As filed with the Securities and Exchange Commission
on June 6, 1997
Securities Act File No. 333-20287
Investment Company Act File No. 811-08023
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT of 1933 |X|
Pre-Effective Amendment No. 1 |X|
Post-Effective Amendment No. |_|
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 1 |X|
(Check appropriate box or boxes)
COLORADO DOUBLE TAX-EXEMPT BOND FUND, INC.
(Exact Name of Registration as Specified in Charter)
600 17th Street, 2610 S. Tower
Denver, Colorado 80202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (303) 623-7500
Calvin F. Isaak
600 17th Street
2610 S. Tower
Denver, Colorado 80202
(Name and Address of Agent for Service)
Copy to:
Robert J. Ahrenholz, Esq.
Kutak Rock
717 17th Street
Suite 2900
Denver, Colorado 80202
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement.
It is proposed that this filing will become effective (check
appropriate box):
____ immediately upon filing pursuant to paragraph (b)
____ on (date) pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ on (date) pursuant to paragraph (a)(1)
____ 75 days after filing pursuant to (a)(2)
____ on (date) pursuant to (a)(2) of rule 485
If appropriate check the following box:
|_| this post-effective amendment designates a new effective date for
a previously filed post-effective amendment
Calculation of Registration Fee Under the Securities Act of 1933
<TABLE>
<S> <C> <C> <C> <C>
Title of Proposed Proposed
Securities Amount Maximum Maximum Amount of
Being Being Offering Aggregate Offering Registration
Registered Registered Price Per Unit Price Fee
Shares* $.001 par Indefinite** ** Indefinite** No Fee Required
value per Share
</TABLE>
*The Shares consist of two classes: Short-Intermediate Portfolio and Income
Portfolio.
**An indefinite number of Shares of the Registrant is being registered by this
Registration Statement pursuant to Rule 24f-2 under the Investment Company Act
of 1940.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
<PAGE>
COLORADO DOUBLE TAX-EXEMPT BOND FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
Part A
Item No.
Prospectus Heading
1. Cover Page................................Cover Page
2. Synopsis..................................Expense Table
3. Condensed Financial Information...........Not applicable
4. General Description of Registrant.........Cover Page; Description of the
Fund; Management of the Fund;
Investment Considerations;
Additional Information
5. Management of the Fund....................Management of the Fund;
Investment Considerations
5A Management's Discussion of Fund
Performance...........................Not Applicable
6. Capital Stock and Other Securities........Taxation of the Fund and its
Shareholders; Distributions;
Description of the Fund;
Additional Information; Transfer
and Dividend Disbursing Agent,
Counsel and Auditors
7. Purchase of Securities Being Offered......Purchase of Shares; Exchange
Privilege; Net Asset Value Per
Share
8. Redemption or Repurchase..................Redemption of Shares; Net Asset
Value Per Share
9. Pending Legal Proceedings.................Not applicable
10. Cover Page................................Cover Page
11. Table of Contents.........................Table of Contents; Introduction
12. General Information and History...........Not Applicable
<PAGE>
Part B Heading in Statement of Additional
Item No. Information or Prospectus (If Not Otherwise
Included in Statement)
13. Investment Objectives and
Policies..................................Investment Objective and
Management Policies
14. Management of the Fund....................Management of the Fund; Financial
Statements; Transfer Agent and
Dividend Disbursing Agent, Counsel
and Auditors
15. Control Persons and Principal Holders
of Securities.............................Management of the Fund; Financial
Statements
16. Investment Advisory and Other
Services..................................Management of the Fund
17. Brokerage Allocation and Other
Practices.................................Management of the Fund
18. Capital Stock and Other Securities........Additional Information
19. Purchase, Redemption and Pricing of
Securities Being Offered..................Net Asset Value Per Share;
Purchase of Shares; Redemption of
Shares
20. Tax Status................................Taxation of the Fund and its
Shareholders
21. Underwriters..............................Management of the Fund
22. Calculation of Performance Data...........Computation of Yield and
Investment Performance
23. Financial Statements......................Financial Statements; Report of
Certified Public Accountants
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 6, 1997
PROSPECTUS
[LOGO] 600 17th Street
Colorado Double Tax Suite 2610 S. Tower
Exempt Bond Fund, Inc. Denver, Colorado 80293
Statewide Call Toll Free 1-800-279-4426
From the Denver Area Call (303) 623-7500
Colorado Double Tax-Exempt Bond Fund, Inc. (the "Fund") is an open end
management investment company. The Fund presently offers Colorado investors a
choice of a Short- Intermediate Portfolio and an Income Portfolio, each of which
is a no-load, non-diversified investment portfolio of the Fund. Both portfolios
seek to provide Colorado investors with as high a level of tax-exempt income as
is consistent with the maturities of the portfolio selected and, regardless of
the portfolio selected, with a greater degree of principal stability than is
associated with funds or trusts invested exclusively in long-term municipal
bonds.
The Short-Intermediate Portfolio invests primarily in high quality short
and intermediate term Colorado municipal securities and is restricted to a
weighted average maturity of no more than seven years. The Income Portfolio
invests primarily in high quality long- and intermediate- term Colorado
municipal securities and is expected to have a weighted average maturity of more
than seven years. The Short-Intermediate Portfolio generally provides a lower
yield than the Income Portfolio; but, in turn, generally provides greater
principal stability than the Income Portfolio.
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference as it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
A "Statement of Additional Information" dated June 6, 1997 which provides a
further discussion of certain matters covered by this Prospectus and other
matters which may be of interest to investors, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. A
copy is available without charge from the Fund at the address and telephone
number shown above.
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.
<PAGE>
EXPENSE TABLE
Shareholder Transaction Expenses
Contingent Deferred Sales Loads (as a percentage of
original purchase price or redemption proceeds,
as applicable
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees .23
12b-1 Fees .25
Other Expenses (after expense limitation)** .20
Total Fund Operating Expenses (after expense limitation)** .68**
===
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder will bear directly or indirectly
in connection with an investment in the Fund. These figures are based on
estimated amounts for the current fiscal year and are based on estimated
operating expenses of the Fund before fee waivers and expense reductions.
Example
As required by regulations of the Securities and Exchange Commission, the
following example illustrates the expenses that apply to a $1,000 investment in
the Fund over various time periods assuming (i) a 5% annual rate of return and
(ii) redemption at the end of each such time period.
One Year Three Years
$17 $22
This example is based on the aggregate annual operating expenses, before
fee waivers and expense reductions, shown above and should not be considered a
representation of past or future expenses which may be more or less than those
shown.
* A deferred sales charge 1% is assessed on certain redemptions that occur
within one year of purchase. See "Purchase of Shares."
** Estimated expenses for the current fiscal year. The Funds investment
adviser has agreed to reimburse the Fund for its expenses to the extent
that they exceed .68% of the Fund's average annual net assets.
1
<PAGE>
DESCRIPTION OF THE FUND
The Fund is an open-end management investment company, or mutual fund,
organized as a Maryland corporation on August 29, 1996. The Fund offers a choice
of two portfolios, each of which is a no-load, non-diversified investment
portfolio of the Fund. Both portfolios are designed to provide Colorado
investors with as high a level of tax-exempt income exempt from Federal and
Colorado state income taxes as is consistent with the maturities of the
portfolio selected, with a greater degree of principal stability than is
associated with funds or trusts invested exclusively in long-term municipal
bonds.
Investment Objective
The Fund believes that by offering two portfolios, it can achieve a more
precise objective for an investor than a single portfolio attempting to achieve
multiple objectives. The Fund offers a Short-Intermediate Portfolio (the
"Short-Intermediate Portfolio") which restricts its weighted average maturity to
no more than seven years, and an Income Portfolio (the "Income Portfolio") which
is expected to have a weighted average maturity of more than seven years. Each
portfolio differs from the other primarily in the maturity of its holdings and
consequently in the yield levels and principal volatility which might be
expected from such maturity differentials. The Short-Intermediate Portfolio
generally provides a lower yield than the Income Portfolio; but, in turn,
generally provides greater principal stability than the Income Portfolio.
It is a nonfundamental policy of the Fund that, under normal circumstances,
the Fund will invest at least 65% of the value of its total assets in tax-exempt
bonds. The balance of its total assets will be invested in other tax-exempt
securities of the State of Colorado, its political subdivisions, municipalities
and public authorities, the interest on which is exempt from federal income
taxes and from Colorado personal income taxes.
Under normal market conditions, the Fund will attempt to invest 100% and,
as a matter of fundamental policy, will invest at least 80% of its total assets
in each portfolio in Colorado municipal securities. The Fund will invest only in
securities which at the time of purchase have one of the four highest ratings of
Moody's Investor Service, Inc. ("Moody's) (Aaa, Aa, A or Baa), Standard & Poor's
Corporation ("S&P") (AAA, AA, A or BBB), or Fitch Investors Service, Inc.
("Fitch") (AAA, AA, A and BBB), or in securities which are not rated, provided
that, in the opinion of the Fund's investment adviser (the "Adviser"), such
securities are comparable in quality to those within the four highest ratings of
Moody's, S&P or Fitch. These securities are considered to be "investment grade"
securities, although bonds rated in the fourth highest ratings level (Baa by
Moody's and BBB by S&P and Fitch) are regarded as having an adequate capacity to
pay principal and interest but with greater vulnerability to adverse economic
conditions and as having some speculative characteristics. Securities on which
the interest is treated as an item of tax preference for purposes of the
alternative minimum tax will not be counted toward the 80% policy of the Fund.
In the event the rating of an issue held in the Fund's portfolio is lowered by
the rating service, such change will be considered by the Fund in its evaluation
of the overall investments of the security, but such change will not necessarily
result in an automatic sale of the security. For a description of municipal
securities ratings see "Appendix A-Description of Municipal Securities
2
<PAGE>
Ratings" in the Statement of Additional Information.
The Fund also may invest up to 20% of the value of its net assets in
fixed-income securities, the interest on which is subject to federal, state and
local income tax. This may be done (i) pending the investment or reinvestment in
Colorado municipal securities, (ii) in order to avoid the necessity of
liquidating portfolio investments to meet redemptions of shares by investors, or
(iii) where market conditions due to rising interest rates or other adverse
factors warrant temporary investing for defensive purposes. For purposes of this
paragraph, the term "fixed-income securities" shall include only securities
issued or guaranteed by the United States Government (such as bills, notes and
bonds), its agencies, instrumentalities or authorities, and certificates of
deposit of domestic banks which have capital, surplus and undivided profits of
over $1 billion and which are members of the Federal Deposit Insurance
Corporation.
Generally, the Fund will not buy illiquid securities or Colorado municipal
securities for which an active trading market does not exist. Moreover, as a
matter of fundamental policy, in no event will the Fund acquire Colorado
municipal securities or other illiquid assets for which there is no active
trading market if such Colorado municipal securities and illiquid assets, in the
aggregate, would comprise 15% or more of the net assets of the Fund. Included in
this 15% limitation are restricted or not readily marketable securities and
repurchase agreements maturing or terminable in more than seven (7) days.
Although there may be no daily bid and asked activity for certain not rated
Colorado municipal securities, there is an active secondary market for them, and
for this reason the Adviser considers them to be liquid.
The Fund may borrow money from banks for temporary purposes only, and in an
amount not to exceed 10% of the value of its total assets. The Fund will not
purchase portfolio securities if it has outstanding borrowings in excess of 5%
of the value of its total assets.
Except as otherwise herein noted or in the Statement of Additional
Information, the investment policies of the Fund described in this Prospectus
are not fundamental and the Board of Directors of the Fund may change such
policies without the vote of a majority of the outstanding voting securities of
the Fund. However, the Board of Directors will not change the Fund's principal
investment objective, which is a fundamental policy of the Fund, of seeking to
provide as high level of income exempt from federal taxes and from Colorado
personal income taxes as is consistent with the maturities of the portfolio
selected and, regardless of the portfolio selected, with a greater degree of
principal stability than is associated with funds or trust invested exclusively
in long-term municipal bonds. Under the Investment Company Act of 1940 (the
"1940 Act"), a "vote of a majority of the outstanding voting securities" of the
Fund or of a particular Series means the affirmative vote of the lesser of (1)
more than 50% of the outstanding shares of the Fund or such Series or (2) 67% or
more of the shares of the Fund or of such Series present at a shareholders'
meeting if more than 50% of the outstanding shares of the Fund or of such Series
are represented at the meeting in person or by proxy. The Fund is subject to a
number of additional investment restrictions, some of which may be changed only
with the approval of shareholders, which limits its activities to some extent.
For a list of these restrictions and more information concerning the policies
discussed herein, please see the Statement of Additional Information.
3
<PAGE>
Colorado Municipal Securities
As used in this prospectus, the term, "Colorado municipal securities,"
refers to debt obligations issued by the State of Colorado, its counties,
municipalities, authorities and political subdivisions for the purpose of
obtaining funds for various public purposes. The interest on such obligations
is, in the opinion of bond counsel to the issuers, exempt from federal and
Colorado State income taxes.
Municipal obligations are classified as general obligation bonds, revenue
bonds and notes. General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenue derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise or
other specific revenue source, but not from the general taxing power. Notes are
short-term instruments which are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues.
In addition, certain types of "industrial development bonds" issued by or
on behalf of public authorities to obtain funds for privately operated
facilities are included in the definition of Colorado municipal securities,
provided that the interest paid thereon is exempt from Federal and Colorado
State income taxes. Tax-exempt industrial development bonds do not generally
pledge of the credit of the issuing municipality.
The Fund may also purchase bond put programs consisting of long-term low
coupon bonds with put options that give the purchaser the right to sell the
bonds back to the seller at a specified price on a specified date usually within
three to five years of the offering date of the program. In the case of such
purchases, the date that the put option may be exercised is considered to be the
maturity date. All bonds purchased as part of bond put programs are required to
satisfy the same quality standards of the Fund applicable to other bond
purchases. Additionally, the obligation of the seller to purchase a bond upon
exercise of the put option must be supported by a bank letter of credit (which
in the case of a selling bank must be issued by another bank). In the opinion of
the Adviser, the marketability and liquidity of such bonds and their
accompanying put options is the same as other bonds held by the Fund. The Fund
may also purchase tender option programs that give the purchaser the right to
sell the bonds back to the seller or issuer at any time prior to maturity after
expiration of a specified holding period. In the case of such purchases, the
first date that the bonds may be tendered is considered to be the maturity date.
There is no limitation on the aggregate principal amount of bonds associated
with bond put programs or tender option programs which may be purchased in
either portfolio although it is not anticipated that either program will exceed
20% of the assets of a portfolio.
Each portfolio may invest in variable rate demand instruments, repurchase
agreements and standby commitments provided that none of such investments
constitutes more than 5% of the assets of the portfolio. Each portfolio may also
invest in when-issued securities without limitation.
Also included within the general category of Colorado municipal securities
are participation certificates issued by government authorities or entities to
finance the acquisition or construction of equipment, land and/or facilities.
4
<PAGE>
The certificates represent participations in a lease, an installment purchase
contract or a conditional sales contract (hereinafter collectively called "lease
obligations") relating to such equipment, land or facilities. Although lease
obligations do not constitute general obligations of the issuer for which the
issuer's unlimited taxing power is pledged, a lease obligation frequently is
backed by the issuer's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriative" 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. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. These securities
represent a type of financing that has not yet developed the depth of
marketability associated with more conventional securities. Certain investments
in lease obligations may be illiquid. The Fund may not invest in illiquid lease
obligations, if such investments, together with other illiquid investments,
would exceed 15% of the Fund's net assets. The Fund may, however, invest without
regard to such limitation in lease obligations which the Adviser, pursuant to
guidelines which have been adopted by the Board of Directors and subject to the
supervision of the Board of Directors, determines to be liquid. The Adviser will
deem lease obligations liquid if they are publicly offered and have received an
investment grade rating of Aaa, Aa, A or Baa or better by Moody's or AAA, AA, A,
BBB or better by S&P or Fitch.
The Short-Intermediate Portfolio will tend to have a longer average
maturity when interest rates are expected to decline (a market rise) and a
shorter average maturity when interest rates are expected to rise (a market
decline). The Income Portfolio places no maturity restrictions on the municipal
securities in which it may invest. The Income Portfolio's weighted average
maturity is expected to be more than seven years. The Income Portfolio will tend
to have a longer average maturity when interest rates are expected to decline (a
market rise) and a shorter average maturity when interest rates are expected to
rise (a market decline). The Income Portfolio does not intend to maximize income
through total concentration in long-term maturities. The Income Portfolio will
have a dollar weighted average maturity of twenty years or more with respect to
that portion of its holdings not invested in short-term securities (maturity
equal to one year or less) only if in the Adviser's opinion the prevailing
conditions are very favorable to long-term investment.
While these quality and maturity policies should generally result in lower
yields for both portfolios than would be obtainable in funds or trusts comprised
of longer term obligations, lower quality obligations or both, they are intended
to provide greater stability of principal than such other funds or trusts.
The current yield and average maturity for both portfolios is available at
any time by calling the appropriate telephone number as indicated on the cover
page of this Prospectus.
A more detailed description of the securities in which the Fund may invest
is contained in the Statement of Additional Information.
5
<PAGE>
Investment Risk Considerations
In addition to the risks specific to the types of securities in which the
Fund may invest described herein and in the Statement of Additional Information,
the Fund is also subject to the following risks:
Market/Credit Risk. There are two categories of risks to which the Fund is
subject: credit risk and market risk. Credit risk is a function of the ability
of an issuer of a municipal security to maintain timely interest payments and to
pay the principal of a security upon maturity. It is generally reflected in a
security's underlying credit rating and its stated interest rate. A change in
the credit risk associated with a municipal security may cause a corresponding
change in the security's price. Even though the Fund's quality standards require
that investments (including bonds purchased in bond put programs) be in the four
highest categories of Moody's, S&P or Fitch or the determination of equivalent
quality by the Adviser in the case of all investments not secured with U.S.
government obligations, or of equivalent quality as determined by the Adviser
for not rated securities, there is no assurance that credit risk can be entirely
eliminated. The ratings assigned by Moody's, S&P and Fitch represent their
opinions as to the quality of the securities which they undertake to rate and
are not absolute standards of quality. Market risk is the risk of price
fluctuation of a municipal security caused by changes in economic and interest
rate conditions generally affecting the market as a whole. A municipal
security's maturity length also affects the price. As with other debt
instruments, the price of the securities in which the Fund invests are likely to
decrease in times of rising interest rates. Conversely, when rates fall, the
value of the Fund's debt instruments may rise. Price changes of securities have
a direct impact on the net asset value of the Fund.
Diversification. As a non-diversified investment company, the Fund is not
subject to any restrictions under the 1940 Act with respect to the concentration
of its investments in assets of one or more issuers. This concentration may
present greater risks than in the case of a diversified company. However, the
Fund's investments will be limited so as to qualify as a "regulated investment
company" for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify, among other requirements, the Fund's investments will be
limited so that at the close of each of the taxable year, (i) not more than 25%
of the market value of the Fund's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its total assets
will be invested in the securities of a single issuer and the Fund will not own
more than 10% of the outstanding voting securities of a single issuer. For
purposes of this restriction, the Fund will regard each state and each political
subdivision, agency or instrumentality of such state and each multi-state agency
of which such state is a member and each public authority which issues
securities on behalf of a private entity as a separate issuer, which issues
securities on behalf of a private entity as a separate issuer, except that if
the security is backed only by the assets and revenues of a non-government
entity then the entity with the ultimate responsibility for the payment of
principal and interest may be regarded as the sole issuer. A fund which elects
to be classified as "diversified" under the 1940 Act must satisfy the foregoing
5% and 10% requirements with respect to 75% of its total assets. To the extent
the Fund assumes large positions in a small number of issuers, the Fund's total
return may fluctuate to a greater extent than that of a diversified company as
6
<PAGE>
a result of changes in the financial condition or in the market's assessment of
the issuers.
Risks Related to Colorado
Because of limitations contained in the state constitution, the State of
Colorado issues no general obligation bonds secured by the full faith and credit
of the state. Several agencies and instrumentalities of state government,
however, are authorized by statute to issue bonds secured by revenues from
specific projects and activities. Additionally, the state currently is
authorized to issue short-term revenue anticipation notes.
There are approximately 2,000 units of local government in Colorado. These
include counties, home rule cities and counties, statutory cities and towns,
school districts, water and sanitation districts, fire protection districts,
metropolitan districts, general improvement and service districts. These
municipal entities all have some constitutional and/or statutory authority to
collect taxes, generate revenues and incur indebtedness.
A major revenue source for many of these municipalities is the ad valorem
property tax levied at the local level, with $2,421,892,140 and $2,512,514,138
projected to be collected throughout Colorado in tax years 1994 and 1995,
respectively.
In 1994, the assessed valuation of all real and personal property subject
to taxation in Colorado was $29,831,046,660. This was up 3.2% from 1993 levels.
For the 1989 and 1990 levy years, residential property was assessed at 15% of
statutory "actual" value, and all other property was assessed at 29% of
statutory "actual" value, using the levels of value for the one and one-half
year period immediately prior to July 1, 1988, to determine statutory "actual"
value. For the 1991 and 1992 levy years, the residential assessment ratio was
14.34% and the levels of value for the one and one-half year period immediately
prior to July 1, 1990, were used to determine statutory "actual" value. For 1993
and 1994, the residential assessment ratio was reduced to 12.86%. For 1995 and
1996, the ratio was reduced to 10.36% from 12.86%.
The Colorado Legislative Council's economic forecast predicts an increase
in general fund revenues of about 4.4% during the 1995-1996 fiscal year.
The major risks to a continued economic recovery in Colorado are reduced
federal expenditures, particularly in the area of defense, cessation of large
public works projects in the state, a drop in tourism caused by the lack of any
state-sponsored advertising, and reduced commercial real estate values. Any of
these potential events could adversely affect the Colorado economy and local
governmental revenues. Additionally, on November 3, 1992, Colorado voters
approved an amendment to the Colorado Constitution which is commonly referred to
as the Taxpayer's Bill of Rights ("TABOR"). TABOR imposes various limits and new
requirements on spending by the State of Colorado and all Colorado local
governments (each of which is referred to in this section as a "governmental
unit"). Any of the following, for example, now requires prior voter approval:
(i) any increase in a governmental unit's spending from one year to the next in
excess of the rate of inflation plus a "growth factor," as defined in TABOR;
(ii) any increase in the real property tax revenues of a local governmental unit
7
<PAGE>
(not including the State) from one year to the next in excess of inflation plus
the appropriate "growth factor"; (iii) any new tax, tax rate increase, mill levy
increase, valuation for assessment ratio increase for a property class,
extension of an expiring tax or a tax policy change directly causing a net tax
revenue gain; and (iv) except for refinancing bonded indebtedness at a lower
interest rate or adding new employees to existing pension plans, creation of any
multiple-fiscal year direct or indirect debt or other financial obligation
whatsoever without adequate present cash reserves pledged irrevocably and held
for payments in all future fiscal years. TABOR has already reduced the financial
flexibility of all levels of Colorado government. In particular, governmental
units dependent on taxes on residential property are being squeezed between
TABOR requirements of voter approval for increased mill levies and an earlier
State constitutional amendment which has had the effect of lowering the
assessment rate on residential property from 21.0% to 10.36% over the past eight
years.
There can be no assurance that these, or other events, will not negatively
affect the market value of the securities in the Fund or the ability of
municipal entities to pay their debt obligations in a timely manner.
Legislative Tax Changes
From time to time proposals to restrict or eliminate the Federal income tax
exemption for interest on the type of securities to be purchased by the Fund are
introduced and undoubtedly will continue to be introduced. If such proposals
were enacted, the Fund would reevaluate its investment objective and policies.
Any change in such objective and policies would require shareholder approval. It
is not known if a flat tax plan (or any of the other Treasury recommendations)
will be enacted and, if it is enacted, the form it will take.
MANAGEMENT OF THE FUND
The affairs of the Fund will be managed under the supervision of its Board
of Directors. The identities of the directors and officers of the Fund, together
with certain other information about them, including fees paid to directors, are
contained in the Statement of Additional Information. The Fund has been
organized as a corporation under the laws of the State of Maryland. In
accordance with Maryland's General Corporation law, a director of the Fund is
responsible for performing his duties in good faith, in a manner he reasonably
believes to be in the best interests of the Fund and with the care that an
ordinarily prudent person in a like position would use under similar
circumstances.
Adviser
The Adviser, Funds Management Corporation, located at 600 17th Street,
Suite 2610 South Tower, Denver, Colorado 80202, serves as the Fund's investment
adviser pursuant to an Investment Advisory Agreement (the "Advisory Agreement")
between the Fund and the Adviser dated May 28, 1997. The Adviser was
incorporated as a Colorado corporation on April 7, 1988.
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Mr. Calvin F. Isaak, 600 17th Street, Suite 2610 South, Denver, Colorado
80202, is the President of the Advisor, as well as President and Chairman of the
Board of the Fund. He is also Chairman of the Board and President of Isaak Bond
Investments, Inc., the Fund's principal underwriter and a distributor of the
Fund's shares (the "Underwriter"). Mr. Isaak is a controlling shareholder of the
Underwriter, which owns all the stock of the Advisor. In his capacity as
President of the Adviser, he will be primarily responsible in directing all
investment decisions for the Fund, placing orders to purchase and sell
securities and supervising the investment staff which provides economic and
research services to the Fund.
All investment decisions are made in accordance with the Fund's stated
policies and are subject to the supervision and direction of the Board of
Directors.
Under the Advisory Agreement, the Fund pays Funds Management Corporation as
compensation for its services, a fee computed daily and paid monthly at an
annual rate of .23 of 1.00% of the value of the Fund's average daily net assets.
Portfolio Transactions
The frequency of portfolio transactions-the Fund's portfolio turnover
rate-will vary from year to year depending on market conditions. The Adviser
anticipates that the Fund will not have a portfolio turnover rate in excess of
100% per year; however, there can be no assurances that the Fund will be able to
meet this objective.
The Adviser will be authorized to allocate the Fund's securities
transactions to the Underwriter and to other broker-dealers who help distribute
the Fund's shares. The Adviser will allocate transactions to such broker-dealers
only when it reasonably believes that the commissions and transaction quality is
comparable to that available from other qualified broker-dealers. This is
consistent with the Rules of the National Association of Securities Dealers,
Inc., and subject to seeking the most favorable price and execution available
and such other policies as the Board of Directors may determine.
In connection with its duties to arrange for the purchase and sale of
portfolio securities, the Adviser will select such broker-dealers who will, in
the Adviser's judgment, implement the Fund's policy to achieve best execution,
i.e., prompt, efficient and reliable execution of orders at the most favorable
net price. The Adviser will cause the Fund to deal directly with the selling or
purchasing principal or market maker without incurring brokerage commissions
unless the Adviser determines that better price or execution may be obtained by
paying such commissions; the Fund expects that most transactions will be
principal transactions at net prices and that the Fund will incur little or no
brokerage costs. The Fund understands that purchases from underwriters include a
commission or concession paid by the issuer to the underwriter and that
principal transactions placed through broker-dealers include a spread between
the bid and asked prices. When allocating transactions to broker-dealers, the
Adviser is authorized to consider, in determining whether a particular
broker-dealer will provide best execution, the broker-dealer's reliability,
integrity, financial condition and risk in positioning the securities involved,
as well as the difficulty of the transaction in question, and thus need not pay
the lowest spread or commission available if the Adviser determines in good
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faith that the amount of commission is reasonable in relation to the value of
the brokerage and research services provided by the broker-dealer, viewed either
in terms of the particular transaction or the Adviser's overall responsibilities
as to the accounts as to which it exercises investment discretion. If, on the
foregoing basis, the transaction in question could be allocated to two or more
broker-dealers, the Adviser is authorized in making such allocation, to
consider, (i) whether a broker-dealer has provided research services, as further
discussed below; and (ii) whether a broker-dealer has sold Fund shares or the
shares of any other investment company or companies having the Adviser as its
investment adviser or having the same sub-manager, administrator or principal
underwriter as the Fund. Such research may be in written form or through direct
contact with individuals and may include quotations on portfolio securities and
information on particular issuers and industries, as well as on market, economic
or institutional activities. The Fund recognizes that no dollar value can be
placed on such research services or on execution services, that such research
services may or may not be useful to the Fund and/or other accounts of the
Adviser and that such research received by such other accounts may or may not be
useful to the Fund.
Under the 1940 Act, the Fund may not purchase portfolio securities from any
underwriting syndicate of which the Underwriter, as principal, is a member
except under certain limited circumstances set forth in Rule 10f-3 thereof.
These conditions relate among other things, to the terms of an issue of
municipal securities purchased by the Fund, the reasonableness of the
broker-dealer spread, the amount of municipal securities which may be purchased
from any one issuer, and the amount of the Fund's assets which may be invested
in a particular issue. The rule also requires that any purchase made subject to
its provisions be reviewed at least quarterly by the Fund's Board of Directors,
including a majority of the Fund's Board of Directors who are not interested
persons of the Fund as defined by the 1940 Act.
The Board of Directors will review quarterly the Adviser's performance of
its responsibilities in connection with the placement of portfolio transactions
on behalf of the Fund. Such review is conducted for the purpose of determining
if the markups and commissions, if any, paid by the Fund are reasonable in
relation to the benefits received by the Fund taking into account the
competitive practices in the industry.
Certain investments may be appropriate for the Fund and also for clients of
the Underwriter. In such event, the Underwriter will allocate transactions among
the Fund and its clients in a manner which it believes to be equitable to each.
In some cases, this procedure could have an adverse effect on the price or
amount of the securities purchased or sold by the Fund. Purchase and sale orders
for the Fund may be combined with those of other clients of the Underwriter in
the interest of obtaining the most favorable net results for the Fund.
Plan of Distribution
A plan of distribution has been approved and adopted by the Fund (the
"Distribution Plan") pursuant to Rule 12b-1 under the 1940 Act for each of the
Fund's portfolios. Under the Distribution Plan, the Fund may reimburse
distributors or others for all expenses incurred by distributors or others in
the promotion and distribution of the Fund's shares. Such expenses may include,
but are not limited to, the printing of prospectuses and reports used for sales
purposes, expenses of prepaying and distributing sales literature and related
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expenses, including a prorated portion of distributors' overhead expenses
attributable to the distribution of Fund shares, as well as any distribution or
service fees paid to securities broker-dealers or their firms or others who have
executed a servicing agreement with the Fund, distributors or their affiliates.
The maximum amount which the Fund may reimburse to distributors or others
for such expenses is 0.25% per annum of the average daily net assets of the
Fund, payable on a quarterly basis. All expenses of distribution in excess of
0.25% per annum will be borne by distributors or others who have incurred them,
without reimbursement from the Fund.
The Distribution Plan also covers any payments to or by the Fund, Advisers,
distributors or other parties on behalf of the Fund, Advisers or distributors to
the extent such payments are deemed to be before the financing of any activity
primarily intended to result in the sale of shares by the Fund in the context of
Rule 12b-1. The payments under this Distribution Plan are included in the
maximum operating expenses which may be borne by the Fund.
Expenses of the Fund
In addition to the Adviser's fee, the Fund bears all its other expenses,
including, but not limited to, fees and expenses of those directors who are not
officers of the Adviser; salaries and expenses of any employees of the Fund who
are not affiliated with the Adviser; fees and expenses of the custodian,
transfer agent and dividend disbursing agent; interest expenses; taxes and
governmental fees; brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; accounting and legal fees;
insurance premiums; expenses of maintaining the Fund's qualification as a
Maryland corporation and of holding shareholders' meetings; expenses of
preparation and distribution to shareholders, of reports, proxies and
prospectuses; fees and expenses of membership in industry organizations;
expenses incident to the issuance of its shares against payment therefor by or
on behalf of the subscribers thereto, including printing of stock certificates
and such non-recurring expenses as may arise, including actions, suits or
proceedings to which the Fund is a party and the legal obligation which the Fund
may have to indemnify its officers and directors with respect thereto.
Notwithstanding the foregoing, all organizational expenses, including expenses
of registering and qualifying shares for sale with the Securities and Exchange
Commission, legal and accounting expenses incurred in organizing the Fund and
registering the shares and expenses incurred in the solicitation of purchasers
of Fund shares, will be borne by the Adviser.
The Adviser has agreed to reimburse the Fund for its expenses to the extent
that they ever exceed .68% (including the Adviser's fee) of the average annual
net assets of the Fund.
TAXATION OF THE FUND AND ITS SHAREHOLDERS
Federal Income Taxes
The Fund intends to qualify as a "regulated investment company" under the
Code, and intends to take all other action required to ensure that no federal
income taxes will be payable by the Fund and that the Fund may pay
"exempt-interest dividends" to its shareholders. The Fund has received an
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opinion of counsel from Kutak Rock to the effect that, subject to certain
conditions described therein, the Fund will be characterized as a regulated
investment company, as described in Section 851 of the Code. In order to pay
exempt-interest dividends at least 50% of the value of the Fund's total assets
must consist of obligations exempt from federal income tax pursuant to Section
103(a) of the Code.
Net interest income on obligations exempt from federal income tax, when
distributed to shareholders and designated by the Fund as exempt-interest
dividends, will be exempt from federal income tax in the hands of the
shareholders. Short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested. Long-term capital gain
distributions to shareholders will be treated as taxable long-term capital gain,
whether received in shares of the Fund or in cash, regardless of how long a
shareholder has held his shares. It is not likely that the Fund will retain
undistributed capital gains; however, in such an event, a shareholder must
include in income, as long-term capital gain, his share of undistributed
long-term capital gain designated by the Fund. Under such circumstances, the
shareholder may claim a refundable credit against the tax for his proportionate
share of any capital gain tax paid by the Fund. Under present law, capital gains
are subject to a maximum tax rate of 28%.
Under Section 55 of the code, the alternative minimum tax now applies to
all taxpayers, including corporations, and increases a taxpayer's tax liability
only to the extent it exceeds the taxpayer's regular income tax (less certain
credits) for the year. The alternative minimum tax is equal to 26% (or in some
cases, 28%) in the case of individuals (20% for corporations) of the excess of
the taxpayer's taxable excess, which is the amount by which alternative minimum
taxable income exceeds the applicable exemption amount. The exemption is $45,000
for spouses filing a joint return, $33,750 for a single taxpayer, and $22,500
for a married taxpayer filing a separate return, or for a trust or estate. The
exemption is phased out at the rate of $.25 for each dollar by which a
taxpayer's alternative taxable income exceeds a predetermined amount.
"Alternative minimum taxable income" is a taxpayer's taxable income (i)
determined with specified adjustments for the alternative minimum tax and (ii)
increased by "items of tax preference." The types of income constituting "items
of tax preference" include otherwise allowable tax-exempt interest on private
activity bonds issued after August 7, 1986 (except bonds issued by charities
qualifying under Section 501(c)(3) of the Code).
Under the Code any loss on the sale or exchange of shares in the Fund held
by a shareholder for six months or less will be disallowed to the extent the
shareholder received exempt-interest dividends with respect to those shares.
Distributions from the Fund's non-exempt investment income and from any net
realized short-term gain will be taxable to shareholders as ordinary income,
whether received in cash or in additional shares of the Fund. Under the Code,
interest on indebtedness incurred or continued to purchase or carry shares of
the Fund will not be deductible to the extent that the Fund's distributions are
exempt from federal income tax.
Subject to modification by Regulations to be published, written notice
concerning the federal income tax status of distributions will be mailed within
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sixty (60) days after the close of the year to shareholders of the Fund annually
in accordance with applicable provisions of the Code.
Regulated investment companies will be subject to a non-deductible
excise tax equal to 4% of the excess of the amount required to be distributed
for the calendar year over the distributed amount for the calendar year. The
Fund intends to avoid the imposition of this excise tax, and will therefore
distribute during each calendar year at least 98% of its ordinary income for
such calendar year and 98% of its capital gain net income for the one year
period ending on October 31 of the calendar year.
Unless a shareholder includes his taxpayer identification number
(social security number for individuals) in the General Authorization Form and
certifies that he is not subject to backup withholding, the Fund is required to
withhold and remit to the U.S. Treasury 31% of non-exempt distributions and
other reportable payments to the shareholder.
Persons who may be "substantial users" (or "related persons" of
substantial users) of facilities financed by industrial development bonds should
consult their tax advisers before purchasing Fund shares.
The limitations on the deduction of miscellaneous itemized deductions
do not apply to publicly offered regulated investment companies. The Adviser
intends to use its best efforts to ensure that the Fund qualifies as a publicly
offered regulated investment company for the purposes of the foregoing
provision.
Colorado Income Taxes
Individuals, trusts, estates, and corporations who are holders of
shares of the Fund and who are subject to Colorado income tax will not be
subject to Colorado tax on distributions from the Fund to the extent that such
distributions qualify as either (1) exempt interest dividends of a regulated
investment company under Section 852(b)(5) of the Code, which are derived from
interest on tax-exempt obligations of the State of Colorado or any of its
political subdivisions; or (2) distributions derived from interest on
obligations of the United States or its possessions included in federal adjusted
gross income.
To the extent that distributions on shares of the Fund are attributable
to sources of income not described in the preceding sentences, including capital
gains, such distributions will not be exempt from Colorado income tax.
There are no municipal income taxes in Colorado. As intangibles, shares
in the Fund will be exempt from Colorado property taxes.
NET ASSET VALUE PER SHARE
The net asset value per share of each portfolio is determined by the
Fund's transfer agent (the "Transfer Agent"), American Data Services, Inc. as
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of 12:00 noon Colorado time on each day when the New York Stock Exchange is open
and on any other day on which there is sufficient trading in municipal
obligations to affect portfolio values, by dividing the total assets of each
portfolio less all its liabilities by the total number of shares outstanding in
such portfolio. In determining net asset value, all of each portfolio's
securities except money market instruments and short-term municipal obligations
with remaining maturities of sixty (60) days or less are valued at market by a
pricing service, approved by the Board of Directors and the Transfer Agent,
which furnishes the Transfer Agent with valuations based in each case upon
information concerning market transactions and quotations from recognized
municipal securities broker-dealers. Securities for which market quotations are
readily available are valued at the last reported sale price, or, if no sales
are reported on that day, at the mean between the latest available bid and asked
prices. Securities for which quotations are not readily available are valued by
the pricing service considering such factors as yields or prices of municipal
securities of comparable quality, type of issue, coupon, maturity and rating,
indications as to value from broker-dealers, and general market conditions. The
methods used by the pricing service and the valuations so established are
reviewed regularly by officers of the Fund under the general supervision of its
Board of Directors. The Fund's pricing service is Kenny Information Service. The
use of such service by the Fund is the method selected by the Fund's Board of
Directors for obtaining a fair determination of the value of securities for
which quotations are not readily available.
PURCHASE OF SHARES
Shares of each portfolio may be purchased by check or by wire transfer
of funds through a bank. The minimum initial investment is $10,000 for each
portfolio selected. Investments may be made in any amount in excess of the
minimum. Subsequent investments may be in any amount for the portfolio
selected. Each portfolio's shares are sold on a continuous basis without a sales
charge at the net asset value in effect at the time a purchase order is
processed. Purchase orders are processed after federal funds are made available
to the Fund as hereafter provided.
A contingent deferred sales charge of 1% may be imposed upon redemption
of Fund shares if they are redeemed within one year of purchase. The charge will
not be imposed upon redemption of reinvested dividends or share appreciation.
The charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent sales charge will be waived in the event
of: (a) redemption of shares of a shareholder (including a registered joint
owner) who has died; (b) redemption of shares if they are to be exchanged for
shares of another portfolio; and (c) redemption of shares of a shareholder
(including a registered joint owner) who after purchase of the shares being
redeemed becomes totally disabled (as evidenced by a determination by the
federal Social Security Administration).
Dividends begin on the day federal funds are made available to the Fund
and continue to and including the day of redemption.
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Purchases by Check
Shares may be purchased initially by mailing a completed account
application form together with a check payable to "Colorado Double Tax-Exempt
Bond Fund, Inc." for the amount to be invested in the Fund. The address for
mailing is Colorado Double Tax-Exempt Bond Fund, Inc., P.O. Box 641235,
Cincinnati, Ohio 45264-1235. (If sending by express mail or other service
requiring a street address, use Colorado Double Tax-Exempt Bond Fund, Inc.,
c/o Star Bank, N.A., Mutual Fund Custody Department, 425 Walnut Street M.L.
6118, 6th Floor, Cincinnati, Ohio 45202.
Purchases of shares purchased by check are effected when federal funds
are made available to the Fund. Federal funds are normally made available to the
Fund at 9:00 a.m. on the third business day following receipt of the check.
Shares are purchased at the net asset value in effect when the check is received
by the Fund. During the period of time between receipt of the check and the
Fund's collection of federal funds, an investor's money will not be invested and
no dividends will accrue to an investor.
Subsequent purchases may be effected by mailing a check as outlined
above. The shareholder's account number and the portfolio in which he intends to
make the additional purchase should appear on the check. In addition, the
shareholder should enclose the stub portion of the most recent confirmation
statement received from the Fund.
Purchases by Wire
Shares may be purchased by wiring federal funds to the Fund. Prior to
an initial investment, an investor should call toll free the appropriate
telephone number of the Fund listed on the cover page of this Prospectus to
obtain a shareholder account number and instructions. An investor should
indicate the portfolio in which he intends to invest, or if investing in both
portfolios, the investor will receive an account number for each portfolio.
An investor should then instruct his bank to wire transfer the intended
investment amount in federal funds to:
Star Bank, N.A. Cinti/Trust
ABA Account No. 0420-0001-3
DDA Account No. 486464589
Attention: Colorado Double Tax-Exempt Bond Fund, Inc.
Account of (Investor's name(s))
Account No. (The account number assigned by telephone)
If investing in both portfolios, indicate both account numbers and the amount to
be invested in each portfolio.
A completed account application form must be received by the Fund
before any withdrawal or exchange transactions can be handled.
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Subsequent purchases may be effected by wiring federal funds as
outlined above and indicating the investor's name and account number to which
they are to be credited.
No stock certificates will be issued unless a request in writing is
made to the Fund's transfer agent. Instead an account will be established for
each investor and all shares purchased or received, including those obtained
through reinvestment of distributions, will be registered on the books of the
Fund and credited to such account.
The Fund has the right to limit the amount of purchases and to refuse
to sell shares to any person.
Other than the contingent deferred sales charge described above, no
sales charges or commissions are payable in connection with the sale of the
Fund's shares. The expenses incurred in the sale of Fund shares, including
advertising and promotion, are included among the organizational expenses which
will be paid by the Adviser.
Automatic Investment Plan
Under the Fund's Automatic Investment Plan, a shareholder may be able
to arrange to make additional purchases of Shares automatically on a monthly
basis by electronic funds transfer from a checking account, if the bank which
maintains the account is a member of the Automated Clearing House, or by
preauthorized checks drawn on the shareholder's bank account. A shareholder may,
of course, terminate the program at any time. The Automatic Investment Plan
Application included with this Prospectus contains the requirements applicable
to this program. In addition, shareholders may obtain more information
concerning this program from their securities broker-dealers or from
distributors.
The market value of the Fund's shares is subject to fluctuation. Before
undertaking any plan for systematic investment, the investors should keep in
mind that such a program does not assure a profit or protect against a loss.
REDEMPTION OF SHARES
The Fund's shares may be redeemed at the net asset value of the
applicable portfolio next determined after receipt of the redemption request in
proper form at the offices of American Data Services, Inc., the Fund's Transfer
Agent (the "Transfer Agent"). A shareholder redeeming between monthly dividend
payment dates receives any accrued but unpaid dividends applicable to the
redeemed shares.
Redemption By Mail
Shares may be redeemed by sending a written redemption request to the
Transfer Agent. The redemption request should state the name of the Fund, the
portfolio name, the name(s) on the redeeming shareholder's account, such
shareholder's account number and the dollar amount or number of shares to be
redeemed. If the shares to be redeemed are represented by certificates issued by
the Fund to the redeeming shareholder, such certificates must be returned with
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the redemption request. In all cases, the signature, whether on the written
request or on a stock power, must be signed exactly as the shareholder name(s)
appears on the account statement, including fiduciary capacity (e.g. Trustee,
Guardian, etc.) and be guaranteed by an authorized person of a commercial bank
or a member firm of the New York Stock Exchange. The Transfer Agent may require
additional supporting documents for redemptions made by corporations, executors,
administrators, personal representatives, trustees, guardians and other
fiduciaries. A redemption request will not be deemed to have been submitted
until the Transfer Agent receives all required documents in proper form. The
address for redemption requests is Colorado Double Tax-Exempt Bond Fund, Inc.,
c/o American Data Services, Inc., Hauppauge Corporate Center, 150 Motor Parkway,
Suite 109, Hauppauge, New York 11798. Redemption proceeds are normally mailed on
the next business day following receipt of a redemption request in proper form
but in no event later than seven (7) days following receipt of such requests.
Redemption By Telephone
Shares may be redeemed by telephone if the appropriate section on the
account application form has been completed. Shareholders may request
redemptions by telephoning the Transfer Agent at 1-888-235-2215 and arranging
for the proceeds to be wire transferred to a previously designated bank account
if all the following conditions are met:
(a) A telephone redemption authorization included in the account application
form is on file with the Fund before the redemption request is placed. See
the appropriate section on the account application form. This authorization
requires designation of a bank account to which the redemption payment is
to be wired. The proceeds will not be wired to other than the designated
bank account.
(b) If a shareholder did not establish the telephone redemption privilege or
wishes to change the bank account to which the redemption payment is to be
wired, such shareholder must provide the Fund with a signed and signature
guarantee request designating the change.
(c) No shares to be redeemed by telephone may be represented by certificates.
Redemption is consummated at the asset value in effect at the close of
business of the day the redemption request is received provided the request is
made prior to 12:00 noon Colorado time. In such event, the wire transfer is
ordinarily made the morning of the next business day. If the redemption request
is made after 12:00 noon Colorado time, redemption is consummated at the net
asset value next determined and the wire transfer is ordinarily sent on the
morning of the second business day following the receipt of the redemption
request.
Shares which were purchased by a personal check cannot be redeemed by
telephone until the check has cleared the bank which may take up to fifteen
(15) days. Accordingly, if this restriction is of concern to an investor,
purchases should be made by wire transfer.
If transfer is requested by telephone in accordance with the procedures
described above, payment will be by wire transfer to the bank account designated
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on the account application form, the Transfer Agent's charges for each such wire
transfer (currently $9.00) will be deducted from the proceeds of the redemption.
Redemption proceeds are normally wired or mailed on the next business
day following receipt of wired or telephoned instructions, but in no event later
than seven (7) days following receipt of such requests.
Investors designating a savings and loan association as the bank to
receive their telephone redemption proceeds are advised that if the savings and
loan association is not a participant in the Federal Reserve System, redemption
proceeds must be wired to a commercial bank which is a correspondent of the
savings and loan association. It is suggested that investors discuss wire
procedures and costs with their savings and loan association before completing
the telephone redemption authorization on the account application form.
The telephone redemption procedure may be modified or terminated at any
time by the Fund or the Transfer Agent.
If, in the opinion of the Board of Directors of the Fund, conditions
exist which make cash payment undesirable, redemption payments may be made in
whole or in part in securities or other property, valued for this purpose as
they are valued in computing the net asset value of the Fund. Shareholders
receiving any such securities or other property on redemption will incur any
costs of sale.
Apart from the charge imposed by the Transfer Agent for effecting a
redemption payment by a bank wire transfer, neither the Fund nor the Transfer
Agent imposes a redemption fee, however a contingent deferred sales charge may
apply. If a shareholder uses the services of a broker-dealer to effect
redemption of his shares, the broker-dealer may charge a fee for such services.
EXCHANGE PRIVILEGE
The shares of one portfolio may be exchanged for shares of the other
portfolio without cost. The privilege to exchange shares enables an investor to
switch portfolios when he believes that such a shift is an appropriate personal
investment decision. It is not intended as a trading vehicle to respond to
short-term market fluctuations. An exchange involves a redemption of all or a
portion of shares held in one portfolio and the investment of the proceeds in
shares of the other portfolio. Accordingly, the exchange privilege is, for
federal income tax purposes, a sale on which a shareholder may realize a taxable
gain or loss and a purchase which establishes a new investment, a new cost basis
and a new holding period. In order to prevent abuse of the exchange privilege to
the disadvantage of other shareholders, the Fund reserves the right to terminate
or restrict the exchange privilege of any shareholder who makes more than two
exchanges per year.
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Exchange by Telephone
An investor may make telephone exchanges by telephoning the Transfer
Agent at 1-888-235-2215 provided that (a) he has elected the telephone
exchange option on the account application form, (b) the registration on the two
accounts will be identical and (c) the shares to be exchanged are not in
certificate form. Neither the Fund nor the Transfer Agent is responsible for the
authenticity of exchange instructions received by telephone or telegraph.
Instructions received by the Transfer Agent are transacted at the net asset
value in effect at the time the call is received.
Exchange by Mail
An investor may exchange shares by submitting a written request signed
exactly as the shares are registered and accompanied by the certificate(s), if
any, evidencing such shares. The request must be addressed to the Transfer Agent
and should include specific instructions for the redemption and purchase of
shares. These instructions must include the identity of the existing account
(the Fund's name, portfolio name, account name and account number) and specify
the number of shares to be exchanged. Unless otherwise specified, the new
account will be established with the same registration, telephone option(s) and
dividend option as the present account. If the new account is to be different in
any respect, the exchange request must contain a signature guarantee described
under redemption procedures.
The exchange privilege may be modified or discontinued at any time.
DISTRIBUTIONS
The Fund declares dividends of net investment income daily. Dividends
are paid to shareholders in dividends of additional shares on the 15th day of
each month. If the 15th day of a month falls on a weekend or holiday on which
the New York Stock Exchange is closed, the dividend will be distributed on the
next succeeding business day. Payments vary in amount depending on income
received from portfolio securities and expenses of operation.
Shares will begin earning dividends on the day after which the Fund
receives payment and shares are issued. Shares or cash continue to earn
dividends through the date they are redeemed or delivered subsequent to
reinstatement.
Unless you elect by written notice to the Adviser, at least ten (10)
business days prior to the dividend Payable Date, your dividends and gain
distributions, if any, will be made in additional shares at net asset value. If
you desire to elect a different option, you may choose to receive dividends in
cash and any gain distributions in shares or receive both dividends and any gain
distributions in cash. (See Item 4 on the General Authorization Form.)
The Fund will distribute no later than December 31, sufficient capital
gains net income determined as of October 31 of each calendar year to avoid the
application of the 4% excise tax imposed pursuant to the Code.
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TRANSFER AND DIVIDEND DISBURSING AGENT,
COUNSEL AND AUDITORS
American Data Services, Inc. acts as transfer agent and dividend disbursing
agent for the Fund. The Transfer Agent has no part in determining the investment
policies of the Fund or portfolio securities to be purchased or sold by the
Fund.
Kutak Rock, 717 17th Street, Suite 2900, Denver, Colorado 80202, acts as
counsel to the Fund and has rendered its opinion in connection with the shares
offered by this prospectus.
Baird, Kurtz & Dobson has been selected as auditor for the Fund.
ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on
August 29, 1996. The Fund is authorized to issue 100,000,000 shares of capital
stock, par value of $.001 per share, of which 40,000,000 shares are initially
authorized as Class A Shares which constitute the Short-Intermediate Portfolio
and 20,000,000 shares are initially authorized as Class B Shares which
constitute the Income Portfolio. Shares of each portfolio have equal voting
rights and no preference as to conversion, exchange, retirement or any other
feature exists. Each share has one vote and any vote which affects the holders
of either portfolio (other than a vote for the election of directors or
selection of auditors) shall require the approval of a majority of the shares of
the affected portfolio. Each share, when issued and paid for in accordance with
the terms of offering, will be fully paid and non-assessable. Shares of the
Fund's stock may be redeemed by shareholders at net asset value. Shares have no
preemptive, subscription or conversion rights and are freely transferable.
Fund shares do not have cumulative voting rights, which means the
holders of more than 50% of the shares voting for the election of directors can
elect 100% of the directors if they choose to do so and in such event the
holders of the remaining shares so voting will not be able to elect any
directors.
The Board of Directors is authorized to assign any of the 40,000,000
unassigned shares of the Fund to a portfolio. Additional portfolios may be
offered in the future but such additional offerings would not affect the
interests of current shareholders in the existing portfolios.
The Transfer Agent maintains a record of each shareholder's ownership.
Shareholders will receive from the Transfer Agent confirmations, as well as
monthly statements of account which will show their holdings. In the interests
of economy and convenience, certificates representing the Fund's shares will not
be physically issued except upon the shareholder's specific written request to
the Transfer Agent.
The Fund sends to each of its shareholders a semiannual report and an
audited annual report each of which includes a list of the investment securities
held by the Fund. Shareholder inquiries should be made by writing the Fund at
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<PAGE>
its address set forth on the cover page of this Prospectus or by telephoning the
Fund at the telephone numbers also set forth on the cover page of this
Prospectus.
No person has been authorized to give any information or to make any
representations other than those which may be contained in this Prospectus and
in the Fund's official sales literature made in connection with the offering of
the Fund's shares, and if given or made, such other information or
representations must not be relied upon as having been authorized by the Fund.
This Prospectus does not constitute an offer in any State in which, or to any
person to whom, such offer may not lawfully be made.
21
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby, nor an offer of shares in any state or
jurisdiction in which, or to any person to whom, such offer would be unlawful.
The delivery of this Prospectus at any time does not imply that the information
contained herein is correct as of any time subsequent to its date; however, if
any material change occurs while this Prospectus is required by law to be
delivered, this Prospectus will be amended or supplemented accordingly.
TABLE OF CONTENTS
Page
EXPENSE TABLE................................................................ 1
DESCRIPTION OF THE FUND...................................................... 2
MANAGEMENT OF THE FUND....................................................... 8
TAXATION OF THE FUND AND
ITS SHAREHOLDERS.........................................................11
NET ASSET VALUE PER SHARE....................................................13
PURCHASE OF SHARES...........................................................14
REDEMPTION OF SHARES.........................................................16
EXCHANGE PRIVILEGE...........................................................18
DISTRIBUTIONS................................................................19
TRANSFER AND DIVIDEND
DISBURSING AGENT,
COUNSEL AND AUDITORS.....................................................19
ADDITIONAL INFORMATION.......................................................20
COLORADO DOUBLE
TAX-EXEMPT BOND FUND, INC.
PROSPECTUS
June __, 1997
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF INFORMATION DOES NOT CONSTITUTE A PROSPECTUS.
SUBJECT TO COMPLETION, DATED JUNE 6, 1997
STATEMENT OF ADDITIONAL INFORMATION
COLORADO DOUBLE TAX-EXEMPT BOND FUND, INC.
This Statement of Additional Information is intended to supplement the
information provided to investors in the Prospectus dated June 6, 1997 (the
"Prospectus") of Colorado Double Tax-Exempt Bond Fund, Inc. (the "Fund"). This
Statement of Additional Information is not itself a prospectus and should be
read only in conjunction with the Prospectus. Copies of the Fund's Prospectus
may be obtained by writing the Fund at 600 17th Street, 2610 S. Tower, Denver,
Colorado 80293, or calling the Fund at either 1-800-279-4426 (statewide) or
1-303-623-7500 (from the Denver area).
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES................................. 2
CALCULATION OF PERFORMANCE DATA..............................................10
MANAGEMENT OF THE FUND.......................................................12
ADVISORY AGREEMENT AND EXPENSES..............................................14
PURCHASE OF SHARES...........................................................15
REDEMPTION OF SHARES.........................................................17
EXCHANGE PRIVILEGE...........................................................19
DISTRIBUTIONS................................................................20
TRANSFER AGENT...............................................................21
CUSTODIAN AND AUDITORS.......................................................21
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS.......................................22
FINANCIAL STATEMENT..........................................................23
ACCOUNT APPLICATION..........................................................27
APPLICATION FOR AUTOMATIC INVESTMENT PLAN....................................29
APPENDIX A..................................................................A-1
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<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following discussion supplements the description of the Fund's
investment objectives and management policies set forth in the Prospectus.
The Fund purchases primarily Colorado municipal securities which it
believes are attractive and competitive in terms of quality, maturity and yield.
Even though any purchase obviously appears totally suitable at the time of
purchase, the dynamics of the municipal bond market in response to changes in
general economic and political conditions, interest rate and inflationary
expectations, and supply and demand considerations require continuous
reevaluation of each investment relative to how return, quality and
marketability might be improved, within the fundamental and management policies
established for each portfolio.
The Fund believes that by offering two portfolios, it can achieve a
more precise objective for an investor than a single portfolio attempting to
achieve multiple objectives. The Fund offers a Short-Intermediate Portfolio
which restricts its weighted average maturity to no more than seven years, and
an Income Portfolio which is expected to have a weighted average maturity of
more than seven years. Each portfolio differs from the other primarily in the
maturity of its holdings and consequently in the yield levels and principal
volatility which might be expected from such maturity differentials. The
Short-Intermediate Portfolio generally provides a lower yield than the Income
Portfolio; but, in turn, generally provides greater principal stability than the
Income Portfolio.
It is a nonfundamental policy of the Fund that, under normal
circumstances, the Fund will invest at least 65% of the value of its total
assets in tax-exempt bonds. The balance of its total assets will be invested in
other tax-exempt securities of the State of Colorado, its political
subdivisions, municipalities and public authorities, the interest on which is
exempt from federal income taxes and from Colorado personal income taxes.
Under normal market conditions, the Fund will attempt to invest 100%
and, as a matter of fundamental policy, will invest at least 80% of its total
assets in each portfolio in Colorado municipal securities. The Fund will invest
only in securities which at the time of purchase have one of the four highest
ratings of Moody's Investor Service, Inc. ("Moody's) (Aaa, Aa, A or Baa),
Standard & Poor's Corporation ("S&P") (AAA, AA, A or BBB), or Fitch Investors
Service, Inc. ("Fitch") (AAA, AA, A and BBB), or in securities which are not
rated, provided that, in the opinion of the Fund's investment adviser (the
"Adviser"), such securities are comparable in quality to those within the four
highest ratings of Moody's, S&P or Fitch. These securities are considered to be
"investment grade" securities, although bonds rated in the fourth highest
ratings level (Baa by Moody's and BBB by S&P and Fitch) are regarded as having
an adequate capacity to pay principal and interest but with greater
vulnerability to adverse economic conditions and as having some speculative
characteristics. Securities on which the interest is treated as an item of tax
preference for purposes of the alternative minimum tax will not be counted
toward the 80% policy of the Fund. In the event the rating of an issue held in
the Fund's portfolio is lowered by the rating service, such change will be
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<PAGE>
considered by the Fund in its evaluation of the overall investments of the
security, but such change will not necessarily result in an automatic sale of
the security. For a description of municipal securities ratings see "Appendix
A-Description of Municipal Securities Ratings" attached hereto.
Portfolio Turnover
To the extent that bond trading and portfolio turnover serve
shareholders' objectives by improving return, quality and marketability, such
active investment management is not only pursued but in the opinion of the
Adviser is required.
At all times, sales of investment positions, involving reinvestment of
proceeds, must either demonstrate (a) a mathematical certitude, within quality
and maturity requisites, of improved investment results for the Fund or (b) a
very apparent improvement in liquidity and marketability as perceived under any
prudent investment criteria. Since all sales give rise to realized capital gains
or losses for the Fund and since all sales, repurchases and trades result in the
payment of commissions or markups and markdowns, all such transactions are
reviewed by the Board of Directors on a quarterly basis in terms of investment
benefits to the Fund and its shareholders recognizing prevailing market
conditions and considerations.
Portfolio turnover is the lesser of purchases or sales of portfolio
securities for the year, divided by the monthly average value of the portfolio
securities. While it is impossible to determine with any accuracy the portfolio
turnover rate for each portfolio, it is expected that turnover will vary
considerably from period to period depending on market conditions, but generally
should not exceed 100% per annum. The rate of turnover will not be a limiting
factor whenever the Adviser deems it advisable to sell or purchase securities.
As discussed above, all portfolio transactions involving reinvestment must
demonstrate quantifiable benefits to the Fund and its shareholders to even
occur.
Colorado Municipal Securities
As used in this statement of additional information, the term, "Colorado
municipal securities," refers to debt obligations issued by the State of
Colorado, its counties, municipalities, authorities and political subdivisions
for the purpose of obtaining funds for various public purposes. The interest on
such obligations is, in the opinion of bond counsel to the issuers, exempt from
federal and Colorado State income taxes.
Municipal obligations are classified as general obligation bonds, revenue
bonds and notes. General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenue derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise or
other specific revenue source, but not from the general taxing power. Notes are
short-term instruments which are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues.
3
<PAGE>
In addition, certain types of "industrial development bonds" issued by
or on behalf of public authorities to obtain funds for privately operated
facilities are included in the definition of Colorado municipal securities,
provided that the interest paid thereon is exempt from Federal and Colorado
State income taxes. Tax-exempt industrial development bonds do not generally
pledge of the credit of the issuing municipality.
There are also a variety of hybrid and special types of municipal
securities that have characteristics of both general obligation and revenue
bonds.
Municipal notes are short-term obligations issued to obtain temporary
funds for states, cities, municipalities and municipal agencies. These notes
include tax, revenue and bond anticipation notes that provide temporary funds
until the anticipated taxes, revenues or bond proceeds, respectively, are
received by the issuer. Other municipal notes include construction loan notes
and short-term discount notes. Project notes, issued by a state or local housing
authority, are secured by the full faith and credit of the United States.
Municipal commercial paper consists of very short-term negotiable notes, which
provide seasonal working capital needs or interim construction financing. The
commercial paper is paid from general revenues or is refinanced with long-term
debt.
Yields of municipal securities depend upon a number of factors,
including economic and money and capital market conditions, the volume of
municipal securities available, conditions within the municipal securities
market, and the maturity, rating, and size of individual offerings. Market
values of municipal securities will vary inversely in relation to their yields.
The magnitude of changes in market values in response to changes in market rates
of interest typically varies in proportion to the maturity of the obligation.
Bond Put Programs and Tender Option Programs
The Fund may invest in bond put programs. Under such programs,
long-term, low coupon bonds are purchased with a put option that gives the
purchaser the right to sell the bonds back to the seller at a specified price on
a specified date significantly prior to the stated maturity of the bonds.
Usually, but not necessarily, the put option is exercisable three to five years
from the date of the offering of a program. Sellers of bond put programs usually
are large institutional holders of low coupon bonds bought prior to 1980 who
believe they can use the proceeds from such sales more advantageously by
investing in taxable securities. All bonds purchased as part of bond put
programs are required to satisfy the same quality standards of the Fund
applicable to other bond purchases. Additionally, the obligation of the seller
to purchase the bond upon exercise of the put option must be supported by a bank
letter of credit. In the opinion of the Adviser, the marketability and liquidity
of such bonds and their accompanying put options is the same as other bonds held
by the Fund.
The Fund may also invest in tender option programs which give the
purchaser the option to tender the bonds purchased to the seller or issuer at
face amount. The bonds may be tendered after the expiration of a specified
4
<PAGE>
holding period usually ranging from one to five years ("initial tender option
date"). Subsequent to the initial tender option date, the interest rate is
ordinarily adjusted semiannually or annually to the then current market level
for corresponding short-term bonds. Under tender option programs, the purchaser
has a choice of tendering its bonds on any semiannual or annual readjustment
date, continuing to maintain its position or selling the bonds and the related
tender option in the open market between the semiannual and annual readjustment
dates. In the case of tender option programs, the earliest date that the tender
option is exercisable is considered to be the maturity date. If the bonds are
not tendered on the initial tender option date or on any subsequent readjustment
date, the next readjustment date is considered the maturity date. There is no
limitation on the aggregate principal amount of bonds associated with bond put
programs or tender option programs which may be purchased in either portfolio
although it is not anticipated that either program will exceed 20% of the assets
of a portfolio.
In the case of either bond put programs or tender option programs
involving a seller other than the issuer, the Fund may only purchase programs
where the put or tender option obligations of the seller are supported by bank
letters of credit which additionally provide that funds will be available to
repurchase the bonds when the put or tender options are exercised. If the seller
is a bank, the letter of credit is required to be issued by another bank.
Variable Rate Demand Instruments
Variable rate demand instruments are tax-exempt municipal obligations
that provide for a periodic adjustment in the interest rate paid on the
instrument according to changes in interest rates generally. These instruments
permit the Fund to demand payment of the unpaid principal balance plus accrued
interest upon a specified number of days' notice to the issuer. The demand
feature may be backed by a bank letter of credit or guarantee issued with
respect to such instrument. The Fund intends to exercise the demand only (a)
upon a default under the terms of the municipal obligation, (b) as needed to
provide liquidity to the Fund, or (c) to maintain a high-quality investment
portfolio. The issuer of a variable rate demand instrument may have a
corresponding right to prepay in its discretion the outstanding principal of the
instrument plus accrued interest upon notice comparable to that required for the
holder to demand payment.
The variable rate demand instruments that the Fund may purchase are
payable on demand on not more than seven (7) days' notice. The terms of the
instruments provide that interest rates are adjustable at intervals ranging from
daily up to six months, and the adjustments are based upon the prime rate of a
bank or other appropriate interest rate adjustment index as provided in the
respective instruments.
When-Issued Securities
Municipal securities may be purchased or sold on a delayed-delivery
basis or on a when-issued basis. These transactions arise when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future, in order to secure what is considered to be an advantageous price and
5
<PAGE>
yield to the Fund. No payment is made until delivery is due, often a month or
more after the purchase. When the Fund engages in when-issued and
delayed-delivery transactions, certain risks are involved. The Fund relies on
the buyer or seller, as the case may be, to consummate the transaction. Failure
of the buyer or seller to do so may result in the Fund missing the opportunity
of obtaining a price considered to be advantageous. The securities are subject
to market fluctuations and no interest accrues to the purchaser during this
period. At the time the Fund makes the commitment to purchase municipal
securities on a delayed-delivery basis or a when-issued basis, it will record
the transaction and reflect the value of the municipal securities in determining
the net asset value of the appropriate portfolio. A segregated account for the
Fund consisting of cash or high-grade securities equal to the amount of the
when-issued commitments will be established with the Fund's custodian. For the
purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market. If the market value of such
securities declines, additional cash or securities will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of such commitments by the Fund. There is no restriction on the amount of
when-issued securities which may be purchased by either portfolio.
Certificates of Participation
Also included within the general category of Colorado municipal
securities are participation certificates issued by government authorities or
entities to finance the acquisition or construction of equipment, land and/or
facilities. The certificates represent participations in a lease, an installment
purchase contract or a conditional sales contract (hereinafter collectively
called "lease obligations") relating to such equipment, land or facilities.
Although lease obligations do not constitute general obligations of the issuer
for which the issuer's unlimited taxing power is pledged, a lease obligation
frequently is backed by the issuer's covenant to budget for, appropriate and
make the payments due under the lease obligation. However, certain lease
obligations contain "non-appropriative" 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. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a type of financing that has not yet developed the
depth of marketability associated with more conventional securities. Certain
investments in lease obligations may be illiquid. The Fund may not invest in
illiquid lease obligations, if such investments, together with other illiquid
investments, would exceed 15% of the Fund's net assets. The Fund may, however,
invest without regard to such limitation in lease obligations which the Adviser,
pursuant to guidelines which have been adopted by the Board of Directors and
subject to the supervision of the Board of Directors, determines to be liquid.
The Adviser will deem lease obligations liquid if they are publicly offered and
have received an investment grade rating of Aaa, Aa, A or Baa or better by
Moody's or AAA, AA, A, BBB or better by S&P or Fitch's.
6
<PAGE>
Repurchase Agreements
The Fund may invest in repurchase agreements. A repurchase agreement
involves a sale of securities to the Fund, with the concurrent agreement of the
seller (a member bank of the Federal Reserve system or a securities
broker-dealer which the Adviser believes to be financially sound) to repurchase
the securities at the same price plus an amount equal to an agreed upon interest
rate, within a specified time, usually less than one week, but, on occasion, at
a later time. The value of the underlying securities will always be at least
equal to the repurchase price, including any accrued interest earned on the
repurchase agreement. The Fund will make payment for such securities only upon
physical delivery or evidence of book-entry transfer to the account of the
custodian or a bank acting as agent for the Fund. In the event of a bankruptcy
or other default of a seller of a repurchase agreement, the Fund could
experience both delays in liquidating the underlying securities and losses,
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during this period; and
(c) expenses of enforcing its rights. It is expected that repurchase agreements
will give rise to income which will not qualify as tax-exempt income when
distributed by the Fund.
Standby Commitments
Subject to the receipt of any required regulatory authorization, the
Fund may acquire standby commitments for either portfolio which will enable such
portfolio to improve its liquidity by making available same day settlements on
sales. A standby commitment is a right acquired by the Fund, when it purchases a
municipal obligation from a broker, dealer or other financial institution
("seller"), to sell up to the same principal amount of such securities back to
the seller, at the Fund's option, at a specific price. Standby commitments are
also known as "puts." The Fund's investment policies permit the acquisition of
standby commitments solely to facilitate portfolio liquidity. The exercise by
the Fund of a standby commitment is subject to the ability of the seller to
fulfill its contractual commitment.
Standby commitments acquired by the Fund for a portfolio will have the
following features: (a) they will be in writing and will be physically held by
the Fund's custodian; (b) the Fund's rights to exercise them will be
unconditional and unqualified; (c) they will be entered into only with sellers
which in the Adviser's opinion present a minimal risk of default; (d) although
standby commitments will not be transferable, municipal obligations purchased
subject to such commitments may be sold to a third party at any time, even
though the commitment is outstanding; and (e) their exercise price will be (i)
the Fund's acquisition cost, excluding the cost, if any, of the standby
commitment, of the municipal obligations which are subject to the commitment
(excluding any accrued interest which the Fund may have paid on their
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the securities, plus
(ii) all interest accrued on the securities since the last interest payment
date.
7
<PAGE>
The Fund expects that standby commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund will pay for standby commitments either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitments. As a matter of policy, the total amount
paid by the Fund in either manner for outstanding standby commitments will not
exceed 1/2 of 1% of the value of the total assets of the affected portfolio
calculated immediately after any standby commitment is acquired.
It is difficult to evaluate the likelihood of use or the potential benefit
of a standby commitment. Therefore, it is expected that the Adviser will
determine that standby commitments ordinarily have a "fair value" of zero,
regardless of whether any direct or indirect consideration was paid. However, if
the market price of the security subject to the standby commitment is less than
the exercise price of the standby commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held.
The Fund understands that the Internal Revenue Service has issued a revenue
ruling to the effect that a registered investment company will be the owner of
municipal obligations acquired subject to a put option and that interest on the
obligations will be tax-exempt to the Fund. There is, however, no assurance that
standby commitments will be available to the Fund, and the Fund has not assumed
that such commitments would continue to be available under all market
conditions.
Investment Restrictions
The Fund has adopted certain investment restrictions which cannot be
changed without approval by the holders of a majority of the outstanding voting
shares of each affected portfolio. As defined in the Investment Company Act of
1940 (the "1940 Act"), this means the lesser of the vote of (a) 67% of the
portfolio's shares at a meeting where more than 50% of the outstanding shares
are present in person or by proxy or (b) more than 50% of the portfolio's
shares.
Each portfolio may not:
1. Purchase securities or make investments other than in accordance with
its investment objective and policies.
2. Purchase securities if as a result of such purchase more than 25% of the
portfolio's total assets would be invested in any one industry. For purposes of
this limitation, there is no limitation on the purchase of securities issued by
state or municipal governments or their political subdivisions or securities
issued, guaranteed or secured by the U.S. government, its agencies or
instrumentalities (including refunded municipal obligations fully secured by
direct obligations of the U.S. government or its agencies or instrumentalities
held in irrevocable trust). Industrial revenue bonds ultimately payable by
companies within the same industry are treated as if they were issued by issuers
8
<PAGE>
in the same industry. Neither portfolio may enter into a repurchase agreement if
more than 10% of assets would be subject to repurchase agreements maturing in
more than seven (7) days.
3. Purchase the securities of any issue if as a result more than 5% of the
portfolio's assets would be invested in the securities of such issuer provided
that there is no limitation on the purchase of securities issued, guaranteed or
secured by the U.S. government, its agencies or instrumentalities (including
refunded municipal obligations fully secured by direct obligations of the U.S.
government, its agencies or instrumentalities held in irrevocable trust). This
restriction does not apply with respect to 50% of the portfolio's total assets.
For purposes of this limitation, the Fund will regard the entity which has the
primary responsibility for the payment of interest and principal as the issuer.
4. Invest more than 5% of the portfolio's total assets in industrial
development bonds sponsored by companies which with their predecessors have less
than three years continuous operation.
5. Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and policies).
6. Borrow money or enter into reverse repurchase agreements except the Fund
may borrow money from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests which might otherwise
require the untimely disposition of securities, in an amount up to 10% of the
value of the portfolio's total assets (including the amount borrowed) valued at
market less liabilities (not including the amount borrowed) at the time the
borrowing is made. Whenever borrowings exceed 5% of the value of the Fund's
total assets, the Fund will not make any additional investments.
7. Make short sales of securities or purchase securities on margin, except
to obtain such short-term credits as may be necessary for the clearance of
transactions.
8. Write, purchase or sell puts, calls or combinations thereof, although
the Fund may purchase municipal securities comprising bond put programs and
tender option programs as well as municipal securities subject to standby
commitments, variable rate demand notes or repurchase agreements in accordance
with its investment objective and policies provided that neither municipal
securities subject to standby commitments nor variable rate demand notes
constitute more than 5% of the assets of either portfolio.
9. Purchase or retain the securities of any issuer if any of the officers
or directors of the Fund or its investment adviser owns beneficially more than
1/2 of 1% of the securities of such issuer and together own more than 5% of the
securities of such issuer.
10. Invest more than 15% of the portfolio's total assets in non-marketable
securities, including securities restricted as to disposition under the federal
securities laws, repurchase
9
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agreements maturing in more than seven (7) days and securities which are not
otherwise readily marketable.
11. Invest for the purpose of exercising control or management of another
issuer.
12. Invest in commodities or commodity futures contracts or in real estate
except that the Fund may invest in municipal securities secured by real estate
or interests therein.
13. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in municipal securities of issuers
which invest in or sponsor such programs.
14. Invest more than 10% of its total assets in securities of other
investment companies, except in connection with a merger, consolidation,
reorganization or acquisition of assets.
15. Underwrite securities issued by others except to the extent the Fund
may be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage beyond the specified limit resulting
from a change in values or net assets will not be considered a violation.
Section 18(f)(1) of the 1940 Act prohibits an open-end investment company
from borrowing from a bank unless there is an asset coverage of 300% for all
borrowings. Under Rule 18f-1 under such Act, an open-end investment company may
elect to commit itself to pay in cash all requests for redemption subject to
certain limitations specified in said Rule. If an investment company makes such
an election, the investment company is exempt from the requirements of Section
18(f)(1) to the extent necessary to enable it to effectuate cash redemptions.
The Fund has not elected to commit itself to pay all cash in redeeming shares
and, therefore, is subject to Section 18(f)(1). The restriction set forth in
paragraph 6 above further restricts borrowings.
CALCULATION OF PERFORMANCE DATA
The Fund may publish certain performance figures in advertisements from
time to time. These performance figures may include yield, tax equivalent yield
and total return figures.
Yield
Yield reflects the income per share deemed earned by the Fund's portfolio
investments. Yield is determined by dividing the net investment income per share
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<PAGE>
deemed earned during the preceding 30-day period by the maximum offering price
per share on the last day of the period and annualizing the result according to
the following formula:
a - b 6
YIELD = 2 [( ------ + 1) - 1]
cd
Where: a = interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
To calculate interest earned (for the purpose of "a" above) the Fund will:
(a) Compute the yield to maturity of each obligation held by the Fund
based on the market value of the obligation at the close of business
on the last business day of each month, or with respect to obligations
purchased during the month, the purchase price.
(b) Divide the yield to maturity by 360 and multiply the quotient by the
market value of the obligation (including actual accrued interest) to
determine the interest income on the obligation for each day of the
subsequent month that the obligation is in the portfolio.
The maturity of an obligation with a call provision is the next call date
on which the obligation reasonably may be expected to be called or, if none, the
maturity date.
In the case of an obligation issued without original issue discount and
having a current market discount, the coupon rate of interest is used in lieu of
the yield to maturity. In the case of an obligation with original issue
discount, if the discount based on the current market value exceeds the
then-remaining portion of original issue discount (market discount), the yield
to maturity is the imputed rate based on the original issue discount
calculation. In the case of an obligation with original issue discount, if the
discount based on the current market value is less than the then-remaining
portion of original issue discount (market premium), the yield to maturity is
based upon market value.
Tax Equivalent Yield
Tax equivalent yield shows the yield from a taxable investment which would
produce an after-tax yield equal to that of a fund that invests in tax-exempt
securities. It is computed by dividing the tax-exempt portion of the Fund's
11
<PAGE>
yield (as calculated above) by one minus a stated income tax rate and adding the
product to the portion (if any) of the Fund's yield that is not tax-exempt.
Total Return
Total return is the percentage change in the value of a hypothetical
investment that has occurred in the indicated time period, taking into account
the imposition of the sales charge and other fees and assuming the reinvestment
of all dividends and distributions. Cumulative total return reflects the Fund's
performance over a stated period of time and is computed as follows:
ERV - P = TOTAL RETURN
-------
P
Where: ERV = ending redeemable value of the hypothetical $1,000 payment made
at the beginning of the base period (reduced by the maximum sales
charge) assuming reinvestment of all dividends and distributions.
P = a hypothetical initial payment of $1,000.
Average annual total return reflects the hypothetical annually compounded
return that would have produced the same cumulative total return if the Fund's
performance had been constant over the entire period, and is computed according
to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years in the base period.
ERV = ending redeemable value of the hypothetical $1,000 payment made
at the beginning of the base period (reduced by the maximum sales
charge) assuming reinvestment of all dividends and distributions.
All performance figures are based on historical results and are not
intended to indicate future performance.
MANAGEMENT OF THE FUND
Directors and Officers
The names and business addresses of the directors and officers of the Fund
together with information as to their principal business occupations during at
least the past five years are shown below. Each director who is an "interested
person" of the Fund, as defined in the 1940 Act, is indicated by an asterisk.
12
<PAGE>
Principal Occupation
Name, Address and Age Positions with the Fund During Past 5 Years
- ----------------------- ----------------------- -------------------
James M. Coughlin (61) Director President of Coughlin &
621 17th Street Company, an investment
Suite 1900 banking firm, since 1972.
Denver, Colorado 80202
Bruce L. Evans (66) Director Partner in the law firm of
1660 Lincoln Street Lentz, Evans and King, P.C.
Suite 2900 since 1973.
Denver, Colorado 80264
Calvin F. Isaak* (66) President, Chairman Chairman of the Board of
600 17th Street and Director Directors and President of
2610 South Tower Isaak Bond Investments, Inc.,
Denver, Colorado 80293 A registered broker-dealer,
since 1977.
David J. Isaak* (36) Vice President, Manager of Municipal Bond
600 17th Street Treasurer and Director Trading Department of Isaak
2610 South Tower Bond Investments, Inc. since
Denver, Colorado 80293 1984.
Philip J. Konsella* (64) Director Real estate broker for and
1519 Genesee Vista Road owner of Comark Realty, Inc.
Golden, Colorado 80401 prior to 1992.
Stan Voth* (51) Secretary Chief Financial Officer of
600 17th Street Isaak Bond Investments, Inc.
2610 South Tower since 1987.
Denver, Colorado 80293
Directors of the Fund who are not "interested persons" of the Fund are paid
$500 per meeting by the Fund, which is subject to adjustment annually, and are
reimbursed for expenses incurred in attending meetings of the Board of
Directors.
Calvin F. Isaak, the President and a director of the Fund, is also the
majority shareholder and the President of Isaak Bond Investments, Inc., the
Fund's principal underwriter and a distributor of the Fund's shares (the
"Underwriter"). Mr. Isaak is also the Chairman of the Board of Directors and
President of Funds Management Corporation, the Fund's investment adviser. Mr.
Calvin F. Isaak and Mr. David Isaak are father and son.
13
<PAGE>
Mr. Philip J. Konsella, a director of the Fund, is a director of the
Underwriter. Mr. Voth, Secretary of the Fund, is also the Chief Financial
Officer of the Underwriter.
The Fund's investment adviser is Funds Management Corporation (the
"Adviser"), a Colorado corporation formed on April 7, 1988. The Adviser has
registered with the Securities and Exchange Commission as an Adviser under the
Investment Advisers Act of 1940.
The Adviser will attempt to meet the Fund's investment objectives by
providing portfolio management and credit analysis services pursuant to the
Prospectus and the Advisory Agreement. There is no assurance that the Adviser
can meet the Fund's investment objectives. The Adviser anticipates that the Fund
will not have a portfolio turnover rate in excess of 100% per year in an attempt
to meet these objectives.
The Fund is a Maryland Corporation. Its Board of Directors will supervise
the activities of the Fund and review the Fund's service contracts.
The Fund is not required to hold annual shareholder meetings. However,
special meetings may be called by the Board of Directors or upon the written
request of shareholders owning at least one-tenth of the shares entitled to
vote, for such purposes as electing or removing directors, changing fundamental
investment policies, or approving a new or amended advisory or management
contract or plan of distribution. Each shareholder receives one vote for each
share held. The Board of Directors has the power to create additional series of
Fund shares.
ADVISORY AGREEMENT AND EXPENSES
Under the Advisory Agreement dated May 28, 1997, between the Fund and the
Adviser, and subject to the control of the Board of Directors, the Adviser
manages the assets of the Fund, including making purchases and sales of
portfolio securities consistent with the Fund's investment objectives and
policies. In addition, the Adviser administers the Fund's daily business affairs
such as providing accurate accounting records, computing accrued income and
expenses of the Fund, computing the daily net asset value of the Fund, assuring
proper dividend disbursements, proper financial information to investors, and
notices of all shareholders', meetings, and providing sufficient office space,
storage, telephone services, and personnel to accomplish these responsibilities.
The Board of Directors of the Fund approved the Advisory Agreement, by unanimous
vote, on December 16, 1996 in the manner required by the 1940 Act. The sole
shareholder of the Fund approved the Advisory Agreement on May 28, 1997. The
Adviser pays all of the compensation of directors of the Fund who are employees
of the Adviser and of the officers and employees of the Fund. The Fund pays all
of the compensation of directors who are not employees of the Adviser. The
Advisory Agreement also provides that the Adviser will not be liable to the Fund
for any error of judgment or mistake of law, or for any loss arising out of any
investment, or for any act or omission in performing its duties under the
Agreement, except for willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties under the Advisory Agreement.
14
<PAGE>
In exchange for its services, the Adviser is entitled to receive a
management fee from the Fund, calculated daily and payable monthly, equal to
0.23% of the average daily net assets on an annual basis.
The Fund is responsible for paying all its expenses other than those
assumed by the Adviser, including brokerage commissions, if any, fees and
expenses of independent attorneys and auditors, taxes and governmental fees,
including fees and expenses of qualifying the Fund and its shares under federal
and state securities laws, and expenses of repurchase or redemption of shares,
expenses of printing and distributing reports, notices and proxy materials to
shareholders, expenses of printing and filing reports and other documents with
governmental agencies, expenses of shareholders' meetings, expenses of corporate
data processing and related services, shareholder account services, fees and
disbursements of appraisers, transfer agents and custodians, expenses of
disbursing dividends and distributions, fees and expense of trustees of the Fund
not employed by the Adviser or its affiliates, insurance premiums and
extraordinary expenses such as litigation expenses.
The Advisory Agreement will continue in effect from year to year if such
continuance is approved in the manner required by the 1940 Act (i.e., (1) by a
vote of a majority of the Board of Trustees or of the outstanding voting
securities of the Fund and (2) by a vote of a majority of the trustees who are
not parties to the Advisory Agreement or interested persons of any such party),
and if the Adviser shall not have notified the Fund at least sixty (60) days
prior to the anniversary date of the previous continuance that it does not
desire such continuance. The Advisory Agreement may be terminated by the Fund,
without penalty, on sixty (60) days' written notice to the Adviser and will
terminate automatically in the event of its assignment.
PURCHASE OF SHARES
Shares of each portfolio may be purchased by check or by wire transfer of
funds through a bank. The minimum initial investment is $10,000 for each
portfolio selected. Investments may be made in any amount in excess of the
minimum. Subsequent investments may be in any amount for the portfolio selected.
Each portfolio's shares are sold on a continuous basis without a sales charge at
the net asset value in effect at the time a purchase order is processed.
Purchase orders are processed after federal funds are made available to the Fund
as hereafter provided.
A contingent deferred sales charge of 1% may be imposed upon redemption of
Fund shares if they are redeemed within one year of purchase. The charge will
not be imposed upon redemption of reinvested dividends or share appreciation.
The charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent sales charge will be waived in the event
of: (a) redemption of shares of a shareholder (including a registered joint
owner) who has died; (b) redemption of shares if they are to be exchange for
shares of another portfolio; and (c) redemption of shares of a shareholder
(including a registered joint owner) who after purchase of the shares being
redeemed becomes totally disabled (as evidenced by a determination by the
federal Social Security Administration).
15
<PAGE>
Dividends begin on the day federal funds are made available to the Fund and
continue to and including the day of redemption.
Purchases by Check
Shares may be purchased initially by mailing a completed account
application form together with a check payable to "Colorado Double Tax-Exempt
Bond Fund, Inc." for the amount to be invested in the Fund. The address for
mailing is Colorado Double Tax-Exempt Bond Fund, Inc., P.O. Box 641235,
Cincinnati, Ohio 45264-1235. (If sending by express mail or other service
requiring a street address, use Colorado Double Tax-Exempt Bond Fund, Inc., c/o
Star Bank, N.A., Mutual Fund Custody Department, 425 Walnut Street M.L. 6118,
6th Floor, Cincinnati, Ohio 45202.
Purchases of shares purchased by check are effected when federal funds are
made available to the Fund. Federal funds are normally made available to the
Fund at 9:00 a.m. on the third business day following receipt of the check.
Shares are purchased at the net asset value in effect when the check is received
by the Fund. During the period of time between receipt of the check and the
Fund's collection of federal funds, an investor's money will not be invested and
no dividends will accrue to an investor.
Subsequent purchases may be effected by mailing a check as outlined above.
The shareholder's account number and the portfolio in which he intends to make
the additional purchase should appear on the check. In addition, the shareholder
should enclose the stub portion of the most recent confirmation statement
received from the Fund.
Purchases by Wire
Shares may be purchased by wiring federal funds to the Fund. Prior to an
initial investment, an investor should call toll free the appropriate telephone
number of the Fund listed on the cover page of this Prospectus to obtain a
shareholder account number and instructions. An investor should indicate the
portfolio in which he intends to invest, or if investing in both portfolios, he
will receive an account number for each portfolio.
An investor should then instruct his bank to wire transfer the intended
investment amount in federal funds to:
Star Bank, N.A. Cinti/Trust
ABA Account No. 0420-0001-3
DDA Account No. 486464589
Attention: Colorado Double Tax-Exempt Bond Fund, Inc.
Account of (Investor's name(s))
Account No. (The account number assigned by telephone)
16
<PAGE>
If investing in both portfolios, indicate both account numbers and the amount to
be invested in each portfolio.
A completed account application form must be received by the Fund before
any withdrawal or exchange transactions can be handled.
Subsequent purchases may be effected by wiring federal funds as outlined
above and indicating the investor's name and account number to which they are to
be credited.
No stock certificates will be issued unless a request in writing is made to
the Fund's transfer agent. Instead an account will be established for each
investor and all shares purchased or received, including those obtained through
reinvestment of distributions, will be registered on the books of the Fund and
credited to such account.
The Fund has the right to limit the amount of purchases and to refuse to
sell shares to any person.
Other than the contingent deferred sales charge described above, no sales
charges or commissions are payable in connection with the sale of the Fund's
shares. The expenses incurred in the sale of Fund shares, including advertising
and promotion, are included among the organizational expenses which will be paid
by the Adviser.
Automatic Investment Plan
Under the Fund's Automatic Investment Plan, a shareholder may be able to
arrange to make additional purchases of Shares automatically on a monthly basis
by electronic funds transfer from a checking account, if the bank which
maintains the account is a member of the Automated Clearing House, or by
preauthorized checks drawn on the shareholder's bank account. A shareholder may,
of course, terminate the program at any time. The Automatic Investment Plan
Application included with this Prospectus contains the requirements applicable
to this program. In addition, shareholders may obtain more information
concerning this program from their securities broker-dealers or from
distributors.
The market value of the Fund's shares is subject to fluctuation. Before
undertaking any plan for systematic investment, the investors should keep in
mind that such a program does not assure a profit or protect against a loss.
REDEMPTION OF SHARES
The Fund's shares may be redeemed at the net asset value of the applicable
portfolio next determined after receipt of the redemption request in proper form
at the offices of American Data Services, Inc. ("ADS"), the Fund's transfer
agent. A shareholder redeeming between monthly dividend payment dates receives
any accrued but unpaid dividends applicable to the redeemed shares.
17
<PAGE>
Redemption By Mail
Shares may be redeemed by sending a written redemption request to ADS. The
redemption request should state the name of the Fund, the portfolio name, the
name(s) on the redeeming shareholder's account, such shareholder's account
number and the dollar amount or number of shares to be redeemed. If the shares
to be redeemed are represented by certificates issued by the Fund to the
redeeming shareholder, such certificates must be returned with the redemption
request. In all cases, the signature, whether on the written request or on a
stock power, must be signed exactly as the shareholder name(s) appears on the
account statement, including fiduciary capacity (e.g. Trustee, Guardian, etc.)
and be guaranteed by an authorized person of a commercial bank or a member firm
of the New York Stock Exchange. ADS may require additional supporting documents
for redemptions made by corporations, executors, administrators, personal
representatives, trustees, guardians and other fiduciaries. A redemption request
will not be deemed to have been submitted until ADS receives all required
documents in proper form. The address for redemption requests is Colorado Double
Tax-Exempt Bond Fund, Inc., c/o American Data Services, Inc., Hauppauge
Corporate Center, 150 Motor Parkway, Suite 109, Hauppauge, New York 11798.
Redemption proceeds are normally mailed on the next business day following
receipt of a redemption request in proper form but in no event later than seven
(7) days following receipt of such requests.
Redemption By Telephone
Shares may be redeemed by telephone if the appropriate section on the
account application form has been completed. Shareholders may request
redemptions by telephoning ADS at 1-888-235-2215 and arranging for the proceeds
to be wire transferred to a previously designated bank account if all the
following conditions are met:
(a) A telephone redemption authorization included in the account
application form is on file with the Fund before the redemption request is
placed. See the appropriate section on the account application form. This
authorization requires designation of a bank account to which the
redemption payment is to be wired. The proceeds will not be wired to other
than the designated bank account.
(b) If a shareholder did not establish the telephone redemption privilege
or wishes to change the bank account to which the redemption payment is to
be wired, such shareholder must provide the Fund with a signed and
signature guarantee request designating the change.
(c) No shares to be redeemed by telephone may be represented by
certificates.
Redemption is consummated at the asset value in effect at the close of
business of the day the redemption request is received provided the request is
made prior to 12:00 noon Colorado time. In such event, the wire transfer is
ordinarily made the morning of the next business day. If the redemption request
is made after 12:00 noon Colorado time, redemption is consummated at the net
18
<PAGE>
asset value next determined and the wire transfer is ordinarily sent on the
morning of the second business day following the receipt of the redemption
request.
Shares which were purchased by a personal check cannot be redeemed by
telephone until the check has cleared the bank which may take up to fifteen (15)
days. Accordingly, if this restriction is of concern to an investor, purchases
should be made by wire transfer.
If transfer is requested by telephone in accordance with the procedures
described above, payment will be by wire transfer to the bank account designated
on the account application form. ADS's charges for each such wire transfer
(currently $9.00) will be deducted from the proceeds of the redemption.
Redemption proceeds are normally wired or mailed on the next business day
following receipt of wired or telephoned instructions, but in no event later
than seven (7) days following receipt of such requests.
Investors designating a savings and loan association as the bank to receive
their telephone redemption proceeds are advised that if the savings and loan
association is not a participant in the Federal Reserve System, redemption
proceeds must be wired to a commercial bank which is a correspondent of the
savings and loan association. It is suggested that investors discuss wire
procedures and costs with their savings and loan association before completing
the telephone redemption authorization on the account application form.
The telephone redemption procedure may be modified or terminated at any
time by the Fund or ADS.
If, in the opinion of the Board of Directors of the Fund, conditions exist
which make cash payment undesirable, redemption payments may be made in whole or
in part in securities or other property, valued for this purpose as they are
valued in computing the net asset value of the Fund. Shareholders receiving any
such securities or other property on redemption will incur any costs of sale.
Apart from the charge imposed by ADS for effecting a redemption payment by
a bank wire transfer, neither the Fund nor ADS imposes a redemption fee,
however, a contingent deferred sales charge may apply. If a shareholder uses the
services of a broker-dealer to effect redemption of his shares, the
broker-dealer may charge a fee for such services.
EXCHANGE PRIVILEGE
The shares of one portfolio may be exchanged for shares of the other
portfolio without cost. The privilege to exchange shares enables an investor to
switch portfolios when he believes that such a shift is an appropriate personal
investment decision. It is not intended as a trading vehicle to respond to
short-term market fluctuations. An exchange involves a redemption of all or a
portion of shares held in one portfolio and the investment of the proceeds in
shares of the other portfolio. Accordingly, the exchange privilege is, for
19
<PAGE>
federal income tax purposes, a sale on which a shareholder may realize a taxable
gain or loss and a purchase which establishes a new investment, a new cost basis
and a new holding period. In order to prevent abuse of the exchange privilege to
the disadvantage of other shareholders, the Fund reserves the right to terminate
or restrict the exchange privilege of any shareholder who makes more than two
exchanges per year.
Exchange by Telephone
An investor may make telephone exchanges by telephoning ADS at
1-888-235-2215 provided that (a) he has elected the telephone exchange option on
the account application form, (b) the registration on the two accounts will be
identical and (c) the shares to be exchanged are not in certificate form.
Neither the Fund nor ADS is responsible for the authenticity of exchange
instructions received by telephone or telegraph. Instructions received by ADS
are transacted at the net asset value in effect at the time the call is
received.
Exchange by Mail
An investor may exchange shares by submitting a written request signed
exactly as the shares are registered and accompanied by the certificate(s), if
any, evidencing such shares. The request must be addressed to ADS and should
include specific instructions for the redemption and purchase of shares. These
instructions must include the identity of the existing account (the Fund's name,
portfolio name, account name and account number) and specify the number of
shares to be exchanged. Unless otherwise specified, the new account will be
established with the same registration, telephone option(s) and dividend option
as the present account. If the new account is to be different in any respect,
the exchange request must contain a signature guarantee described under
redemption procedures.
The exchange privilege may be modified or discontinued at any time.
DISTRIBUTIONS
The Fund declares dividends of net investment income daily. Dividends are
paid to shareholders in dividends of additional shares on the 15th day of each
month. If the 15th day of a month falls on a weekend or holiday on which the New
York Stock Exchange is closed, the dividend will be distributed on the next
succeeding business day. Payments vary in amount depending on income received
from portfolio securities and expenses of operation.
Shares will begin earning dividends on the day after which the Fund
receives payment and shares are issued. Shares or cash continue to earn
dividends through the date they are redeemed or delivered subsequent to
reinstatement.
Unless you elect by written notice to the Adviser, at least ten (10)
business days prior to the dividend Payable Date, your dividends and gain
distributions, if any, will be made in additional shares at net asset value. If
20
<PAGE>
you desire to elect a different option, you may choose to receive dividends in
cash and any gain distributions in shares or receive both dividends and any gain
distributions in cash. (See Item 4 on the General Authorization Form.)
The Fund will distribute no later than December 31, sufficient capital
gains net income determined as of October 31 of each calendar year to avoid the
application of the 4% excise tax imposed pursuant to the Internal Revenue Code
of 1986, as amended.
The Underwriter is the general distributor of the shares of the Fund
pursuant to a Distribution Agreement dated May 28, 1997 (the "Distribution
Agreement"). The Distribution Agreement was approved by the Board of Directors
of the Fund, on December 16, 1996 in the manner required by the 1940 Act.
The Underwriter may offer cash or non-cash incentives to dealers in
addition to sales charges in order to promote the sale of shares of the Fund.
Any such cash or non-cash incentives will be in compliance with all applicable
rules and regulations of the National Association of Securities Dealers, Inc.
TRANSFER AGENT
ADS serves as the transfer agent, shareholder servicing agent and dividend
disbursing agent for the Fund, pursuant to a Transfer Agency and Service
Agreement dated May 16, 1997 (the "Agreement"). ADS's duties under the Agreement
include processing purchase and redemption transactions, establishing and
maintaining shareholder accounts and records, disbursing dividends declared by
the Fund and all other customary services of a transfer agent, shareholder
servicing agent and dividend disbursing agent. As compensation for these
services, the Fund pays ADS a fee calculated as a combination of account
maintenance charges and transaction charges as set forth in Schedule A to the
Transfer Agency and Service Agreement, attached hereto as Exhibit 9.
CUSTODIAN AND AUDITORS
Star Bank, N.A. is the portfolio securities custodian for the Fund. Their
address is 425 Walnut Street, M.L. 6118, Cincinnati, Ohio 45202.
Baird, Kurtz & Dobson, independent certified public accountants, are the
auditors of the Fund. Their address is One Norwest Center, 1700 Lincoln Street,
Suite 3400, Denver, Colorado 80203.
21
<PAGE>
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
Independent Accountants' Report
To the Shareholder
and
Board of Directors
Colorado Double Tax-
Exempt Bond Fund, Inc.
Denver, Colorado
We have audited the accompanying statement of assets and liabilities of
COLORADO DOUBLE TAX-EXEMPT BOND FUND, INC. (In Organization), as of April 18,
1997. This financial statement is the responsibility of the Fund's management.
Our responsibility is to express an opinion on the financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion,
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of COLORADO DOUBLE TAX-EXEMPT
BOND FUND, INC. (In Organization) as of April 18, 1997, in conformity with
generally accepted accounting principles.
BAIRD, KURTZ & DOBSON
\s\ Baird, Kurtz & Dobson
Denver, Colorado
April 24, 1997
22
<PAGE>
COLORADO DOUBLE TAX-
EXEMPT BOND FUND, INC.
(IN ORGANIZATION)
STATEMENT OF ASSETS AND LIABILITIES
APRIL 18, 1997
Short
Immediate Income
Portfolio Portfolio
--------- ---------
ASSETS
------
Cash $ 50,000 $50,000
-------- -------
Net assets consist of: $ 50,000 $50,000
-------- -------
Capital stock and additional paid-in capital
Net assets applicable to outstanding shares:
Capital stock, $.OO1 par value, per share,
total authorized shares of 1OO,O00,OOO
with initial authorization of
40,000,000 Class A shares
(Short-Intermediate Portfolio) and
20,000,000 Class B shares (Income
Portfolio):
Class A shares, 5,000 shares issued
and outstanding $ 50,000 $ -
Class B shares, 5,000 shares issued
and outstanding - 50,000
-------- -------
$ 50,000 $ 50,000
======== ========
Net asset value per share $10 $10
======== ========
See Accompanying Notes to Financial Statement
23
<PAGE>
COLORADO DOUBLE TAX-
EXEMPT BOND FUND, INC.
(IN ORGANIZATION)
NOTES TO FINANCIAL STATEMENT
APRIL, 18, 1997
NOTE 1: ORGANIZATION
The Colorado Double Tax-Exempt Fund, Inc. (the "Fund") is in organization
with registration pending under the Investment Company Act of 1940, as amended,
as an open-end management investment company. The Fund was organized as a
Maryland Corporation on August 29, 1996. The Fund will operate as a series
company currently comprised of two portfolios. The portfolios are known as the
Short-Intermediate Portfolio and the Income Portfolio (the "Portfolios") with
each portfolio considered as a separate entity for financial reporting and tax
purposes. The Fund has had no operations other than the sale to Exempt
Enterprise, Inc. (an entity affiliated with the Fund's Adviser and
underwriter/distributor) of 5,000 shares each of Class A Common Shares
(Short-Intermediate Portfolio) and Class B Common Shares (Income Portfolio). All
organization costs and initial offering expenses will be bome by Funds
Management Corporation (the "Adviser").
NOTE 2: INVESTMENT ADVISORY, DISTRIBUTION SERVICES AND ADMINISTRATION AGREEMENTS
Advisory Agreement
Under an Advisory Agreement, the Fund will pay its Adviser an advisory fee
on an annual rate of .23 of 1 % of each portfolio's average daily net assets.
Such fee will be accrued daily and paid monthly. In the event that the Fund's
operating expenses (including the investment advisory and management fee but
excluding taxes interest, brokerage and extraordinary expenses, if any) exceed
.68 % of the Fund's average daily net assets on an annual basis, the Adviser
shall reduce the amounts of the advisory and management fee or assume expenses
of the Fund in the amount of such excess, up to the amount of the advisory and
management fee payable by the Fund to the Adviser. The Adviser is a wholly owned
subsidiary of Isaak Bond Investment, Inc. (the "Principal Underwriter"). The
Principal Underwriter is owned by certain officers/directors of the Fund.
24
<PAGE>
COLORADO DOUBLE TAX-
EXEMPT BOND FUND, INC.
(IN ORGANIZATION)
NOTES TO FINANCIAL STATEMENT
APRIL, 18, 1997
NOTE 2: INVESTMENT ADVISORY, DISTRIBUTION SERVICES AND ADMINISTRATION AGREEMENTS
(continued)
Distribution Agreement
The Fund has entered into a Distribution Agreement pursuant to Rule 12b-1
under the Investment Company Act of 1940 for the Portfolios. The agreement
provides that the Fund will pay a distribution services fee to The Principal
Underwriter or other distributors at an annual rate of .25 % of the average
daily net assets of the Portfolios. Such fee will be accrued daily and paid
quarterly.
Administration Agreements
The Fund has entered into various agreements with American Data Services,
Inc. ("ADS") for transfer agency and service, administrative and fund accounting
services. These agreements provide for minimum fees to be paid to ADS plus
out-of-pocket expenses, transactional fees and other fees for services requested
by the Fund. Each agreement requires a security deposit equal to one month's
minimum fees. The agreements also provide for certain discounts from the
specified minimum fees during the first eight months of the Fund's operations or
until the Fund's average daily net assets exceed certain specified levels. The
initial minimum monthly fee for each portfolio, before discounts, approximates
$3,300 plus certain transactional fees and expenses incurred by ADS on behalf of
the Fund.
Custody Agreement
The Fund's custody agreement with a bank provides for fees on a
transactional basis plus expenses. The minimum monthly fee per portfolio is $400
per month.
25
<PAGE>
COLORADO DOUBLE TAX-
EXEMPT BOND FUND, INC.
(IN ORGANIZATION)
NOTES TO FINANCIAL STATEMENT
APRIL, 18, 1997
NOTE 3: CAPITAL STOCK
The Fund has authorized 100,000,000 shares of its $.OO1 par value per share
common stock. The Fund has initially authorized 40,000,000 shares as Class A
shares for its Short-Intermediate Portfolio and 20,000,000 as Class B shares for
its Income Portfolio. The remaining 20,000,000 shares can be authorized by the
Fund as deemed necessary by the Fund. Shareholders requesting redemption of
shares held less than one year will be subjected to a 1 % redemption fee. The
Fund requires an initial minimum investment of $10,000 for each portfolio.
Shareholders may transfer their investment between Portfolios to the extent that
a minimum of $10,000 is invested in each portfolio.
26
<PAGE>
Colorado Double Tax
Exempt Bond Fund [LOGO]
Account Application
Send All Checks and Forms To
Colorado Double Tax-Exempt Bond Fund, Inc.
1. Registration-Please Print All Items Except Signatures.
Check one box
[ ] Individual [ ] Joint Registrant [ ] Gift to Minors [ ] Corporations,
Use line 1 Use line 2 Use lines 3, 4 & % Partnerships,
Trusts & Others
Use lines 6 & 7
_______________________________________________________________________________
1.First Name, Initial, Last Name Soc. Sec. No.
_______________________________________________________________________________
2.Right of survivorship presumed, Soc. Sec. No.
unless tenancy in common is indicated.
_______________________________________________________________ as Custodian for
3. Custodian's Name
______________________________________________________________________ under the
4. Minor's Name
_____________________________ Uniform Gifts to Minors Act._____________________
5. State Minor's Soc. Sec. No.
_______________________________________________________________________________
6. Name of Corporation or Other Entity. If a Trust, include date of trust
instrument.
________________________________________________________ __________________
7. Taxpayer Ident. No.
2. Address-Please Print.
_______________________________________________________________________________
Street Address (Area Code) Home Phone No.
_______________________________________________________________________________
City, State, Zip Code (Area Code) Home Phone No.
3. Initial Investment $10,000 Minimum per Portfolio
Portfolio Selection: [ ] The Short-Intermediate Portfolio $__________
[ ] The Income Portfolio $__________
Investment Source:
[ ] By Check $__________
Please make check payable to Colorado Double Tax-Exempt Bond Fund, Inc, and mail
with this completed Account Application. You will be assigned an account
number(s) by ____________ upon receipt.
[ ] By Wire $__________
Call the Fund for instructions and account number(s). Read the purchase by wire
section of the prospectus as a reference if you are unclear on any procedures.
Each portfolio is assigned a separate account number to avoid errors.
I confirm the account number(s) I was assigned by telephone with regard to my
wire transfer of funds as follows:
____________________________________________________
Short-Intermediate Portfolio Assigned Account Number
____________________________________________________
Income Portfolio Assigned Account Number
4. Distributions (If no selection is checked, the Share Option will be
assigned.)
[ ] Share Option Income dividends and capital gain distributions automatically
reinvested in additional shares.
[ ] Income Option Income dividends and capital gain distributions distributed
in cash.
5. Wire Service
[ ] Yes [ ] No Permits Redemption Proceeds initiated by wire, telephone or
letter to be transmitted via Fed Wire to Fed Member Banks.
If you desire to permit such transmittals, fill out "Bank
Account Details" Below.
Bank Account Details-Fill Out This Section if "Yes" is Checked For Item 5:
_______________________________________________________________________________
Name of your Bank. Note: Initial Investment Check or wire must be drawn against
this account.
_______________________________________________________________________________
Account Name Account Number(s)
_______________________________________________________________________________
Address of Bank City State Zip Code
6. Telephone Privileges
[ ] Yes [ ] No Portfolio Exchange-Permits Exchange between the two
portfolios by telephone
[ ] No Status of Account by Telephone-Unless the "NO" box is
checked, the investor(s) authorize(s) ___________ to respond
to telephone inquiries from persons reasonably believed by
the Bank to be the registrant(s).
27
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7. Signature And Taxpayer Identification Number Certification For Individual
Investors
The undersigned warrant(s) that I (we) have full authority and, if a natural
person, am (are) of legal age to purchase shares pursuant to this Application
have received a current Fund Prospectus and agree to be bound by its terms. I
(we) agree that American Data Services, Inc., Colorado Double Tax-Exempt Bond
Fund, Inc. or any of their officers, directors or employees will not be liable
for any loss or expense for acting upon any instructions or inquiries believes
genuine.
Taxpayer Identification Number Certification: Under the penalties of perjury, I
(we) certify [1] that the Social Security Number(s) or Taxpayer Identification
Number(s) shown in Section 1 of this form is (are) my (our) correct Taxpayer
Identification Number(s), and [2] that I (we) am (are) not subject to backup
withholding either because I (we) have not been notified that I (we) am (are)
subject to backup withholding as a result of a failure to report all dividends,
or the Internal Revenue Service has notified me (us) that I (we) am (are) no
longer subject to backup withholding.
_______________________________________________________________________________
Individual (or Custodian) Date Joint Registrant, if any
Complete Only If Copies of Advices Are Required.
Certification A For Use by Advisers Only.
The undersigned represent(s) and warrant(s) that authorization to purchase and
redeem shares of the Fund has been given by the investor(s).
_______________________________________________________________________________
Firm Name
_______________________________________________________________________________
Address
_______________________________________________________________________________
City, State, Zip
_______________________________________________________________________________
Date Authorized Signature and Title
_______________________________________________________________________________
Date Authorized Signature and Title
_______________________________________________________________________________
Firm Name
_______________________________________________________________________________
Address
_______________________________________________________________________________
City, State, Zip
_______________________________________________________________________________
Date Authorized Signature and Title
_______________________________________________________________________________
Date Authorized Signature and Title
Certification B For Use By Corporations, Pension Trusts, Partnership or Other
Institutional Investors Only.
___________________________________
Dated:
Note: Retain a copy of this document for your records. Any modification of the
information below will require an amendment to this form. This document is in
full force and effect until another duly executed form is received by American
Data Services, Inc.
[ ] New [ ] Amendment to form dated
_______________________________________________________________________________
Name of Registered Owner: Account No(s):
Registered Owner is a:
[ ] Corporation/Incorporated Association* [ ] Partnership
[ ] Pension Trust [ ] Other: (such as Non-Profit
Organization, Religious Organization,
Sole Proprietorship, Investment Club,
Non-Incorporated Association, etc.)
The following named persons are currently officers/trustees/general
partners/other authorized signatories of the Registered Owner, and any _____**
of them ("Authorized Person(s)") is/are currently authorized under the
applicable governing document to act with full power to purchase, redeem, assign
or transfer securities of Colorado Double Tax-Exempt Bond Fund, Inc. (the
"Fund") for the Registered Owner and to execute and deliver any instrument
necessary to effectuate the authority hereby conferred:
Name Title Specimen Signature
_______________________ ______________________________ _______________________
_______________________ ______________________________ _______________________
_______________________ ______________________________ _______________________
_______________________ ______________________________ _______________________
American Data Services, Inc. ("ADS") may, without inquiry, act only upon the
instruction of Any Person(s) purporting to be (an) Authorized Person(s) as named
in the Certification form last received by ADS. ADS and the Fund shall not be
liable for any claims, expenses (including legal fees) or losses resulting from
the ADS having acted upon any instruction reasonably believed genuine.
For Corporations and Incorporated Associations Only. Note: Either Signature
Guarantee or Seal is Required.
I, ____________________, Secretary of the above-named Registered Owner, do
hereby certify that at a meeting on ____________________ at which a quorum was
present throughout, the Board of Directors of the corporation/the officers of
the association duly adopted a resolution, which is in full force and effect and
in accordance with the Registered Owner's charter and bylaws, which resolution
did the following: (1) empowered the above-named Authorized Person(s) to effect
securities transactions for the Registered Owner on the terms described above;
(2) authorized the Secretary to certify, from time to time, the names and titles
of the officers of the Registered Owner and to notify ADS when changes in office
occur; and (3) authorized the Secretary to certify that such a resolution has
been duly adopted and will remain in full force and effect until ADS receives a
duly executed amendment to the Certification form.
Signature
Guaranteed***
(or Corporation Seal)
Witness my hand on behalf of the
corporation/association this ____ day of
__________, 19__.
__________________________________________
Secretary***
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the
corporation/association.
Signature
Guaranteed***
(or Corporate Seal) __________________________________________
Certifying Officer of the Corporation or
Incorporated Association***
For All Other Institutional Investors__________________________________________
Certifying Trustee(s)/General partner(s)/
Other(s)***
Signature(s)
Guaranteed*** __________________________________________
Certifying Trustee(s)/General Partner(s)/
Other(s)***
**Insert a number unless otherwise indicated. The bank may honor instructions of
any one of the persons named above.
***Signature(s) must be guaranteed by a commercial bank or trust company located
or having a correspondent in New York City, or by a member firm of a national
securities exchange. Notarization is not acceptable.
28
<PAGE>
APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that __________ draw a check or an automated clearing
house ("ACH") debit on my checking account as described below each month to
purchase shares in the Short- Intermediate Portfolio or shares in the Income
Portfolio of Colorado Double Tax-Exempt Bond Fund subject to the terms set forth
below.
You are hereby authorized to draw a check or an ACH debit each month on my bank
account for investment in Colorado Double Tax-Exempt Bond Fund as indicated
below:
Amount of each check or ACH debit $
Account No.
Please date and invest checks or draw ACH
debits on the 20th of each month beginning
(Month)
I agree that you are preparing these checks or drawing these debits voluntarily
at my request and that you shall not be liable for any loss arising from any
delay in preparing or failure to prepare any such check or debit. If I change
banks or desire to terminate or suspend this program, I agree to notify you
promptly in writing.
I further agree that if a check or debit is not honored upon presentation,
__________ is authorized to discontinue immediately the Automatic Investment
plan and to liquidate sufficient shares held in my account to offset the
purchase made with the returned check or dishonored debit.
Date Signature of Depositor
Signature of Depositor
(If joint account, both must sign)
5. FOR BROKER-DEALER ONLY
Branch Office, Address, Stamp
This form when completed should be mailed to:
Colorado Double Tax-Exempt Bond Fund
c/o __________
__________
__________
29
<PAGE>
AUTHORIZATION TO HONOR CHECKS OR ACH
DEBITS DRAWN BY FINANCIAL DATA SERVICES,
INC.
To Bank
(Investor's Bank)
Bank Address
City, State, Zip Code
As a convenience to me, I hereby request and authorize you to pay and charge to
my account checks or ACH debits drawn on my account by and payable to
__________. I agree that your rights in respect to each such check or debit
shall be the same as if it were a check drawn on you and signed personally by
me. This authority is to remain in effect until revoked personally by me. This
authority is to remain in effect until revoked personally by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
check or debit. I further agree that if any such check or debit be dishonored,
whether with or without cause and whether intentionally or inadvertently, you
shall be under no liability.
Date Signature of Depositor
Bank (If joint account, both must sign)
Number
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
We hereby authorize Isaak Bond Investments, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the distributor of any purchases made under a Letter of Intention or Systematic
Withdrawal Plan. We guarantee the Shareholder's Signature.
Broker-Dealer Name and Address
By
Authorized Signature of Broker-Dealer
Branch-Code F/C No. F/C Last Name
Broker-Dealer's Customer A/C No.
<PAGE>
APPENDIX A
KEY TO MOODY'S MUNICIPAL BOND RATINGS
Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present that make the long-term risks appear somewhat larger than
in Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment some time in the
future.
Baa Bonds that are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
A-1
<PAGE>
Ca Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
A-2
<PAGE>
KEY TO S&P'S MUNICIPAL BOND RATINGS
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The "BB" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BBB-" rating.
B Debt rated "B" has greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied "BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied "B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
A-3
<PAGE>
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is being
paid.
D Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also
will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
A-4
<PAGE>
KEY TO FITCH'S MUNICIPAL BOND RATINGS
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in
the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and
therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.
Credit Trend Indicator: Credit trend indicators show whether credit
fundamentals are improving, stable, declining, or uncertain, as follows:
Improving [Up Arrow]
Stable [Left, Right Arrow]
Declining [Down Arrow]
Uncertain [Up, Down Arrow]
Credit trend indicators are not predictions that any rating change will
occur, and have a longer-term time frame than issues placed on FitchAlert.
NR Indicates that Fitch does not rate the specific issue.
Conditional A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
A-5
<PAGE>
Suspended A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for
rating purposes.
Withdrawn A rating will be withdrawn when an issue matures or is called
or refinanced and, at Fitch's discretion, when an issuer fails
to furnish proper and timely information.
FitchAlert Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the
likely direction of such change. These are designed as
"Positive," indicating a potential upgrade, "Negative," for
potential downgrade, or "Evolving," where ratings may be
raised or lowered. FitchAlert is relatively short-term, and
should be resolved within 12 months.
DESCRIPTION OF FITCH SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
A-6
<PAGE>
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD,
DD
and
D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD," "DD," or "D" categories.
A-7
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part B:
(i) Report of Certified Public Accountants
(ii) Statement of Assets and Liabilities
(b) Exhibits:
Exhibit No. Description of Exhibit
1 Articles of Incorporation of Registrant(1)
2 Bylaws of Registrant(1)
4(a) Specimen copy of certificate for shares issued
by Registrant for Short-Intermediae
Portfolio(2)
4(b) Specimen copy of certificate for shares issued
by Registrant for Income Portfolio(2)
5 Form of Investment Advisory Agreement(2)
6(a) Form of Distribution Agreement(2)
6(b) Form of Distribution
Sales Agreement(2)
8 Form of Custody Agreement(2)
9 Form of Transfer Agency and Service
Agreement(2)
10 Opinion of counsel(2)
11(a) Consent of Kutak Rock (included in
Exhibit 10)(2)
C-1
<PAGE>
11(b) Consent of Independent Public Accountants(2)
15(a) 12b-1 Distribution Plan (Short-Intermediate
Portfolio)(2)
15(b) 12b-1 Distribution Plan (Income Portfolio)(2)
17 Financial Data Schedule(2)
(1) Previously filed.
(2) Filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
There will be one record holder of the Registrant's shares on the date the
Registrant's Registration Statement becomes effective who will hold 5,000 shares
of the Short-Intermediate Portfolio and 5,000 shares of the Income Portfolio.
Item 27. Indemnification
Reference is made to Article V of the Registrant's Bylaws filed as Exhibit
No. 2 to Registrant's Registration Statement and Section 2-418 of the Maryland
General Corporation Law with respect to the indemnification of Registrant's
directors and officers. Registrant undertakes that insofar as indemnification
for liabilities arising under the Securities Act of 1933 ("1933 Act") may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, 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 1933 Act and will be governed by the final
adjudication of such issue.
C-2
<PAGE>
Item 28. Business and Other Connections of Adviser
Fund Management Corporation was organized as a Colorado corporation for the
purpose of serving as the investment adviser of the Registrant. It has no
present plans of engaging in any other business activity although it may
eventually serve as an investment adviser to other investment companies.
Set forth below is a list of the officers and directors of Funds Management
Corporation, together with information as to any business, profession, vocation
or employment of a substantial nature engaged in by such officers and directors
during the past two years.
Position with Funds
Name Management Corporation* Other Businesses, Etc.
Calvin F. Isaak President and Director President and Director of Isaak
Bond Investments, Inc.
600 17th Street, Suite 2610 South
Denver, Colorado 80202
David Isaak Vice President, Treasurer Vice President of Municipal Bond
and Director Trading Department of Isaak Bond
Investments, Inc.
*Address: 600 17th Street, 2610 S. Tower, Denver, Colorado 80293
Item 29. Principal Underwriter
(a) Not Applicable
(b)
Position with Isaak Bond
Name Investments, Inc. Position with Registrant
Calvin F. Isaak* President and Director President and Chairman
of
the Board
David Isaak* Vice President of Municipal Vice President, Treasurer
Bonding Trading Department and Director
Stan Voth* Chief Financial Officer Secretary
Philip J. Konsella** Director Director
C-3
<PAGE>
*Address: 600 17th Street, 2610 S. Tower, Denver, Colorado 80293
**Address: 1519 Genesee Vista Road, Golden, Colorado 80401
(c) Not Applicable.
Item 30. Location of Accounts and Records
Colorado Double Tax-Exempt Bond Fund, Inc.
600 17th Street
2610 S. Tower
Denver, Colorado 80293
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant hereby undertakes:
(a) to file an amendment to the Registration Statement showing the
initial capital received before accepting subscriptions from any persons in
excess of 25 if the Registrant proposes to raise capital pursuant to Section
14(a)(3) of the Act;
(b) to file a post-effective amendment, using financial statements
which need not be certified, within four to six months from the effective date
of the Registrants 1933 Act Registration Statement.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-effective Amendment No. 1 to the Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Denver and State of Colorado, on the 6th day of June, 1997.
COLORADO DOUBLE TAX-EXEMPT BOND
FUND, INC.
By /s/ Calvin F. Isaak
...............................
Calvin F. Isaak, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date(s) indicated:
Signature Title Date
/s/ James M. Coughlin Director June 6, 1997
............................
James M. Coughlin
/s/ Bruce L. Evans Director June 6, 1997
...........................
Bruce L. Evans
/s/ Calvin F. Isaak President (Chief Executive June 6, 1997
Calvin F. Isaak Officer) and Chairman of the
........................... Board
/s/ David Isaak Vice President, Treasurer and June 6, 1997
...........................
David Isaak Director
/s/ Philip J. Konsella Director June 6, 1997
...........................
Philip J. Konsella
C-5
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
Description of Exhibit
1 Articles of Incorporation of Registrant(1)
2 Bylaws of Registrant(1)
4(a) Specimen copy of certificate for shares
issued by Registrant for Short-Intermediate
Portfolio(2)
4(b) Specimen copy of certificate for shares issued
by Registrant for Income Portfolio(2)
5 Form of Investment Advisory Agreement(2)
6(a) Form of Distribution Agreement(2)
6(b) Form of Distribution
Sales Agreement(2)
8 Form of Custody Agreement(2)
9 Form of Transfer Agency and Service
Agreement(2)
10 Opinion of counsel(2)
11(a) Consent of Kutak Rock (included in
Exhibit 10)(2)
11(b) Consent of Independent Public Accountants(2)
15(a) 12b-1 Distribution Plan (Short-Intermediate
Portfolio)(2)
15(b) 12b-1 Distribution Plan (Income Portfolio)(2)
17 Financial Data Schedule(2)
(1) Previously filed.
(2) Filed herewith.
C-6
<PAGE>
EXHIBIT 4(a)
SPECIMEN COPY OF STOCK CERTIFICATE FOR
CLASS A COMMON STOCK SHARES, $.001 PAR VALUE, ISSUED BY
COLORADO DOUBLE TAX-EXEMPT BOND FUND,
A MARYLAND CORPORATION
4(a)-1
<PAGE>
EXHIBIT 4(b)
SPECIMEN COPY OF STOCK CERTIFICATE FOR
CLASS B COMMON STOCK SHARES, $.001 PAR VALUE, ISSUED BY
COLORADO DOUBLE TAX-EXEMPT BOND FUND,
A MARYLAND CORPORATION
4(b)-1
<PAGE>
EXHIBIT 5
FORM OF INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT (this "Agreement"), made this ____ day
of ___________________, 1997, by and between THE COLORADO DOUBLE TAX-EXEMPT BOND
FUND, INC., a Maryland corporation (the "Fund"), and FUNDS MANAGEMENT
CORPORATION, a Colorado corporation (the "Manager").
W I T N E S S E T H:
1. Investment Advisory and Management Services. The Fund hereby engages the
Manager, and the Manager hereby agrees to act, as investment adviser for, and to
manage the affairs, business, and the investment of the assets of, the Fund.
The investment of the assets of the Fund shall at all times be subject to
the applicable provisions of the Articles of Incorporation, the Bylaws, the
Prospectus and Statement of Additional Information of the Fund, as from time to
time in effect, and shall conform to the investment objective and policies of
the Fund as set forth in the Prospectus and Statement of Additional Information
of the Fund and as interpreted from time to time by the Board of Directors of
the Fund. Within the framework of the investment objective and policies and
restrictions of the Fund, the Manager shall have the sole and exclusive
responsibility for the management of the Fund portfolio and the making and
execution of all investment decisions for the Fund. The Manager shall report to
the Board of Directors regularly at such times and in such detail as the Board
may from time to time determine to be appropriate, in order to permit the Board
to determine the adherence of the Manager to the investment policies of the
Fund.
The Manager shall obtain and provide investment research and supervise the
Fund's investments and conduct a continuous program of investment, evaluation,
and if appropriate, sale and reinvestment of the Fund's assets. The Manager
shall furnish to the Fund such statistical information, with respect to the
investments which the Fund may hold or contemplate purchasing, as the Fund may
reasonably request. The Fund wishes to be informed of important developments
materially affecting its portfolio and shall expect the Manager, on its own
initiative, to furnish to the Fund from time to time such information as it may
believe appropriate for this purpose.
In addition, the Manager shall supply office facilities, clerical staff,
and stationery and office supplies; prepare reports to the Fund's shareholders,
tax returns, reports to and filings with the Securities and Exchange Commission
and state blue sky authorities; and generally assist in all aspects of the
Fund's operations.
5-1
<PAGE>
The Manager hereby acknowledges that all records necessary in the operation
of the Fund, including records pertaining to its shareholders and investments,
are the property of the Fund, and in the event that a transfer of management or
investment advisory services to someone other than the Manager should ever
occur, the Manager will promptly, and at its own cost, take all steps necessary
to segregate such records and deliver them to the Fund.
The Manager shall exercise its best judgment in rendering the services to
be provided to the Fund hereunder and the Fund agrees as an inducement to its
undertaking the same that the Manager shall not be liable hereunder for any
error of judgment or mistake of law or for any loss suffered by the Fund,
provided that nothing herein shall be deemed to protect or purport to protect it
against any liability to the Fund or to its shareholders to which the Manager
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties hereunder, or by reason of its
reckless disregard of its obligations and duties hereunder.
2. Compensation for Services. In payment for the investment advisory
services to be rendered by the Manager hereunder, the Fund shall pay to the
Manager a monthly fee, which fee shall be paid to the Manager not later than the
fifth business day following the end of each month in which said services were
rendered. Said monthly fee shall be based on the average of the net asset values
of all of the issued and outstanding shares of the Fund as determined as of the
close of each business day of the month pursuant to the Articles of
Incorporation, Bylaws, Prospectus and Statement of Additional Information of the
Fund and shall be equal to an annual rate of .23 of 1% of the Fund's average
daily net assets. Net asset value shall be computed on such days and at such
time or time as described in the Fund's then-current Prospectus and Statement of
Additional Information. The fee for the period from the date of the commencement
of the initial public sale of the Fund's shares to the end of the month during
which such sale shall have been commenced shall be pro-rated according to the
proportion which such period bears to the full monthly period, and upon any
termination of this Agreement before the end of any month, the fee for such part
of a month shall be pro-rated according to the proportion which such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
For the purpose of determining fees payable to the Manager, the value of
the Fund's net assets shall be computed in the manner specified in the Fund's
Articles of Incorporation for the computation of the value of the Fund's net
assets.
3. Allocation of Expenses.
(a) All costs and expenses (other than those specifically
referred to herein as being borne by the Manager or Isaak Bond
Investments, Inc., underwriter of the Funds's shares (the
"Underwriter")) incurred in the operation of the Fund shall be borne by
the Fund. These expenses include, but are not limited to, all expenses
incurred in the operation of the Fund and any public offering of its
shares, including, among others, interest, taxes, brokerage fees and
commissions, fees of the directors who are not employees of the
5-2
<PAGE>
employees of the Manager or the Underwriter, or any of their
affiliates, expenses of directors' and shareholders' meetings,
including the cost of printing and mailing proxies, expenses of
insurance premiums for fidelity and other coverage, expenses of
redemption of Fund shares, expenses of issue and sale of Fund shares
(to the extent not borne by the Underwriter under its agreement with
the Fund), expenses of printing and mailing stock certificates
representing shares of the Fund, association membership dues, charges
of custodian, transfer agent, dividend disbursing agent, accounting
services agent, investor servicing agent, and bookkeeping, auditing,
and legal expenses. The Fund will also pay the fees and bear the
expense of registering and maintaining the registration of the Fund and
its shares with the Securities and Exchange Commission and registering
or qualifying its shares under state or other securities laws and the
expense of preparing and mailing prospectuses and reports to
shareholders.
(b) The Underwriter shall bear all advertising promotional
expenses in connection with the distribution of the Fund's shares,
including paying for prospectuses for new shareholders.
4. Limit on Expenses. In the event that the Fund's operating expenses
(including the investment advisory and management fee but excluding taxes,
interest, brokerage and extraordinary expenses, if any) exceed 1% of the Fund's
average daily net assets on an annual basis, the Manager shall reduce the amount
of the investment advisory and management fee or assume expenses of the Fund in
the amount of such excess, up to the amount of the investment advisory and
management fee payable by the Fund to the Manager. The Manager shall directly
incur and pay all expenses relating to the Fund, and the Fund in turn shall
reimburse the Manager to the extent of the lesser of (a) the actual expenses or
(b) the 1% expense limitation. This expense reimbursement shall be paid monthly
by the Fund to the Manager.
5. Freedom to Deal with Third Parties. The Manager shall be free to render
services to others similar to those rendered under this Agreement or of a
different nature except as such services may conflict with the services to be
rendered or the duties to be assumed hereunder.
6. Effective Date, Duration and Termination of Agreement. The effective
date of this Agreement shall be _______________, 1997. Wherever referred to in
this Agreement, the vote or approval of the holders of a majority of the
outstanding voting securities of the Fund shall mean (a) the vote of 67% or more
of such securities if the holders of more than 50% of such securities are
present in person or by proxy or (b) the vote of more than 50% of such
securities, whichever is the lesser.
Unless sooner terminated and hereinafter provided, this Agreement shall
continue in effect until ______________, 1999 and from year to year thereafter,
but only so long as such continuance is specifically approved at least annually
by the Board of Directors of the Fund or by the vote of the holders of a
majority of the outstanding voting securities of the Fund; provided that in
either event the continuance also is approved by a majority of the Board of
5-3
<PAGE>
Directors who are not "interested persons" of the Manager, the Underwriter, or
the Fund, as defined by the provisions of the Investment Company Act of 1940, as
amended (the "1940 Act"), cast in person at a meeting called for the purpose of
voting on such approval.
This Agreement may be terminated at any time without the payment of any
penalty by the vote of the Board of Directors of the Fund or by the vote of the
holders of a majority of the outstanding voting securities of the Fund, or by
the Manager, upon 60 days' written notice to the other party.
This Agreement shall automatically terminate in the event of its assignment
as such term is defined by the 1940 Act, as amended.
7. Amendments to Agreement. No material amendment to this Agreement shall
be effective until approved by vote of the holders of a majority of the
outstanding voting securities of the Fund.
8. Notices. Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.
9. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of Colorado.
5-4
<PAGE>
IN WITNESS WHEREOF, the Fund and the Manager have caused this Agreement to
be executed by their duly authorized officers and their respective corporate
seals affixed hereto all as of the day and year first above written.
THE COLORADO DOUBLE TAX-EXEMPT
BOND FUND, INC.
By
.............................
Calvin F. Isaak, President
FUNDS MANAGEMENT CORPORATION
By
.............................
Calvin F. Isaak, President
5-5
<PAGE>
EXHIBIT 6(a)
FORM OF DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT
THIS AGREEMENT, made this _____ day of ___________, 1997, by and between
THE COLORADO DOUBLE TAX-EXEMPT BOND FUND, INC., a Maryland corporation (the
"Fund"), and ISAAK BOND INVESTMENTS, INC., a Colorado corporation (the
Underwriter").
W I T N E S S E T H:
Section 1. Underwriting Services. The Fund hereby engages the
Underwriter, and the Underwriter hereby agrees to act, as principal underwriter
for the Fund in the sale and distribution of the shares of the Fund to the
public, either through dealers or otherwise. The Underwriter agrees 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.
Section 2. Sale of Fund Shares. Such shares are to be sold only on the
following terms:
(a) All subscriptions, offers, or sales shall be subject to
acceptance or rejection by the Fund. Any offer or sale shall be
conclusively presumed to have been accepted by the Fund if the Fund
shall fail to notify the Underwriter of the rejection of such offer or
sale prior to the computation of the net asset value of the Fund's
shares next following receipt by the Fund of notice of such offer or
sale.
(b) No share of the Fund shall be sold by the Underwriter for
any consideration other than cash or, except in instances otherwise
provided for by the Fund's currently effective Prospectus, for any
amount less than the public offering price per share, which shall be
determined in accordance with the Fund's currently effective
Prospectus.
Section 3. Sale of Shares by the Fund. The Fund reserves the right to issue
shares at any time directly to its shareholders as a stock dividend or stock
split and to sell shares to its shareholders or to other persons approved by the
Underwriter at not less than net asset value.
Section 4. Registration of Shares. The Fund agrees to make prompt and
reasonable efforts to effect and keep in effect, at its expense, the
registration or qualification of its shares for sale in such jurisdictions as
the Fund may designate.
Section 5. Information to be furnished to the Underwriter. The Fund agrees
that it will furnish the Underwriter with such information with respect to the
affairs and accounts of the Fund as the Underwriter may from time to time
6(a)-1
<PAGE>
reasonably require, and further agrees that the Underwriter, at all reasonable
times, shall be permitted to inspect the books and records of the Fund.
Section 6. Allocation of Expenses. During the period of this Agreement, the
Fund shall pay or cause to be paid all expenses, costs, and fees incurred by the
Fund which are not assumed by the Underwriter or Funds Management Corporation, a
Colorado corporation and the Fund's investment adviser ("the Manager"). The
Underwriter shall pay all advertising and promotional expenses in connection
with the distribution of the Fund's shares including paying for prospectuses for
new shareholders, except as paid by the Fund under its Distribution Plan and
Agreement.
Section 7. Compensation to the Underwriter. It is understood and agreed by
the parties hereto that the Underwriter will receive compensation for services
it performs hereunder in accordance with Schedule A hereto.
Section 8. Limitation of the Underwriter's Authority. The Underwriter shall
be deemed to be an independent contractor and, except as specifically provided
or authorized herein, shall have no authority to act for or represent the Fund.
Section 9. Subscription for Shares-Refund for Cancelled Orders. The
Underwriter shall subscribe for the shares of the Fund only for the purpose of
covering purchase orders already received by it or for the purpose of investment
for its own account. In the event that an order for the purchase of shares of
the Fund is placed with the Underwriter by a customer or dealer and subsequently
cancelled, the Underwriter shall forthwith cancel the subscription for such
shares entered on the books of the Fund, and, if the Underwriter has paid the
Fund for such shares, shall be entitled to receive from the Fund in refund of
such payment the lesser of:
(a) the consideration received by the Fund for said shares; or
(b) the net asset value of such shares at the time of
cancellation by the Underwriter.
Section 10. Freedom to Deal with Third Parties. The Underwriter shall be
free to render to others services of a nature either similar to or different
from those rendered under this Agreement, except such as may impair its
performance of the services and duties to be rendered by it hereunder.
Section 11. Indemnification.
(a) The Fund will indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities
to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
02/95676.7
6(a)-2
<PAGE>
liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a
material fact contained in the Fund's Registration Statement or
Prospectus or any other written sales material prepared by the Fund
which is utilized by the Underwriter in connection with the sale of
Shares of the Fund or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or (in the case of the Registration Statement and Prospectus)
necessary to make the statements therein not misleading or (in the case
of such other sales material) necessary to make the statements therein
not misleading in the light of the circumstances under which they were
made; and will reimburse the Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by the
Underwriter or such controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that the Fund will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of
or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration Statement or
Prospectus in conformity with written information furnished to the Fund
by the Underwriter specifically for use therein; and provided, further,
that nothing herein shall be so construed as to protect the Underwriter
against any liability to the Fund or the Fund's shareholders to which
the Underwriter would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence, in the performance of its
duties, or by reason of the reckless disregard by the Underwriter of
its obligations and duties under this Agreement. This indemnity
agreement will be in addition to any liability which the Fund may
otherwise have.
(b) The Underwriter will indemnify and hold harmless the Fund,
each of its directors and officers and each person, if any, who
controls the Fund within the meaning of the Act, against any losses,
claims, damages or liabilities to which the Fund or any such director,
officer or controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement or Prospectus or any sales material not
prepared by the Fund which is utilized in connection with the sale of
shares of the Fund or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or (in the case of the Registration Statement and
Prospectus) necessary to make the statements therein not misleading or
(in the case of such other sales material) necessary to make the
statements therein not misleading in the light of the circumstances
under which they were made, in the case of the Registration Statement
and Prospectus to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission
was made in conformity with written information furnished to the Fund
by the Underwriter specifically for use therein; and the Underwriter
will reimburse any legal or other expenses reasonably incurred by the
Fund or any such director, officer or controlling person in connection
with investigating or defending any such loss, claim, damage, liability
6(a)-3
<PAGE>
or action. This indemnity agreement will be in addition to any
liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party
of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from liability which it may have
to any indemnified party otherwise than under this Section 10. In case
any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
Section 12. Rules of NASD, etc. The Underwriter will conform to the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. and the
securities laws of any jurisdiction in which it sells, directly or indirectly,
any shares. The Underwriter also agrees to furnish to the Fund sufficient copies
of any agreements or plans it intends to use in connection with any sales of
shares in adequate time for the Fund to file and clear them with the proper
authorities before they are put into use, and not to use them until so filed and
cleared.
Section 13. Effective Date, Duration and Termination of Agreement. The
effective date of this Agreement shall be ____________, 1997. Whenever referred
to in this Agreement, the vote or approval of the holders of a majority of the
outstanding voting securities of the Fund shall mean (a) the vote of 67% or more
of such securities if the holders of more than 50% of such securities are
present in person or by proxy or (b) the vote of more than 50% of such
securities, whichever is the lesser.
Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect until ___________, 1999 and from year to year thereafter but
only so long as such continuance is specifically approved at least annually by
the Board of Directors of the Fund or by the vote of the holders of a majority
of the outstanding voting securities of the Fund; provided that in either event
the continuance also is approved by a majority of the Board of Directors who are
not "interested persons" of the Fund, the Underwriter or the Manager as defined
by the provisions of the Investment Company Act of 1940, as amended (the "1940
Act"), cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time without the payment of any
penalty by the vote of the Board of Directors of the Fund or by the vote of the
holders of a majority of the outstanding voting securities of the Fund, or by
6(a)-4
<PAGE>
the Underwriter, upon 60 days' written notice to the other party.
This Agreement shall automatically terminate in the event of its assignment
(as defined by the provisions of the 1940 Act).
Section 14. Amendments to Agreement. No material amendment to this
Agreement shall be effective until approved by the Underwriter and by vote of a
majority of the Board of Directors of the Fund who are not "interested persons"
of the Underwriter.
Section 15. Notices. Any notice under this Agreement shall be in writing,
addressed, delivered, or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for receipt of such notice.
Section 16. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Colorado.
IN WITNESS WHEREOF, the Fund and the Underwriter have caused this Agreement
to be executed by their duly authorized officers as of the day and year first
above written.
THE COLORADO DOUBLE TAX-EXEMPT
BOND FUND, INC.
By
.............................
Calvin F. Isaak, President
ISAAK BOND INVESTMENTS, INC.
By
.............................
Calvin F. Isaak, President
6(a)-5
<PAGE>
SCHEDULE A
No sales charge will be imposed upon closing. A contingent deferred sales
charge of 1% may be imposed upon redemption of Fund shares if they are redeemed
within one year of purchase. The charge will not be imposed upon redemption of
reinvested dividends or share appreciation. The charge is applied to the value
of the shares redeemed excluding amounts not subject to the charge. The
contingent sales charge will be waived in the event of: (a) redemption of shares
of a shareholder (including a registered joint owner) who has died; (b)
redemption of shares if they are to be exchanged for shares of another
portfolio; and (c) redemption of shares of a shareholder (including a registered
joint owner) who after purchase of the shares being redeemed becomes totally
disabled (as evidenced by a determination by the federal Social Security
Administration).
6-A-1
<PAGE>
EXHIBIT 6(b)
FORM OF DISTRIBUTION SALES AGREEMENT
DISTRIBUTION SALES AGREEMENT
THIS AGREEMENT, made this ____ day of __________, 1997, by and between
ISAAK BOND INVESTMENTS, INC., a Colorado corporation, having its principal
office at 600 Seventeenth Street, Denver, Colorado 80202 (the "Underwriter"),
and __________, a __________ corporation, having its principal office at
__________ (the "Distributor").
WHEREAS, the Underwriter has entered into a Distribution Agreement with
Colorado Double Tax-Exempt Bond Fund, Inc. (the "Fund"), a nondiversified,
open-end management investment company, whereunder the Underwriter was engaged
and agreed to act as principal underwriter for the Fund in the sale and
distribution of shares of the Fund to the public, either through dealers or
otherwise; and
WHEREAS, the parties hereto desire that the Distributor be a member of a
selling group to sell and distribute shares of the Fund to the public;
NOW, THEREFORE, the Distributor hereby offers to become a member in a
selling group to sell and distribute shares of the Fund to the public subject to
the following terms and conditions.
Section 1. Acceptance of Subscriptions. Subscriptions solicited by you will
be accepted only at the price, in the amount, and on the terms which are set
forth in the then-current Prospectus of the Fund.
Section 2. Distribution Expenses. The Distributor shall receive from the
Underwriter all or a portion of the Rule 12b-1 fees payable by the Fund with
respect to shares sold by the Distributor. The amount of the Rule 12b-1 fee
payable may be revised by the Underwriter, in its discretion, upon 10 days'
written notice.
Section 3. Orders. Orders to purchase shares of the Fund shall be placed as
described in the then-current Prospectus of the Fund and as instructed from time
to time by the Underwriter. Orders shall be placed promptly upon receipt, and
there shall be no postponement of orders received so as to profit the
Distributor by reason of such postponement. Each order shall be confirmed by the
Distributor in writing on the day such order was placed.
Section 4. General. In soliciting purchases of shares of the Fund, the
Distributor shall act as an independent contractor and not as an agent of the
Underwriter. The Distributor agrees that neither the Underwriter nor any other
distributor nor the Fund shall be deemed an agent of the Distributor. Nothing
herein shall constitute the Distributor as a partner of the Underwriter, any
other distibutor or the Fund, or render any such entity liable for obligations
of the Distributor.
6(b)-1
<PAGE>
Section 5. Distributor's Undertakings. No person is authorized to make any
representation concerning shares of the Fund except those contained in the
then-current Prospectus. The Distributor shall not sell shares of the Fund
pursuant to this Agreement unless the then-current Prospectus is furnished to
the purchaser prior to the offer and sale. The Distributor shall not use any
supplemental sales literature of any kind without prior written approval of the
Underwriter unless it is furnished by the Underwriter for such purpose. In
offering and selling shares of the Fund, the Distributor will rely solely on the
representations contained in the then-current Prospectus.
Section 6. Representations and Agreements of the Distributor. By accepting
this Agreement, the Distributor represents that it: (a) is registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended; (b) is
qualified to act as a distributor in the State of Colorado, the only
jurisdiction in which it will offer shares of the Fund; (c) is a member in good
standing of the National Association of Securities Dealers, Inc., (the "NASD");
(d) is deemed as professionally qualified, to include attorneys, certified
public accountants, public accountants, independent investment advisors, state
and nationally chartered commercial banks, credit unions, insurance companies
and any other profession designated as qualified by the Underwriter to receive
the Rule 12b-1 fees; (e) will maintain such registrations qualifications and
memberships throughout the term of this Agreement. The Distributor shall comply
with all applicable federal laws, the laws of the State of Colorado, and the
rules and regulations of the NASD. The Distributor shall not be entitled to any
compensation during any period in which it has been suspended or expelled from
membership in the NASD or any other professional qualification designation.
Section 7. Distributor's Employees. By accepting this Agreement, the
Distributor assumes full responsibility for thorough and prior training of its
representatives concerning the selling methods to be used in connection with the
offer and sale of shares of the Fund, giving special emphasis to the principles
of full and fair disclosure to prospective investors.
Section 8. Distributor's Indemnification. The Distributor hereby agrees to
indemnify and to hold harmless the Fund and the Underwriter and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the Securities Act of 1933 as amended (the "Act"), from and against any and
all losses, claims, demands or liabilities to which the Fund or the Underwriter
may become subject under the Act, or otherwise, insofar as such losses, claims,
demands or liabilities (or actions in respect thereof) arise out of or are based
upon any unauthorized use of sales materials by the Distributor or its salesman
or upon alleged misrepresentations or omission to state material facts in
connection with statements made by the Distributor or its salesman orally or by
other means; and the Distributor will reimburse the Fund and the Underwriter for
any legal or other expenses reasonably incurred in connection with the
investigation or defense of any such action or claim. The Underwriter shall,
after receiving the first summons or other legal process disclosing the nature
of the action being served upon the Underwriter or the Fund, in any proceeding
in respect of which indemnity may be sought by the Fund or the Underwriter
hereunder, notify the Distributor in writing of the commencement thereof within
a reasonable time. In case any such litigation be brought against the Fund or
the Underwriter, the Underwriter shall notify the Distributor of the
commencement thereof and the Distributor shall be entitled to participate in
(and to the extent the Dealer shall wish, to direct) the defense thereof at the
Distributor's expense, but such defense shall be conducted by counsel of good
standing satisfactory to the Fund and the Underwriter. If the Distributor shall
fail to provide such defense, the Underwriter or the Fund may defend such action
at the Distributor's cost and expense. The Distributor's obligation under this
Section 8 shall survive the termination of this Agreement.
6(b)-2
<PAGE>
Section 9. Assignment and Termination. This Agreement may not be assigned
by the Distributor without consent of the Underwriter.
Section 10. Termination. Either party may terminate this Agreement at any
time upon giving written notice to the other party hereto.
Section 11. Waiver. No failure, neglect or forbearance on the part of the
Underwriter to require strict performance of this Agreement shall be construed
as a waiver of the rights or remedies of the Underwriter hereunder.
Section 12. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Colorado.
DISTRIBUTOR:
___________________________
(Name)
___________________________
(Authorized Representative)
___________________________
(Tax identification number)
___________________________
(Street Address)
___________________________
(City) (State) (Zip)
Date of offer: By_________________________
Title:_____________________
_______________, 1997
Accepted by Isaak Bond Investments, Inc.
By
Name:
Title:
Date of acceptance:
_______________, 1997
6(b)-3
<PAGE>
EXHIBIT 8
FORM OF CUSTODY AGREEMENT
CUSTODY AGREEMENT
This agreement (the "Agreement") is entered into as of the _______ day of
___________, 1997, by and between Colorado Double Tax-Exempt Bond Fund, Inc.,
(the "Corporation"), a corporation organized under the laws of the State of
Maryland and having its office at 600 17th Street, Suite 2610, South Tower,
Denver, Colorado 80202, and Star Bank, N.A. (the "Custodian"), a national
banking association having its principal office and place of business at Star
Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202.
WHEREAS, the Fund and the Custodian desire to enter into this Agreement to
provide for the custody and safekeeping of the assets of the Fund as required by
the Investment Company Act of 1940, as amended (the "Act").
WHEREAS, the Fund hereby appoints the Custodian as custodian of all the
Fund's Securities (as defined herein) and moneys at any time owned by the Fund
during the term of this Agreement (the "Fund Assets").
WHEREAS, the Custodian hereby accepts such appointment as Custodian and
agrees to perform the duties thereof as hereinafter set forth.
THEREFORE, in consideration of the mutual promises hereinafter set forth,
the Fund and the Custodian agree as follows:
Section 1. Definitions. The following words and phrases, when used in this
Agreement, unless the context otherwise requires, shall have the following
meanings:
"Authorized Person" means the Chairman, President, Secretary, Treasurer,
Controller or Senior Vice President of the Fund, or any other person, whether or
not any such person is an officer or employee of the Fund, duly authorized by
the Board of Directors of the Fund to give Oral Instructions and Written
Instructions on behalf of the Fund and listed in the Certificate annexed hereto
as Appendix A or such other Certificate as may be received by the Custodian from
time to time.
"Book-Entry System" means the Federal Reserve Bank book-entry system for
United States Treasury securities and federal agency securities.
"Depository" means The Depository Trust Company ("DTC"), a limited purpose
trust company its successor(s) and its nominee(s) or any other person or
clearing agent.
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"Dividend and Transfer Agent" means the dividend and transfer agent
appointed, from time to time, pursuant to a written agreement between the
dividend and transfer agent and the Fund.
"Foreign Securities" means (a) securities issued and sold primarily outside
of the United States by a foreign government, a national of any foreign country,
or a trust or other organization incorporated or organized under the laws of any
foreign country or (b) securities issued or guaranteed by the government of the
United States, by any state, by any political subdivision or agency thereof, or
by any entity organized under the laws of the United States or of any state
thereof, which have been issued and sold primarily outside of the United States.
"Money Market Security" means debt obligations issued or guaranteed as to
principal and/or interest by the government of the United States or agencies or
instrumentalities thereof, commercial paper, obligations (including certificates
of deposit, bankers' acceptances, repurchase agreements and reverse repurchase
agreements with respect to the same), and time deposits of domestic banks and
thrift institutions whose deposits are insured by the Federal Deposit Insurance
Corporation, and short-term corporate obligations where the purchase and sale of
such securities normally require settlement in federal funds or their equivalent
on the same day as such purchase and sale, all of which mature in not more than
thirteen (13) months.
"Officers" means the Chairman, President, Secretary, Treasurer, Controller
and Senior Vice President of the Fund listed in the Certificate annexed hereto
as Appendix A or such other Certificate as may be received by the Custodian from
time to time.
"Oral Instructions" means verbal instructions received by the Custodian
from an Authorized Person (or from a person that the Custodian reasonably
believes in good faith to be an Authorized Person) and confirmed by Written
Instructions in such a manner that such Written Instructions are received by the
Custodian on the business day immediately following receipt of such Oral
Instructions.
"Prospectus" means the Fund's then currently effective prospectus and
Statement of Additional Information, as filed with and declared effective from
time to time by the Securities and Exchange Commission.
"Security" or "Securities" means Money Market Securities, common stock,
preferred stock, options, financial futures, bonds, notes, debentures, corporate
debt securities, mortgages, and any certificates, receipts, warrants, or other
instruments representing rights to receive, purchase or subscribe for the same
or evidencing or representing any other rights or interest therein, or any
property or assets.
"Series" shall mean the various portfolios, if any, of the Fund as
described in the Prospectus, except that if the Fund does not have more than one
portfolio, "Series" shall mean the Fund or be ignored where a requirement would
be imposed on the Fund or the Custodian which is unnecessary if there is only
one portfolio.
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"Written Instructions" means communication received in writing by the
Custodian from an Authorized Person.
Section 2. Documents and Notices to be Furnished by the Fund.
(a) The following documents, including any amendments thereto,
will be provided contemporaneously with the execution of the Agreement,
to the Custodian by the Fund:
(i) a copy of the Articles of Incorporation of
the Fund certified by the Secretary;
(ii) a copy of the Bylaws of the Fund certified
by the Secretary;
(iii) a copy of the resolution of the Board of
Directors of the Fund appointing the Custodian, certified by
the Secretary;
(iv) a copy of the then current Prospectus; and
(v) a Certificate of the President and Secretary of
the Fund setting forth the names and signatures of the
Officers of the Fund.
(b) The Fund agrees to notify the Custodian in writing
of the appointment of any Dividend and Transfer Agent.
Section 3. Receipt of Fund Assets.
(a) During the term of this Agreement, the Fund will deliver
or cause to be delivered to the Custodian all moneys constituting Fund
Assets. The Custodian shall be entitled to reverse any deposits made on
the Fund's behalf where such deposits have been entered and moneys are
not finally collected within 30 days of the making of such entry.
(b) During the term of this Agreement, the Fund will deliver
or cause to be delivered to the Custodian all Securities constituting
Fund Assets, and shall specify with respect to such Fund Assets the
Series to which the same are allocated. The Custodian will not have any
duties or responsibilities with respect to such Securities until
actually received by the Custodian.
(c) As and when received, the Custodian shall deposit to the
separate account for each Series any and all payments for shares of the
Fund issued or sold from time to time as they are received from the
Fund's distributor or Dividend and Transfer Agent or from the Fund
itself.
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Section 4. Disbursement of Fund Assets.
(a) The Fund shall furnish to the Custodian a copy of the
resolution of the Board of Directors of the Fund, certified by the
Fund's Secretary, either (i) setting forth the date of the declaration
of any dividend or distribution in respect of shares of the Fund, the
date of payment thereof, the record date as of which Fund shareholders
entitled to payment shall be determined, the amount payable per share
to Fund shareholders of record as of that date and the total amount to
be paid by the Dividend and Transfer Agent on the payment date, or (ii)
authorizing the declaration of dividends and distributions in respect
of shares of the Fund on a daily basis and authorizing the Custodian to
rely on a Certificate setting forth the date of the declaration of any
such dividend or distribution, the date of payment thereof, the record
date as of which Fund shareholders entitled to payment shall be
determined, the amount payable per share to Fund shareholders of record
as of that date and the total amount to be paid by the Dividend and
Transfer Agent on the payment date.
On the payment date specified in such resolution or
Certificate described above, the Custodian shall segregate such amounts
from moneys held for the account of the Fund so that they are available
for such payment.
(b) Upon receipt of Written Instructions so directing it, the
Custodian shall segregate amounts necessary for the payment of
redemption proceeds to be made by the Dividend and Transfer Agent from
moneys held for the account of the Fund so that they are available for
such payment.
(c) Upon receipt of a Certificate directing payment and
setting forth the name and address of the person to whom such payment
is to be made, the amount of such payment and the purpose for which
payment is to be made, the Custodian shall disburse amounts as and when
directed from the Fund Assets. The Custodian is authorized to rely on
such directions and shall be under no obligation to inquire as to the
propriety of such directions.
(d) Upon receipt of a Certificate directing payment, the
Custodian shall disburse moneys from the Fund Assets in payment of the
Custodian's fees and expenses as provided in Section 8 hereof.
Section 5. Custody of Fund Assets.
(a) The Custodian shall open and maintain a separate bank
account or accounts, in the name of each Series, in the United States
in the name of the Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement, and shall
hold all cash received by it from or for the account of the Fund, other
than cash maintained by the Fund in a bank account established and used
by the Fund in accordance with Rule 17f-3 under the Act. Moneys held by
the Custodian on behalf of the Fund may be deposited by the Custodian
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<PAGE>
to its credit as Custodian in the banking department of the Custodian.
Such moneys shall be deposited by the Custodian in its capacity as
such, and shall be withdrawable by the Custodian only in such capacity.
(b) The Custodian shall hold all Securities delivered to it in
safekeeping in a separate account or accounts maintained at Star Bank,
N.A. for the benefit of the Fund.
(c) All Securities held which are issued or issuable only in
bearer form, shall be held by the Custodian in that form; all other
Securities held for the Fund shall be registered in the name of the
Custodian or its nominee. The Fund agrees to furnish to the Custodian
appropriate instruments to enable the Custodian to hold, or deliver in
proper form for transfer, any Securities that it may hold for the
account of the Fund and which may, from time to time, be registered in
the name of the Fund. The Custodian shall hold all such Securities
specifically allocated to a Series in a separate account in the name of
such Series.
(d) With respect to all Securities held for the Fund, the
Custodian shall on a timely basis (concerning items (i) and (ii) below,
as defined in the Custodian's Standards of Service Guide, as amended
from time to time, annexed hereto as Appendix C):
(i) collect all income due and payable with respect
to such Securities;
(ii) present for payment and collect amounts payable
upon all Securities which may mature or be called, redeemed or
retired, or otherwise become payable;
(iii) surrender Securities in temporary form for
definitive Securities; and
(iv) execute, as agent, any necessary declarations
or certificates of ownership under the federal income tax laws
or the laws or regulations of any other taxing authority,
including any foreign taxing authority, now or hereafter in
effect.
(e) Upon receipt of a Certificate and not otherwise, the
Custodian shall promptly:
(i) execute and deliver to such persons as may be
designated in such Certificate proxies, consents,
authorizations and any other instruments whereby the authority
of the Fund as beneficial owner of any Securities held
hereunder for the Series specified in such Certificate may be
exercised;
(ii) deliver any Securities held hereunder for the
Series specified in such Certificate in exchange for other
Securities or cash issued or paid in connection with the
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liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any trust, or the
exercise of any conversion privilege and receive and hold
hereunder specifically allocated by such Series any cash or
other Securities received in exchange;
(iii) deliver any Securities held hereunder for the
Series specified in the Certificate to any protective
committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
trust, and receive and hold under the terms of this Agreement
such certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence
such delivery;
(iv) make such transfers or exchanges of the assets
of the Fund and take such other steps as shall be stated in
said Certificate to be for the purpose of effectuating any
duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund; and
(v) deliver any Securities held for the Fund to the
depository agent for tender or other similar offers.
(f) The Custodian shall promptly deliver to the Fund all
notices, proxy material and executed but unvoted proxies pertaining to
shareholder meetings of Securities held by the Fund. The Custodian
shall not vote or authorize the voting of any Securities or give any
consent, waiver or approval with respect thereto unless so directed by
a Certificate or Written Instruction.
(g) The Custodian shall promptly deliver to the Fund all
information received by the Custodian and pertaining to Securities held
by the Fund with respect to tender or exchange offers, calls for
redemption or purchase, or expiration of rights.
Section 6. Purchase and Sale of Securities.
(a) Promptly after each purchase of Securities by the Fund,
the Fund shall deliver to the Custodian (1) with respect to each
purchase of Securities which are not Money Market Securities, Written
Instructions, and (2) with respect to each purchase of Money Market
Securities, Written Instructions or Oral Instructions, specifying with
respect to each such purchase the:
(i) Series to which such Securities are to be
specifically allocated,
(ii) name of the issuer and the title of the
Securities,
(iii) principal amount purchased and accrued
interest, if any,
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(iv) date of purchase and settlement,
(v) purchase price per unit,
(vi) total amount payable, and
(vii) name of the person from whom, or the broker
through which, the purchase was made.
The Custodian shall, against receipt of Securities purchased by or for
the Fund, pay out of the Fund Assets held for the account of the
Series, the total amount payable to the person from whom or the broker
through which the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Written Instructions or
Oral Instructions, as the case may be.
(b) Promptly after each sale of Securities by the Fund, the
Fund shall deliver to the Custodian (1) with respect to each sale of
Securities which are not Money Market Securities, Written Instructions,
and (2) with respect to each sale of Money Market Securities, Written
Instructions or Oral Instructions, specifying with respect to each such
sale the:
(i) the Series to which such Securities were
specifically allocated,
(ii) name of the issuer and the title of the
Securities,
(iii) principal amount sold and accrued interest,if
any,
(iv) date of sale and settlement,
(v) sale price per unit,
(vi) total amount receivable, and
(vii) name of the person to whom, or the broker
through which, the sale was made.
The Custodian shall deliver the Securities specifically allocated to
such Series against receipt of the total amount receivable, provided
that the same conforms to the total amount receivable as set forth in
such Written Instructions or Oral Instructions, as the case may be.
(c) On contractual settlement date, the account of the Fund
will be charged for all purchased Securities settling on that day,
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<PAGE>
regardless of whether or not delivery is made. Likewise, on contractual
settlement date, proceeds from the sale of Securities settling that
day will be credited to the account of the Fund, irrespective of
delivery.
(d) Purchases and sales of Securities effected by the
Custodian will be made on a delivery versus payment basis. The
Custodian may, in its sole discretion, upon receipt of a Certificate,
elect to settle a purchase or sale transaction in some other manner,
but only upon receipt of acceptable indemnification from the Fund.
(e) The Custodian shall, upon receipt of Written Instructions
so directing it, establish and maintain a segregated account or
accounts for and on behalf of the Fund. Cash and/or Securities may be
transferred into such account or accounts for specific purposes, to
wit:
(i) in accordance with the provision of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities and Exchange Act of 1934, as
amended, and also a member of the National Association of
Securities Dealers (NASD) (or any futures commission merchant
registered under the Commodity Exchange Act), relating to
compliance with the rules of the Options Clearing Corporation
and of any registered national securities exchange, the
Commodity Futures Trading Commission, any registered contract
market, or any similar organization or organizations requiring
escrow or other similar arrangements in connection with
transactions by the Fund;
(ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or
written by the Fund, or commodity futures contracts or options
thereon purchased or sold by the Fund;
(iii) for the purpose of compliance by the Fund with
the procedures required for reverse repurchase agreements,
firm commitment agreements, standby commitment agreements and
short sales by Act Release No. 10666, or any subsequent
release or releases or rule of the Securities and Exchange
Commission relating to the maintenance of segregated accounts
by registered investment companies; and
(iv) for other corporate purposes, only in the case
of this clause (iv) upon receipt of a copy of a resolution of
the Board of Directors of the Fund, certified by the Secretary
of the Fund, setting forth the purposes of such segregated
account.
(f) Except as otherwise may be agreed upon by the parties
hereto, the Custodian shall not be required to comply with any Written
Instructions to settle the purchase of any Securities on behalf of the
Fund unless there is sufficient cash in the account(s) at the time or
to settle the sale of any Securities from an account(s) unless such
Securities are in deliverable form. Notwithstanding the foregoing, if
the purchase price of such Securities exceeds the amount of cash
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<PAGE>
in the account(s) at the time of such purchase, the Custodian may, in
its sole discretion, advance the amount of the difference in order to
settle the purchase of such Securities. The amount of any such advance
shall be deemed a loan from the Custodian to the Fund payable on
demand and bearing interest accruing from the date such loan is made
up to but not including the date such loan is repaid at a rate per
annum customarily charged by the Custodian on similar loans.
Section 7. Fund Indebtedness. In connection with any borrowings by the Fund
specifically allocated to a Series held by the Custodian hereunder, the Fund
will cause to be delivered to the Custodian by a bank or broker requiring
Securities as collateral for such borrowings (including the Custodian if the
borrowing is from the Custodian), a notice or undertaking in the form currently
employed by such bank or broker setting forth the amount of collateral. The Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
each such borrowing: (a) the Series to which the borrowings are specifically
allocated, (b) the name of the bank or broker, (c) the amount and terms of the
borrowing, which may be set forth by incorporating by reference an attached
promissory note duly endorsed by the Fund, or a loan agreement, (d) the date,
and time if known, on which the loan is to be entered into, (e) the date on
which the loan becomes due and payable, (f) the total amount payable to the Fund
on the borrowing date, and (g) the description of the Securities securing the
loan, including the name of the issuer, the title and the number of shares or
the principal amount. The Custodian shall deliver on the borrowing date
specified in the Certificate the required collateral against the lender's
delivery of the total loan amount then payable, provided that the same conforms
to that which is described in the Certificate. The Custodian shall deliver, in
the manner directed by the Fund, such Securities as additional collateral, as
may be specified in a Certificate, to secure further any transaction described
in this Section 7. The Fund 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.
The Custodian may, at the option of the lender, keep such collateral in its
possession, subject to all rights therein given to the lender because of the
loan. The Custodian may require such reasonable conditions regarding such
collateral and its dealings with third-party lenders as it may deem appropriate.
Section 8. Concerning the Custodian.
(a) The Custodian shall use reasonable care in the performance
of its duties hereunder, and, except as otherwise provided herein, the
Custodian shall not be liable for any loss or damage resulting from its
action or omission to act or otherwise, except for any such loss or
damage arising out of its own negligence, bad faith or willful
misconduct or that of the subcustodians or co-custodians appointed by
the Custodian or of the officers, employees, or agents of any of them.
The Fund shall defend, indemnify and hold harmless the Custodian and
its directors, officers, employees and agents with respect to any loss,
claim, liability or cost (including reasonable attorneys' fees) arising
or alleged to arise from or relating to the Fund's duties hereunder or
any other action or
8-9
<PAGE>
inaction of the Fund or its directors, officers, employees or agents,
except such as may arise from the negligent action, omission, willful
misconduct or breach of this Agreement by the Custodian. The Custodian
may, with respect to questions of law, apply for and obtain the advice
and opinion of counsel, at the expense of the Fund, and shall be fully
protected with respect to anything done or omitted by it in good faith
in conformity with the advice or opinion of counsel. The provisions
under this paragraph shall survive the termination of this Agreement.
(b) Without limiting the generality of the foregoing, the
Custodian, acting in the capacity of Custodian hereunder, shall be
under no obligation to inquire into, and shall not be liable for:
(i) the validity (but not the authenticity) of the
issue of any Securities purchased by or for the account of the
Fund, the legality of the purchase thereof or the propriety of
the amount paid therefor;
(ii) the legality of the sale of any Securities by
or for the account of the Fund, or the propriety of the
amount for which the same are sold;
(iii) the legality of the issue or sale of any shares
of the Fund, or the sufficiency of the amount to be received
therefor;
(iv) the legality of the redemption of any shares of
the Fund, or the propriety of the amount to be paid therefor;
(v) the legality of the declaration or payments of
any dividend by the Fund in repect of shares of the Fund; or
(vi) the legality of any borrowing by the Fund on
behalf of the Fund, using Securities as collateral.
(c) The Custodian shall not be under any duty or obligation to
take action to effect collection of any amount due to the Fund from any
Dividend and Transfer Agent of the Fund nor to take any action to
effect payment or distribution by any Dividend and Transfer Agent of
the Fund of any amount paid by the Custodian to any Dividend and
Transfer Agent of the Fund in accordance with this Agreement.
(d) Notwithstanding paragraph (d) of Section 5, the Custodian
shall not be under any duty or obligation to take action to effect
collection of any amount, if the Securities upon which such amount is
payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such
action by a Certificate and (ii) it shall be assured to its
satisfaction (including prepayment thereof) of reimbursement of its
costs and expenses in connection with any such action.
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<PAGE>
(e) The Fund acknowledges and hereby authorizes the Custodian
to hold Securities through its various agents described in Appendix B
annexed hereto. The Fund hereby represents that such authorization has
been duly approved by the Board of Directors of the Fund, as required
by the Act. The Custodian acknowledges that although certain Fund
Assets are held by its agents, the Custodian remains primarily liable
for the safekeeping of the Fund Assets.
In addition, the Fund acknowledges that the Custodian may
appoint one or more financial institutions as agent or agents or as
sub-custodian or sub-custodians, including, but not limited to, banking
institutions located in foreign countries, for the purpose of holding
Securities and moneys at any time owned by the Fund. The Custodian
shall not be relieved of any obligation or liability under this
Agreement in connection with the appointment or activities of such
agents or sub-custodians. Any such agent or sub-custodian shall be
qualified to serve as such for assets of investment companies
registered under the Act. Upon request, the Custodian shall promptly
forward to the Fund any documents it receives from any agent or
sub-custodian appointed hereunder which may assist trustees of
registered investment companies fulfill their responsibilities under
Rule 17f-5 of the Act.
(f) 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 account of the Fund, are such as properly may be held by the
Fund under the provisions of the Articles of Incorporation and the
Fund's Bylaws.
(g) The Custodian shall treat all records and other
information relating to the Fund and the Fund Assets as confidential
and shall not disclose any such records or information to any other
person unless (i) the Fund shall have consented thereto in writing or
(ii) such disclosure is required by law.
(h) The Custodian shall be entitled to receive, and the Fund
agrees to pay to the Custodian, such compensation as shall be
determined pursuant to Appendix D attached hereto or as shall be
determined pursuant to amendments to such Appendix D. The Custodian
shall be entitled to charge against any money held by it for a Series,
the amount of any of its fees, any loss, damage, liability or expense,
including counsel fees with respect to such Series. The expenses which
the Custodian may charge against the account of the Fund include, but
are not limited to, the expenses of agents or sub-custodians incurred
in settling transactions involving the purchase and sale of Securities
of the Fund.
(i) The Custodian shall be entitled to rely upon any Oral
Instructions and any Written Instructions. The Fund agrees to forward
to the Custodian Written Instructions confirming Oral Instructions in
such a manner so that such Written Instructions are received by the
Custodian, whether by hand delivery, facsimile or otherwise, on the
same business day on which such Oral Instructions were given. The Fund
agrees that the failure of the Custodian to receive such confirming
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<PAGE>
instructions shall in no way affect the validity of the transactions
or enforceability of the transactions hereby authorized by the Fund.
The Fund agrees that the Custodian shall incur no liability to the
Fund for acting upon Oral Instructions given to the Custodian
hereunder concerning such transactions.
(j) The Custodian will (i) set up and maintain proper books of
account and complete records of all transactions in the accounts
maintained by the Custodian hereunder in such manner as will meet the
obligations of the Fund under the Act, with particular attention to
Section 31 thereof and Rules 31a-1 and 31a-2 thereunder and those
records are the property of the Fund, and (ii) preserve for the periods
prescribed by applicable federal statute or regulation all records
required to be so preserved. All such books and records shall be the
property of the Fund, and shall be open to inspection and audit at
reasonable times and with prior notice by Officers and auditors
employed by the Fund.
(k) The Custodian shall send to the Fund any report received
on the systems of internal accounting control of the Custodian, or its
agents or sub-custodians, as the Fund may reasonably request from time
to time.
(l) The Custodian performs only the services of a custodian
and shall have no responsibility for the management, investment or
reinvestment of the Securities from time to time owned by the Fund. The
Custodian is not a selling agent for shares of the Fund and performance
of its duties as custodian shall not be deemed to be a recommendation
to the Fund's depositors or others of shares of the Fund as an
investment.
(m) The Custodian shall take all reasonable action, that the
Fund may from time to time request, to assist the Fund in obtaining
favorable opinions from the Fund's independent accountants, with
respect to the Custodian's activities hereunder, in connection with the
preparation of the Fund's Form N-1A, Form N-SAR or other annual reports
to the Securities and Exchange Commission.
(n) The Fund hereby pledges to and grants the Custodian a
security interest in any Fund Assets to secure the payment of any
liabilities of the Fund to the Custodian, whether acting in its
capacity as Custodian or otherwise, or on account of money borrowed
from the Custodian. This pledge is in addition to any other pledge of
collateral by the Fund to the Custodian.
Section 9. Force Majeure. Neither the Custodian nor the Trust shall be
liable for any failure or delay in performance of its obligations under this
Agreement arising out of or caused, directly or indirectly, by circumstances
beyond its reasonable control, including, without limitation, acts of God;
earthquakes; fires; floods; wars; civil or military disturbances; sabotage;
strikes; epidemics; riots; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian, in the event of a failure
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or delay, shall use its best efforts to ameliorate the effects of any such
failure or delay.
Section 10. Termination.
(a) Either of the parties hereto may terminate this Agreement
for any reason by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than
ninety (90) days after the date of giving of such notice. If such
notice is given by the Fund, it shall be accompanied by a copy of a
resolution of the Board of Directors of the Fund, certified by the
Secretary of the Fund, electing to terminate this Agreement and
designating a successor custodian or custodians. In the event such
notice is given by the Custodian, the Fund shall, on or before the
termination date, deliver to the Custodian a copy of a resolution of
the Board of Directors of the Fund, certified by the Secretary,
designating a successor custodian or custodians to act on behalf of the
Fund. In the absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust company
having not less than $100,000,000 aggregate capital, surplus and
undivided profits. Upon the date set forth in such notice, this
Agreement shall terminate, and the Custodian, provided that it has
received a notice of acceptance by the successor custodian, shall
deliver, on that date, directly to the successor custodian all
Securities and moneys then owned by the Fund and held by it as
Custodian. Upon termination of this Agreement, the Fund shall pay to
the Custodian on behalf of the Fund such compensation as may be due as
of the date of such termination. The Fund agrees on behalf of the Fund
that the Custodian shall be reimbursed for its reasonable costs in
connection with the termination of this Agreement.
(b) If a successor custodian is not designated by the Fund, or
by the Custodian in accordance with the preceding paragraph, or the
designated successor cannot or will not serve, the Fund shall, upon the
delivery by the Custodian to the Fund of all Securities (other than
Securities held in the Book-Entry System which cannot be delivered to
the Fund) and moneys then owned by the Fund, be deemed to be the
custodian for the Fund, 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 Fund, which shall be held by the
Custodian in accordance with this Agreement.
Section 11. Miscellaneous.
(a) Appendix A sets forth the names and the signatures of all
Authorized Persons, as certified by the Secretary of the Fund. The Fund
agrees to furnish to the Custodian a new Appendix A in form similar to
the attached Appendix A, if any present Authorized Person ceases to be
an Authorized Person or if any other or additional Authorized Persons
are elected or appointed. Until such new Appendix A shall be received,
the Custodian shall be fully protected in acting under the provisions
of this Agreement upon Oral Instructions or signatures of the then
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Agreement upon Oral Instructions or signatures of the then current
Authorized Persons as set forth in the last delivered Appendix A.
(b) No recourse under any obligation of this Agreement or for
any claim based thereon shall be had against any organizer,
shareholder, officer, director, past, present or future as such, of the
Fund or of any predecessor or successor, either directly or through the
Fund or any such predecessor or successor, whether by virtue of any
constitution, statute or rule of law or equity, or be the enforcement
of any assessment or penalty or otherwise; it being expressly agreed
and understood that this Agreement and the obligations thereunder are
enforceable solely against the Fund, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
organizers, shareholders, officers, directors of the Fund or of any
predecessor or successor, or any of them as such. To the extent that
any such liability exists, it is hereby expressly waived and released
by the Custodian as a condition of, and as a consideration for, the
execution of this Agreement.
(c) The obligations set forth in this Agreement as having been
made by the Fund have been made by the Board of Directors, acting as
such directors for and on behalf of the Fund, pursuant to the authority
vested in them under the laws of the State of Maryland, the Articles of
Incorporation and the Bylaws of the Fund. This Agreement has been
executed by officers of the Fund as officers, and not individually, and
the obligations contained herein are not binding upon any of the
directors, officers, agents or holders of shares, personally, but bind
only the Fund.
(d) Provisions of the Prospectus and any other documents
(including advertising material) specifically mentioning the Custodian
(other than merely by name and address) shall be reviewed with the
Custodian by the Fund prior to publication and/or dissemination or
distribution, and shall be subject to the consent of the Custodian.
(e) 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 Star Bank Center, 425 Walnut Street,
M. L. 6118, Cincinnati, Ohio 45202, Attention: Mutual Fund Custody
Department, or at such other place as the Custodian may from time to
time designate in
writing.
(f) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be
sufficiently given when delivered to the Fund or on the second business
day following the time such notice is deposited in the U.S. mail
postage prepaid and addressed to the Fund at its office at 600 17th
Street, Suite 2610, South Tower, Denver, Colorado 80202 or at such
other place as the Fund may from time to time designate in writing.
8-14
<PAGE>
(g) This Agreement, with the exception of the Appendices, 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, and
authorized and approved by a resolution of the Board of Directors of
the Fund.
(h) 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
Fund or by the Custodian, and no attempted assignment by the Fund or
the Custodian shall be effective without the written consent of the
other party hereto.
(i) This Agreement shall be construed in accordance with the
laws of the State of Ohio.
(j) 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.
8-15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, thereunto duly authorized as of the day
and year first above written.
ATTEST: COLORADO DOUBLE TAX-EXEMPT BOND
FUND, INC.
By
.......................... ...............................
Stan Voth, Secretary Calvin J. Isaak,
Chairman of the Board and
President
ATTEST: STAR BANK, N.A.
By
...............................
Name: Name:
Title: Title:
8-16
<PAGE>
APPENDIX A
Authorized Persons Specimen Signatures
Chairman and President Calvin F. Isaak ......................
Secretary Stan Voth ......................
Vice President and Treasurer David J. Isaak ......................
Adviser Employees: ...................... ......................
...................... ......................
...................... .....................
Transfer Agent/Fund Accountant ...................... ......................
Employees: ...................... ......................
...................... ......................
...................... ......................
8-A-1
<PAGE>
APPENDIX B
The following agents are employed currently by Star Bank, N.A. for
securities processing and control:
The Depository Trust Company (New York)
7 Hanover Square
New York, New York 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, New York 10005
(For Foreign Securities and certain non-DTC eligible Securities)
8-B-1
<PAGE>
APPENDIX C
STAR BANK, N.A.
STANDARDS OF SERVICE GUIDE
Star Bank, N.A. is committed to providing superior quality service to all
customers and their agents at all times. We have compiled this guide as a tool
for our clients to determine our standards for the processing of security
settlements, payment collection, and capital change transactions. Deadlines
recited in this guide represent the times required for Star Bank to guarantee
processing. Failure to meet these deadlines will result in settlement at our
client's risk. In all cases, Star Bank will make every effort to complete all
processing on a timely basis.
Star Bank is a direct participant of the Depository Trust Company, a direct
member of the Federal Reserve Bank of Cleveland, and utilizes the Bankers Trust
Company as its agent for ineligible and foreign securities.
For corporate reorganizations, Star Bank utilizes SEI's Reorg Source,
Financial Information, Inc. XCITEK, DTC Important Notices, and The Wall Street
Journal.
For bond calls and mandatory puts, Star Bank utilizes SEI's Bond Source,
Kenny Information Systems, Standard & Poor's Corporation and DTC Important
Notices. Star Bank will not notify clients of optional put opportunities.
Any securities delivered free to Star Bank or its agents must be received
three (3) business days prior to any payment or settlement in order for the Star
Bank standards of service to apply.
Should you have any questions regarding the information contained in this
guide, please feel free to contact your account representative.
The information contained in this Standards of Service Guide is
subject to change. Should any changes be made Star Bank will provide
you with an updated copy of its Standards of Service Guide.
8-C-1
<PAGE>
STAR BANK SECURITY SETTLEMENT STANDARDS
Transaction Type Instructions Deadline* Delivery Instructions
DTC 1:30 P.M. DTC Participant #2219
on Settlement Date Agent Bank ID #27895
Institutional #________
For Account #__________
Federal Reserve Book 12:30 P.M. Federal Reserve Bank of Cinti
Entry on Settlement Date /Trust for Star Bank, N.A.
ABA #042000013
For Account #__________
Federal Reserve Book 1:00 P.M. Federal Reserve Bank of Cinti
Entry (Repurchase on Settlement Date /Spec for Star Bank, N.A.
Agreement Collateral ABA #042000013
Only) For Account #__________
PTC Securities (GNMA 12:00 P.M. PTC For Account BTRST/CUST
Book Entry) on Settlement Date Sub Account: Star Bank, N.A.
#090334
Physical Securities 9:30 A.M. EST Bankers Trust Company
on Settlement Date 16 Wall Street 4th Floor,
(for Deliveries, by for Star Bank Account #090334
4:00P.M.on Settlement
Date minus 1)
CEDEL/EURO-CLEAR 11:00 A.M. Euroclear Via Cedel Bridge
on Settlement Date in favor of Bankers Trust C
minus 2 Cedel 53355
For Star Bank Account #501526354
Cash Wire Transfer 3:00 P.M. Star Bank, N.A. Cinti/Trust
ABA# 042000013
Credit Account #9901877
Further Credit to __________
Account #___________________
*All times listed are Cincinnati time.
8-C-2
<PAGE>
STAR BANK PAYMENT STANDARDS
Security Type Income Principal
Equities Payable Date
Municipal Bonds* Payable Date Payable Date
Corporate Bonds* Payable Date Payable Date
Federal Reserve Bank Payable Date Payable Date
Book Entry*
PTC GNMA's (P&I) Payable Date + 1 Payable Date + 1
CMOs*
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
SBA Loan Certificates When Received When Received
Unit Investment Trust Payable Date Payable Date
Certificates*
Certificates of Deposit* Payable Date Payable Date
Limited Partnerships When Received When Received
Foreign Securities When Received When Received
*Variable Rate Securities
Federal Reserve Bank Book Entry Payable Date Payable Date
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
NOTE:If a payable date falls on a weekend or bank holiday, payment will be made
on the immediately following business day.
8-C-3
<PAGE>
STAR BANK CORPORATE REORGANIZATION STANDARDS
Deadline
for Client
Notification to Instructions to Transaction
Type of Action Client Star Bank Posting
Rights, Later of 5 business Upon receipt
Warrants, 10 business days days prior
and prior to to expiration
Optional expiration or
Mergers receipt of notice
Mandatory Later of 5 business Upon receipt
Puts with 10 business days days prior
Option prior to to expiration
to Retain expiration or
of notice
Class 10 business days 5 business Upon receipt
Actions prior to days prior
expiration date to expiration
Voluntary Later of 5 business Upon receipt
Tenders, 10 business days days prior
Exchanges, prior to to expiration
and expiration or
Conversions receipt of notice
Mandatory At posting of None Upon receipt
Puts, funds or
Defaults, securities
Bankruptcies, received
Liquidations,
Stock Splits,
Mandatory
Exchanges
Full and Later of None Upon receipt
Partial Calls 10 business days
prior to
expiration or
receipt
of notice
NOTE:Fractional shares/par amounts resulting from any of the above will be sold.
8-C-4
<PAGE>
APPENDIX D
Star Bank, N.A.
Proposed Custody Fee Schedule for Colorado Double Tax-Exempt Bond Fund, Inc.
Star Bank, N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following schedule:
I. Portfolio Transaction Fees:
(a) For each repurchase agreement transaction $7.00
(b) For each portfolio transaction processed
through DTC or Federal Reserve $9.00
(c) For each portfolio transaction processed
through our New York custodian $25.00
(d) For each GNMA/Amortized Security Purchase $16.00
(e) For each GNMA Prin/Int Paydown, GNMA Sales $8.00
(f) For each option/future contract written,
exercised or expired $40.00
(g) For each Cedel/Euro clear transaction $80.00
(h) For each Disbursement (Fund expenses only) $5.00
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversion), maturity, tender of exchange:
II. Market Value Fee
Based upon an annual rate of: Million
.0003 (3 Basis Points) on First $20
.0002 (2 Basis Points) on Next $20
.00015 (1.5 Basis Points) on Balance
III.Monthly Minimum Fee Per Fund $400.00
IV. Out-of-Pocket Expenses
The only out-of-pocket expenses charged to your account will be
shipping fees or transfer fees.
V. IRA Documents
Per Shareholder/year to hold each IRA Document $8.00
VI. Earnings Credits
On a monthly basis any earnings credits generated from uninvested
custody balances will be applied against any cash management service
fees generated. Earnings credits are based on a cost of funds tiered
earnings credit rate.
8-D-1
<PAGE>
<TABLE>
<S> <C> <C>
Star Bank, N.A.
Proposed Custody Fee Schedule for Colorado Double Tax-Exempt Bond Fund, Inc.
Services Unit Cost ($) Monthly Cost ($)
-------- ------------- ----------------
D.D.A. Account Maintenance 14.00
Deposits .399
Deposited Items .109
Checks Paid .159
Balance Reporting - P.C. Access 50.00
ACH Transaction .095
ACH Monthly Maintenance 40.00
Controlled Disbursement (1st Account) 110.00
Each additional account 25.00
Deposited Items Returned 6.00
International Items Returned 10.00
NSF Returned Checks 25.00
Stop Payments 22.00
Data Transmission per account 110.00
Data Capture* .10
Drafts Cleared .179
Lockbox Maintenance** 55.00
Lockbox items Processed
with copy of check .32
without copy of check .26
Checks Printed .20
Positive Pay .06
Issued Items .015
Wires Incoming
Domestic 10.00
International 10.00
Wires Outgoing
Domestic
Repetitive 12.00
Non-Repetitive 13.00
International
Repetitive 35.00
Non-Repetitive 40.00
</TABLE>
8-D-2
<PAGE>
PC-Initiated Wires:
Domestic
Repetitive 9.00
Non-Repetitive 9.00
International
Repetitive 25.00
Non-Repetitive 25.00
***Uncollected Charge Star Bank Prime Rate as of first of month plus 4%
* Price can vary depending upon what information needs to be captured
** With the use of lockbox, the collected balance in the demand deposit
account will be significantly increased and therefore earnings to offset
cash management service fees will be maximized.
*** Fees for uncollected balances are figured on the monthly average of all
combined accounts.
**** Other available cash management services are priced separately.
8-D-3
<PAGE>
EXHIBIT 9
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made the ____ day of __________, 1997, by and between Colorado
Double Tax-Exempt Bond Fund, Inc., a Maryland Corporation, having its principal
office and place of business at 600 17th Street, 2610 S. Tower, Denver, Colorado
80202 (the "Fund"), and American Data Services, Inc., a New York corporation
having its principal office and place of business at 24 West Carver Street,
Huntington, New York 11743 ("ADS").
WHEREAS, the Fund desires to appoint ADS as its transfer agent, dividend
disbursing agent and agent in connection with certain other activities, and ADS
desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Section 1. Terms of Appointment; Duties of ADS.
(a) Subject to the terms and conditions set forth in this agreement,
the Fund hereby employs and appoints ADS to act as, and ADS agrees to act
as its transfer agent for the Fund's authorized and issued shares of its
common stock, $.001 par value, ("Shares"), dividend disbursing agent and
agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of the fund ("Shareholders") set out in the
currently effective prospectus and statement of additional information
("prospectus") of the Fund.
(b) ADS agrees that it will perform the following services:
(i) In accordance with procedures established from
time to time by agreement between the Fund and ADS, ADS shall:
(A) receive for acceptance, orders for the
purchase of Shares, and promptly deliver payment and
appropriate documentation therefore to the Custodian
of the Fund authorized by the Board of Directors of
the Fund (the "Custodian");
(B) pursuant to purchase orders, issue the
appropriate number of Shares and hold such Shares in
the appropriate Shareholder account;
(C) receive for acceptance redemption
requests and redemption directions and deliver the
appropriate documentation therefore to the Custodian;
9-1
<PAGE>
(D) at the appropriate time as and when it
receives moneys paid to it by the Custodian with
respect to any redemption, pay over or cause to be
paid over in the appropriate manner such moneys as
instructed by the redeeming Shareholders;
(E) effect transfers of Shares by the
registered owners thereof upon receipt of appropriate
instructions;
(F) prepare and transmit payments for
dividends and distributions declared by the Fund;
(G) maintain records of account for and
advise the Fund and its Shareholders as to the
foregoing; and
(H) record the issuance of shares of the
Fund and maintain pursuant to SEC Rule 17Ad-10(e) 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. ADS shall
also provide the Fund on a regular basis with the
total number of shares 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.
(ii) In addition to and not in lieu of the services
set forth in the above paragraph (i), ADS shall (A) perform
all of the customary services of a transfer agent, dividend
disbursing agent, including but not limited to, maintaining
all Shareholder accounts, preparing Shareholder meeting lists,
mailing proxies, receiving and tabulating proxies, mailing
Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien
accounts, 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, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases
redemption's of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity
statements for Shareholders, and providing Shareholder account
information and (B) provide a system and reports which will
enable the Fund to monitor the total number of Shares sold in
each State.
(iii) In addition, the Fund shall (A) identify to ADS
in writing those transactions and shares to be treated as
exempt from blue sky reporting for each State and (B) verify
the establishment of such transactions for each state on the
system prior to activation and thereafter monitor the daily
activity for each State as provided by ADS. The responsibility
of ADS for the Fund's blue sky State registration status is
9-2
<PAGE>
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.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and ADS.
Section 2. Fees and Expenses.
(a) For performance by ADS pursuant to this Agreement, the
Fund agrees to pay ADS an annual maintenance fee for each Shareholder
account and transaction fees for each portfolio or class of shares
serviced under this Agreement (See Schedule A) as set out in the fee
schedule attached hereto. Such fees and out-of-pocket expenses and
advances identified under Section 2(b) below may be changed from time
to time subject to mutual written agreement between the Fund and ADS.
(b) In addition to the fee paid under Section 2(a) above, the
Fund agrees to reimburse ADS for out-of-pocket expenses or advances
incurred by ADS for the items set out in the fee schedule attached
hereto. In addition, any other expenses incurred by ADS at the request
or with the consent of the Fund, will be reimbursed by the Fund.
(c) The Fund agrees to pay all fees and reimbursable expenses
within five days following the receipt of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all shareholder accounts shall be advanced to ADS by
the Fund at least seven (7) days prior to the mailing date of such
materials.
Section 3. Representations and warranties of ADS. ADS represents and
warrants to the Fund that:
(a) It is a corporation duly organized and existing and in
good standing under the laws of the State of New York.
(b) It is duly qualified to carry on its business in the State
of New York.
(c) It is empowered under applicable laws and by its charter
and bylaws to enter into and perform this Agreement.
(d) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(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.
9-3
<PAGE>
(f) ADS is duly registered as a transfer agent under the
Securities Act of 1934 and shall continue to be registered throughout
the remainder of this Agreement.
Section 4. Representations and Warranties of the Fund. The Fund represents
and warrants to ADS that:
(a) It is a corporation duly organized and existing and in
good standing under the laws of Maryland.
(b) It is empowered under applicable laws and by its Articles
of Incorporation and Bylaws to enter into and perform this Agreement.
(c) All corporate proceedings required by said Articles of
Incorporation and Bylaws have been taken to authorize it to enter into
and perform this Agreement.
(d) It is an open-end and diversified management investment
company registered under the Investment Company Act of 1940.
(e) A registration statement under the Securities Act of 1933
is currently or will become effective and will remain effective, and
appropriate state securities law filings as required, have been or will
be made and will continue to be made, with respect to all Shares of the
Fund being offered for sale.
Section 5. Indemnification.
(a) ADS shall not be responsible for, and the Fund shall
indemnify and hold ADS harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability
arising out of or attributable to:
(i) All actions of ADS or its agents or
subcontractors required to be taken pursuant to this
Agreement, provided that such actions are taken in good faith
and without gross negligence or willful misconduct.
(ii) The Fund's refusal or failure to comply with
the terms of this Agreement, or which arise out of the Fund's
lack good faith, gross negligence or willful misconduct or
which arise out of the breach of any representation or
warranty of the Fund hereunder.
(iii) The reliance on or use by ADS or its agents or
subcontractors of information, records and documents which (A)
are received by ADS or its agents or subcontractors and
furnished to it by or on behalf of the Fund, and (B) have been
prepared and/or maintained by the Fund or any other person or
firm on behalf of the Fund.
9-4
<PAGE>
(iv) The reliance on, or the carrying out by ADS or
its agents or subcontractors of any instructions or requests
of the Fund.
(v) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations
or 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 federal agency
or any state with respect to the offer or sale of such Shares
in such state.
(b) ADS shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to any
action or failure or omission to act by ADS as a result of ADS's lack
of good faith, gross negligence or willful misconduct.
(c) At any time ADS may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by ADS
under this Agreement, and ADS and its agents or subcontractors shall
not be liable and shall be indemnified by the Fund for any act on taken
or omitted by it in reliance upon such instructions or upon the opinion
of such counsel. ADS, its agents and subcontractors shall be protected
and indemnified in acting upon any paper or document furnished by or on
behalf of the Fund, reasonably believed to be genuine and to have been
signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided ADS or its agents or
subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to
have notice of any change of authority of any person, until receipt of
written notice thereof from the Fund. ADS, its agents and
subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Fund, and the
proper countersignature of any former transfer agent or registrar, or
of a co-transfer agent or co-registrar.
(d) In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond
its control, or other causes reasonably beyond its control, such party
shall not be liable for damages to the other for any damages resulting
from such failure to perform or otherwise from such causes.
(e) Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this
Agreement or for any act or failure to act hereunder.
(f) In order that the indemnification provisions contained in
this Section 5 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party of
seeking indemnification shall promptly notify the other party of such
02/95676.7
9-5
<PAGE>
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
Section 6. Covenants of the fund and ADS.
(a) The Fund Shall promptly furnish to ADS a certified copy of
the resolution of the Board of Directors of the Fund authorizing the
appointment of ADS and the execution and delivery of this Agreement.
(b) ADS hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices,
if any; and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
(c) ADS shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable.
To the extent required by Section 31 of the Investment Company Act of
1940, as amended, and the Rules thereunder, ADS agrees that all such
records prepared or maintained by ADS relating to the services to be
performed by ADS hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such
Section and Rules, and will be surrendered promptly to the Fund on and
in accordance with its request.
(d) ADS and the Fund agree that all books, records,
information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the
carrying out of this Agreement shall remain confidential, and shall not
be voluntarily disclosed to any other person, except as may be required
by law.
(e) In case of any requests or demands for the inspection of
the Shareholder records of the Fund, ADS will endeavor to notify the
Fund and to secure instructions from an authorized officer of the Fund
as to such inspection. ADS 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 exhibit the Shareholder
records to such person, and shall promptly notify the Fund of any
unusual request to inspect or copy the shareholder records of the Fund
or the receipt of any other unusual request to inspect, copy or produce
the records of the Fund.
Section 7. Termination of Agreement.
(a) This Agreement shall become effective as of the date
hereof and shall remain in force for a period of three (3) years,
provided however, that both parties to this Agreement have the option
9-6
<PAGE>
to terminate the Agreement upon ninety (90) days prior written notice.
(b) Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and
material will be borne by the Fund. Additionally, ADS reserves the
right to charge for any other reasonable expenses associated with such
termination.
Section 8. Assignment.
(a) Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the written consent
of the other party.
(b) This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and
assigns.
Section 9. Amendment. This Agreement may be amended or modified by a
written agreement executed by both parties and authorized or approved by a
resolution of the Board of Directors of the Fund.
Section 10. New York Laws to Apply. The provisions of this Agreement shall
be construed and interpreted in accordance with the laws of the State of New
York as at the time in effect and the applicable provisions of the 1940 Act. To
the extent that the applicable law of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the 1940 Act, the
latter shall control.
Section 11. Merger of Agreement. This Agreement constitutes the entire
agreement between the parties hereto and supersedes any prior agreement with
respect to the subject matter hereof whether oral or written.
Section 12. Notices. All notices and other communications hereunder shall
be in writing, shall be deemed to have been given when received or when sent by
telex or facsimile, and shall be given to the following addresses (or such other
addresses as to which notice is given):
If to the Fund: Calvin F. Isaak, President
Colorado Double Tax-Exempt Bond Fund, Inc.
600 17th Street, 2610 S. Tower
Denver, Colorado 80202
If to ADS: Michael Miola, President
American Data Services, Inc.
24 West Carver Street
Huntington, New York 11743
9-7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COLORADO DOUBLE TAX-EXEMPT BOND
FUND, INC.
By
.............................
Calvin F. Isaak, President
AMERICAN DATA SERVICES, INC.
By
.............................
Michael Miola, President
9-8
<PAGE>
FEE SCHEDULE
For the services rendered by ADS in its capacity as transfer agent, the
Fund shall pay ADS, within ten (10) days after receipt of an invoice from ADS at
the beginning of each month, a fee, calculated as a combination of account
maintenance charges and transaction charges as follows:
Account Maintenance Charge
The Greater of:
(a) Minimum maintenance charge per fund-$800.00/month (No
prorating partial months);
OR,
(b)Based upon the total of all open/closed accounts in the Fund
upon the following annual rates (billed monthly):
Fund Type
Dividend calculated and
paid annually, semiannually, quarterly $ 8.50 per account
Dividend calculated and paid monthly $11.00 per account
Dividend accrued daily and paid monthly $14.50 per account
Closed accounts $ 2.00 per account*
*All accounts closed during a calendar year will be considered as open accounts
for billing purposes until the end of that calendar year. Accounts marked as
closed at the end of the calendar year will remain in the shareholder files
until all 1099's and 5498's have been sent to shareholders and reported (via mag
media) to the ILLS.
Fee Discount
During the first 12 months of operations or until the Funds' average net
assets exceed $10,000,000, whichever comes first, ADS will discount the Minimum
Account Maintenance Fee, if applicable as follows:
9-9
<PAGE>
Discount
Month 1-2 80% Minimum fee
Month 3-4 60% Minimum fee
Month 5-6 40% Minimum fee
Month 7-8 20% Minimum fee
Month 9-12 No Discount
However, if the Fund elects or is forced to terminate this Agreement for
any reason whatsoever (including, but not limited to, the voluntary or
involuntary termination of the Fund, liquidation of the Fund's assets, the sale
or merger of the Fund or its assets to any successor entity) prior to the
termination date of this Agreement as specified in Section 7 of this Agreement,
all fees previously discounted will be due and payable to ADS upon termination
of this Agreement plus any other charges associated with such termination
pursuant to Section 7 of this Agreement. In addition, the Fund will forfeit the
Security Deposit paid to ADS upon execution of this Agreement.
Transaction Fees
Trade Entry (purchase/liquidation) and
maintenance transactions $1.35 each
New account setup $2.50 each
Customer service calls $1.00 each
Correspondence/information requests $1.25 each*
Check preparation $.50 each
Liquidation's paid by wire transfer $3.00 each
Omnibus accounts $1.25 per transaction
ACH charge $.30 each
SWP $1.25 each
- ---------------
*Information requests from shareholders or the Fund for data that is not in the
historical files of our system and must be researched either through micro
fiche, or original hard copy, will be subject to an additional service charge to
obtain and report the requested information. This service charge will be based
upon the time spend to obtain the required information and will be calculated
utilizing the rate specified in "-Special Reports" for junior draft.
Shareholders requesting such information will be notified in advance of this
research charge and will be requested to remit the service charge to ADS before
information is released.
9-10
<PAGE>
24-Hour Automated Voice Response
Initial setup charge per portfolio - $150.00
Monthly maintenance charge per portfolio - $50.00
All calls processed through automated voice response will be billed as a
customer service call listed above.
Fund/SERV
All portfolios processed through Fund/SERV will be subject to an additional
monthly charge of $250.00.
All transactions processed through Fund/SERV will be billed at transaction
fee rates listed above.
IRA Plan Fees
The following fees will be charged directly to the shareholder account:
Annual maintenance fee $15.00/account*
Incoming transfer from prior custodian $12.00
Distribution to a participant $15.00
Refund of excess contribution $15.00
Transfer to successor custodian $15.00
Automatic periodic distributions $15.00/year per account
---------------
*Includes Star Bank N.A. $8.00 Custody Fee.
FEE INCREASES
On each annual anniversary date of this Agreement, the fees enumerated
above will be increased by the change in the Consumer Price Index for the
Northeast region (CPI for the twelve month period ending with the month
preceding such annual anniversary date.
Expenses
The Fund shall reimburse ADS for any out-of-pocket expenses, exclusive of
salaries, advanced by ADS in connection with but not limited to the printing of
confirmation forms and statements, proxy expenses, travel requested by the Fund,
telephone, facsimile transmissions, stationery and supplies (related to Fund
records), record storage, postage (plus a $0.15 service charge for all
mailings), pro rata portion of annual 17AD-13 audit letter, telex and courier
9-11
<PAGE>
charges incurred in connection with the performance of its duties hereunder. ADS
shall provide the Fund with a monthly invoice of such expenses and the Fund
shall reimburse ADS within fifteen (15) days after receipt thereof.
Special Reports
All reports and/or analyses requested by the Fund that are not included in
the fee schedule, shall be subject to an additional charge, agreed upon in
advance, based upon the following rates:
Labor:
Senior staff- $150.00/hr.
Junior staff- $75.00/hr.
Computer time- $45.00/hr.
Security Deposit
The Fund will remit to ADS upon execution of this Agreement a security
deposit of equal to one (1) month's shareholder service fee. The security
deposit computation will be based either on the total number of shareholder
accounts (open and closed) of the Fund or the minimum fee without giving effect
to any fee discounts or waivers that may be in effect, whichever is greater on
the date above written. The Fund will have the option, if not forfeited in
accordance with the terms of "-Account Maintenance Charge" above, to have the
security deposit applied to the last month's service fee, or applied to any new
contract between the Fund and ADS.
Conversion Charge
NOTE: FOR EXISTING FUNDS ONLY (new funds please ignore):
There will be a charge to convert the Fund's shareholder accounting records
on to the ADS stock transfer system (ADSHARE). In addition, ADS will be
reimbursed for all out-of-pocket expenses, enumerated in "-Transaction Fees"
above and data media conversion costs, incurred during the conversion process.
The conversion charge will be estimated and agreed upon in advance by the
Fund and ADS. The charge will be based upon the quantity of records to be
convened and the condition of the previous service agents records.
9-12
<PAGE>
SCHEDULE A
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT
COLORADO DOUBLE TAX-EXEMPT BOND FUND INC.-SHORT-INTERMEDIATE
PORTFOLIO
COLORADO DOUBLE TAX-EXEMPT BOND FUND INC.-INCOME PORTFOLIO
9-A-1
<PAGE>
EXHIBIT 10
[LETTERHEAD] ATLANTA
KANSAS CITY
KUTAK ROCK LITTLE ROCK
A PARTNERSHIP NEW YORK
INCLUDING PROFESSIONAL CORPORATIONS NEWPORT BEACH
SUITE 2900 OKLAHOMA CITY
717 SEVENTEENTH STREET OMAHA
DENVER, COLORADO 80202-3329 PHOENIX
(303) 297-2400 PITTSBURGH
FACSIMILE (303) 292-7799 WASHINGTON
June 6, 1997
Colorado Double Tax-Exempt
Bond Fund, Inc.
Suite 2610, South Tower
600 17th Street
Denver, CO 80202
Gentlemen:
At your request, we have examined the Registration Statement on Form N-1A,
File No. 333-20287 (the "Registration Statement"), filed by you with the
Securities and Exchange Commission (the "Commission") in connection with the
registration under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, of 100,000,000 shares of $.001 par value common
stock (the "Shares") of Colorado Double Tax-Exempt Bond Fund, Inc. (the "Fund").
We are familiar with the proceedings taken, and proposed to be taken, by you in
connection with the authorization, issuance and sale of the Shares and have
examined such certificates of public officials, records, documents and matters
of law and have satisfied ourselves as to such matters of fact as we consider
relevant for purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
10-1
<PAGE>
Colorado Double
Tax-Exempt Bond Fund, Inc.
June 6, 1997
Page 2
(a) The Fund is duly organized and validly existing under the
laws of the State of Maryland.
(b) Subject to the Commission declaring the Registration
Statement effective and subject to the qualification of the Shares
under the securities laws of the State of Colorado, the Shares, upon
issuance and sale in the manner referred to in the Registration
Statement, will be legally and validly issued, fully paid and
non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and the use of our name in the Registration Statement and in the
Prospectus constituting a part thereof. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the Rules
and Regulations of the Commission promulgated pursuant thereto.
Very truly yours,
/s/ Kutak Rock
.....................
KUTAK ROCK
10-2
<PAGE>
EXHIBIT 11(a)
CONSENT OF KUTAK ROCK (INCLUDED IN EXHIBIT 10)
11(a)-1
<PAGE>
EXHIBIT 11(b)
CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Colorado Double Tax-Exempt Bond Fund, Inc.
600 17th Street
2610 S. Tower
Denver, Colorado 80202
We hereby consent to the use in this Pre-Effective Amendment No. 1 to the
Registration Statement under the Securities Act of 1933 and this Amendment No. 1
to the Registration Statement under the Investment Company Act of 1940, both on
Form N-IA, of our report dated April 24, 1997, accompanying and pertaining to
the statement of assets and liabilities of Colorado Double Tax-Exempt Bond Fund,
Inc. as of April 18, 1997, which is included in such Registration Statements.
BAIRD, KURTZ & DOBSON
\s\ Baird, Kurtz & Dobson
Denver, Colorado
June 6, 1997
11(b)-l
<PAGE>
EXHIBIT 15(a)
12b-1 DISTRIBUTION PLAN
(SHORT-INTERMEDIATE PORTFOLIO)
Dated: _____________, 1997
The Colorado Double Tax-Exempt Bond Fund, Inc.
DISTRIBUTION PLAN
for
Short-Intermediate Term Portfolio
1. The Plan. This amended and restated Plan (the "Plan") is the written
plan, contemplated by Rule 12b-1 (the "Rule") under the Investment Company Act
of 1940 (the "1940 Act") of The Colorado Double Tax-Exempt Bond Fund, Inc. (the
"Fund").
2. Certain Expense Payments Permitted. The adviser, the administrator or
the sub-adviser may make payments ("Permitted Payments") in connection with the
costs of printing and distributing all copies of the Fund's prospectuses,
statements of additional information and reports to shareholders which are not
sent to the Fund's shareholders. It is recognized that the Permitted Payments
result in the bearing by the adviser, administrator or sub-adviser of certain
distribution expenses. Since the profits, if any, of the adviser, administrator
or sub-adviser are dependent on the advisory or administration fees paid by the
Fund to the adviser, administrator or sub-adviser, its profits, if any, would be
less, or losses, if any, would be increased due to such Permitted Payments and
the bearing by it of such expenses. If and to the extent that any such advisory
or administration fees paid by the Fund might, in view of the foregoing, be
considered as indirectly financing any activity which is primarily intended to
result in the sale of Fund shares, the payment of such fees is authorized by
this Plan.
3. Certain Fund Payments Authorized. If and to the extent that any of the
payments listed below are considered to be "primarily intended to result in the
sale of" shares issued by the Fund within the meaning of the Rule, such payments
are authorized under this Plan: (i) the costs of the preparation of all reports
and notices to shareholders and the costs of printing and mailing such reports
and notices to existing shareholders, irrespective of whether such reports or
notices contain or are accompanied by material intended to result in the sale of
shares of the Fund or other funds or other investments; (ii) the costs of the
preparation and setting in type of all prospectuses and statements of additional
information, and the costs of printing and mailing of all prospectuses and
statements of additional information to existing shareholders; (iii) the costs
of the preparation, printing and mailing of all proxy statements and proxies,
irrespective of whether any such proxy statement includes any item relating to,
or directed toward, the sale of the Fund's shares; (iv) all legal and
15(a)-1
<PAGE>
accounting fees relating to the preparation of any such reports, prospectuses,
statements of additional information, proxies and proxy statements; (v) all fees
and expenses relating to the registration or qualification of the Fund and/or
its shares under the securities or "Blue Sky" laws of any jurisdiction; (vi) all
fees under the Securities Act of 1933 and the 1940 Act, including fees in
connection with any application for exemption relating to or directed toward the
sale of the Fund's shares; (vii) all fees and assessments of the Investment
Company Institute or any successor organization, irrespective of whether some of
its activities are designed to provide sales assistance; (viii) all costs of the
preparation and mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs of responding to
telephone or mail inquiries of investors.
4. Disinterested Directors. While this Plan is in effect, the selection and
nomination of those Directors of the Fund who are not "interested persons" of
the Fund shall be committed to the discretion of such disinterested Directors.
Nothing herein shall prevent the involvement of others in such selection and
nomination if the final decision on any such selection and nomination is
approved by a majority of such disinterested Directors.
5. Reports. While this Plan is in effect, the Fund's sub-adviser or
administrator shall report at least quarterly to the Fund's Directors in writing
for their review on the following matters: (i) all costs of each item specified
in Sections 2 and 3 of this Plan (making estimates of such costs where necessary
or desirable) during the preceding calendar or fiscal quarter; and (ii) all fees
of the Fund to the sub-adviser or administrator paid or accrued during such
quarter.
6. Effectiveness, Continuation, Termination and Amendment. This Plan
originally went into effect when it was approved (i) by a vote of the Directors
of the Fund and of those Directors (the "Independent Directors") who, at the
time of such vote, were not "interested persons" as defined in the 1940 Act of
the Fund and had no direct or indirect financial interest in the operation of
this Plan or in any agreements related to this Plan, with votes cast in person
at a meeting called for the purpose of voting on this Plan; and (ii) by a vote
of holders of at least a "majority" (as so defined) of the outstanding voting
securities of the Fund. This plan has continued, and will, unless terminated as
hereinafter provided, continue in effect, until the one year anniversary next
succeeding such effectiveness, and from year to year thereafter only so long as
such continuance is specifically approved at least annually by the Fund's
Directors and its Independent Directors with votes cast in person at a meeting
called for the purpose of voting on such continuance. This Plan may be
terminated at any time by the vote of a majority of the Independent Directors or
by the vote of the holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund. This Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval as set forth in (ii) above, and all amendments must be approved in the
manner set forth in (i) above.
15(a)-2
<PAGE>
EXHIBIT 15(b)
12b-1 DISTRIBUTION PLAN
(INCOME PORTFOLIO)
Dated: _____________, 1997
The Colorado Double Tax-Exempt Bond Fund, Inc.
DISTRIBUTION PLAN
for
Income Portfolio
1. The Plan. This amended and restated Plan (the "Plan") is the written
plan, contemplated by Rule 12b-1 (the "Rule") under the Investment Company Act
of 1940 (the "1940 Act") of The Colorado Double Tax-Exempt Bond Fund, Inc. (the
"Fund").
2. Certain Expense Payments Permitted. The adviser, the administrator or
the sub-adviser may make payments ("Permitted Payments") in connection with the
costs of printing and distributing all copies of the Fund's prospectuses,
statements of additional information and reports to shareholders which are not
sent to the Fund's shareholders. It is recognized that the Permitted Payments
result in the bearing by the adviser, administrator or sub-adviser of certain
distribution expenses. Since the profits, if any, of the adviser, administrator
or sub-adviser are dependent on the advisory or administration fees paid by the
Fund to the adviser, administrator or sub-adviser, its profits, if any, would be
less, or losses, if any, would be increased due to such Permitted Payments and
the bearing by it of such expenses. If and to the extent that any such advisory
or administration fees paid by the Fund might, in view of the foregoing, be
considered as indirectly financing any activity which is primarily intended to
result in the sale of Fund shares, the payment of such fees is authorized by
this Plan.
3. Certain Fund Payments Authorized. If and to the extent that any of the
payments listed below are considered to be "primarily intended to result in the
sale of" shares issued by the Fund within the meaning of the Rule, such payments
are authorized under this Plan: (i) the costs of the preparation of all reports
and notices to shareholders and the costs of printing and mailing such reports
and notices to existing shareholders, irrespective of whether such reports or
notices contain or are accompanied by material intended to result in the sale of
shares of the Fund or other funds or other investments; (ii) the costs of the
preparation and setting in type of all prospectuses and statements of additional
information, and the costs of printing and mailing of all prospectuses and
statements of additional information to existing shareholders; (iii) the costs
of the preparation, printing and mailing of all proxy statements and proxies,
irrespective of whether any such proxy statement includes any item relating to,
or directed toward, the sale of the Fund's shares; (iv) all legal and
15(b)-1
<PAGE>
accounting fees relating to the preparation of any such reports, prospectuses,
statements of additional information, proxies and proxy statements; (v) all fees
and expenses relating to the registration or qualification of the Fund and/or
its shares under the securities or "Blue Sky" laws of any jurisdiction; (vi) all
fees under the Securities Act of 1933 and the 1940 Act, including fees in
connection with any application for exemption relating to or directed toward the
sale of the Fund's shares; (vii) all fees and assessments of the Investment
Company Institute or any successor organization, irrespective of whether some of
its activities are designed to provide sales assistance; (viii) all costs of the
preparation and mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs of responding to
telephone or mail inquiries of investors.
4. Disinterested Directors. While this Plan is in effect, the selection and
nomination of those Directors of the Fund who are not "interested persons" of
the Fund shall be committed to the discretion of such disinterested Directors.
Nothing herein shall prevent the involvement of others in such selection and
nomination if the final decision on any such selection and nomination is
approved by a majority of such disinterested Directors.
5. Reports. While this Plan is in effect, the Fund's sub-adviser or
administrator shall report at least quarterly to the Fund's Directors in writing
for their review on the following matters: (i) all costs of each item specified
in Sections 2 and 3 of this Plan (making estimates of such costs where necessary
or desirable) during the preceding calendar or fiscal quarter; and (ii) all fees
of the Fund to the sub-adviser or administrator paid or accrued during such
quarter.
6. Effectiveness, Continuation, Termination and Amendment. This Plan
originally went into effect when it was approved (i) by a vote of the Directors
of the Fund and of those Directors (the "Independent Directors") who, at the
time of such vote, were not "interested persons" as defined in the 1940 Act of
the Fund and had no direct or indirect financial interest in the operation of
this Plan or in any agreements related to this Plan, with votes cast in person
at a meeting called for the purpose of voting on this Plan; and (ii) by a vote
of holders of at least a "majority" (as so defined) of the outstanding voting
securities of the Fund. This plan has continued, and will, unless terminated as
hereinafter provided, continue in effect, until the one year anniversary next
succeeding such effectiveness, and from year to year thereafter only so long as
such continuance is specifically approved at least annually by the Fund's
Directors and its Independent Directors with votes cast in person at a meeting
called for the purpose of voting on such continuance. This Plan may be
terminated at any time by the vote of a majority of the Independent Directors or
by the vote of the holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund. This Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval as set forth in (ii) above, and all amendments must be approved in the
manner set forth in (i) above.
15(b)-2
<PAGE>
EXHIBIT 17
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT
Item Number Item Description Item Value
3(a) Net asset value per share -
beginning of period $10
3(a) Net investment income (loss)
per share 0
3(a) Net realized and unrealized
gain (loss) per share 0
3(a) Dividends per share from net
investment income 0
3(a) Distributions per share from
realized gains 0
3(a) Per share returns of capital
and distributions from other
sources 0
3(a) Net asset value per share -
end of period $10
3(a) Ratio of expenses to average
net assets 0
3(b) Average debt outstanding
during period 0
3(b) Average debt outstanding per
share 0
NOTE: Colorado Double Tax-Exempt Bond Fund, Inc. ("Fund") was incorporated on
August 29, 1996 and has had no operations since that date other than matters
relating to its organization and registration as a diversified, open-end
investment company under the 1940 Act and the Securities Act of 1933, as amended
and the sale and issuance of 5,000 shares of the Short-Intermediate Portfolio
and 5,000 shares of the Income Portfolio to Exempt Enterprise, Inc.
17-1
<PAGE>
[LETTERHEAD] ATLANTA
KANSAS CITY
KUTAK ROCK LITTLE ROCK
A PARTNERSHIP NEW YORK
INCLUDING PROFESSIONAL CORPORATIONS NEWPORT BEACH
SUITE 2900 OKLAHOMA CITY
717 SEVENTEENTH STREET OMAHA
DENVER, COLORADO 80202-3329 PHOENIX
(303) 297-2400 PITTSBURGH
FACSIMILE (303) 292-7799 WASHINGTON
June 6, 1997
Mary A. Cole, Esq., Mail Stop 10-5
Division of Investment Management
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Colorado Double Tax-Exempt Bond Fund, Inc.
File No. 333-20287
Form N-1A filed; Pre-Effective Amendment No. 1
Dear Ms. Cole:
On behalf of Colorado Double Tax-Exempt Bond Fund, Inc. (the "Company"), we
are filing herewith Pre-effective Amendment No. 1 to the above referenced
registration statement (the "Registration Statement"). On behalf of the Company,
we have responded below to the comments of the Staff (the "Staff") of the
Securities and Exchange Commission (the "Commission") set forth in its letter
dated January 31, 1997.
The numbered paragraphs below correspond to the numbered comments from the
Staff in its letter dated January 31, 1997.
1
<PAGE>
U.S. Securities and
Exchange Commission
June 6, 1997
Page 2
1. The Company has complied with this comment by revising the facing page
of the Registration Statement to include the required language.
2. The Company has complied with this comment by revising the language on
page 1 of the Prospectus.
3. The Company has complied with this comment by revising the language on
page 1 of the Prospectus.
4. The Company has complied with this comment by revising the language on
pages 2 and 3 of the Prospectus.
5. The Company has responded to this comment revising the disclosure on
page 17 of the Prospectus and page 19 of the Statement of Additional
Information.
We would appreciate a response to this Pre-Effective Amendment No. 1 as
soon as possible, since the Company currently anticipates requesting
acceleration of the effective date of the Registration Statement prior to June
20, 1997. We greatly appreciate your attention to this matter, and if you have
any questions on the filing please do not hesitate to contact the undersigned.
Sincerely yours,
/s/ Robert J. Ahrenholz
...........................
Robert J. Ahrenholz
kj
cc: Calvin F. Isaak
2
<PAGE>
