilley
/s/ Paul E. Rasmussen Vice President & Treasurer October 24, 1995
Paul E. Rasmussen
/s/ William E. Frenzel Director October 24, 1995
William E. Frenzel
/s/ John E. Hulse Director October 24, 1995
John E. Hulse
/s/ Sidney L. Jones Director October 24, 1995
Sidney L. Jones
/s/ Donald W. Phillips Director October 24, 1995
Donald W. Phillips
</TABLE>
