File No. 33-91428
Reg. ICA No. 811-9030
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. 3 |_|
Post-Effective Amendment No. |_|
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 3 |_|
LM CAPITAL INVESTMENTS TRUST
(Exact Name of Registrant as Specified in Charter)
312 Walnut Street
Cincinnati, Ohio 45202
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (513) 629-2000
Susan Penry-Williams, Esq.
Louis S. Citron, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
(Name and Address of Agent for Service)
Copy to:
Mr. Leslie M. Corley
515 North Flagler Drive
West Palm Beach, Florida 33401
Approximate date of proposed public offering: As soon as practicable
after this registration statement becomes effective.
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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>
CROSS-REFERENCE SHEET
(Pursuant to Rule 404 showing location in each form of Prospectus of
the responses to the Items in Part A and location in each form of Prospectus and
the Statement of Additional Information of the responses to the Items in Part B
of Form N-1A).
LM CAPITAL EVOLVING VENTURE FUND
Item Number
Form N-1A,
Part A Prospectus Caption
------ ------------------
1 Front Cover Page
2(a) Summary
(b) Summary
3(a) Not Applicable
(b) Not Applicable
(c) Summary
(d) Not Applicable
4(a) General Information;
Investment Objective,
Policies & Risks
(c) Investment Objective,
Policies & Risks; Additional
Investment Strategies,
Policies & Risks
5(a) Management and Operations
of the Fund
(b) Management and Operations
of the Fund
(c) Management and Operations
of the Fund
(d) Management and Operations
of the Fund
(e) Management and Operations
of the Fund
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Item Number
Form N-1A,
Part A Prospectus Caption
------ ------------------
(f) Management and Operations
of the Fund
(g) Management and Operations
of the Fund
6(a) General Information
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
(e) Cover Page
(f) Dividends, Distributions and
Tax Matters
(g) Dividends, Distributions and
Tax Matters
7(a) How to Purchase Shares
(b) Terms and Conditions of
Purchase
(c) Terms and Conditions of
Purchase; Reduced Initial
Sales Charge
(d) How to Purchase Shares
(e) Not Applicable
(f) Management and Operations
of the Fund
8(a) How to Redeem Shares
(b) How to Redeem Shares
(c) Not Applicable
(d) How to Redeem Shares
9 Not Applicable
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LM CAPITAL EVOLVING VENTURE FUND
Item Number Statement of Additional
Part B Information Caption
------ -------------------
10 Front Cover Page
11 Front Cover Page
12 Not Applicable
13 Investment Strategies and Risks;
Investment Restrictions
14 The Management of the Fund
15(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
16(a) Investment Adviser and
Advisory Agreement
(b) Investment Adviser and
Advisory Agreement
(c) Distribution Agreement and
Marketing Plan
(d) See Prospectus - Management and
Operations of the Fund
(e) Investment Adviser and Advisory
Agreement
(f) Distribution Agreement and
Marketing Plan
(g) Not Applicable
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Item Number
Form N-1A, Statement of Additional
Part B Information Caption
------ -----------------------
(h) See Prospectus - General Information
(i) Not Applicable
17 Portfolio Transactions and Brokerage
18 Description of the Fund
19(a) Additional Purchase and Redemption
Information
(b) Computation of Net Asset Value
(c) Not Applicable
20 Tax Matters
21(a) Distribution Agreement and
Marketing Plan
(b) Not Applicable
(c) Not Applicable
22 Performance Calculation
23 Financial Statements
Part C
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Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
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<PAGE>
LM CAPITAL MUTUAL FUNDS
LM CAPITAL EVOLVING VENTURE FUND
LM CAPITAL INVESTMENTS TRUST
515 North Flagler Drive
West Palm Beach, Florida 33401
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About This Prospectus This Prospectus sets forth information concerning
LM Capital Investments Trust, an open-end
management investment company that currently
offers shares through LM CAPITAL EVOLVING VENTURE
FUND (the "EVOLVING VENTURE FUND"), an equity
mutual fund.
This Prospectus, dated ______, 1998, is designed
to provide you with information that you should
know before investing, and to help you decide if
the Evolving Venture Fund meets your investment
objectives. Please read this Prospectus carefully
before investing and keep it for future reference.
A Statement of Additional Information, dated ,
1998, has been filed with the Securities and
Exchange Commission and is incorporated herein by
reference. The Statement of Additional Information
is available without charge upon request by
calling 1-800-37-LMCAP (1-800-375-6227).
Investment Objectives THE EVOLVING VENTURE FUND'S investment objective
is to provide long- term growth of capital. To
achieve its objective, as a non-fundamental
policy, the Evolving Venture Fund will invest at
least 65% of its total assets in common stocks and
securities convertible into common stocks of
companies in "evolving stages of development", as
described on p. __ of this Prospectus.
AN INVESTMENT IN THE EVOLVING VENTURE FUND IS NOT
A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR
ENDORSED BY, A BANK, AND THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Summary
Investment Objective, Policies & Risks
Additional Investment Strategies, Policies & Risks
Management and Operations of the Fund
How to Purchase Shares
How to Redeem Shares
Terms and Conditions of Purchase
Reduced Initial Sales Charge
Dividends, Distributions and Tax Matters
General Information
LIKE ALL MUTUAL FUNDS THESE SECURITIES HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
SUMMARY
THE FUND LM Capital Investments Trust ("LM Capital
Investments") is a Delaware business trust
operating as an open-end, series, management
investment company. Currently, LM Capital
Investments offers the LM Capital Evolving Venture
Fund (the "Evolving Venture Fund" or the "Fund").
PURCHASING SHARES Shares of the Evolving Venture Fund are offered by
this Prospectus at net asset value plus any
applicable initial sales charge The minimum
initial investment is $2,500 and the minimum
additional investment is $250; the minimum initial
and additional investment through an Individual
Retirement Account is $250.The Distributor of the
Fund's shares is LM Capital Securities, Inc. ("LM
Capital Securities" or the "Distributor").
SUMMARY OF FUND EXPENSES The expense summary below was developed for use by
all mutual funds to help an investor make
investment decisions. This expense information
should be considered along with other important
information in this Prospectus, including the
Fund's investment objective.
A. SHAREHOLDER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases 4.50%
Sales Charge Imposed on Reinvested Dividends none
Deferred Sales Charge Imposed on Redemptions none
Redemption Fee none
Exchange Fee none
B. ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fee 1.00%
12b-1 Fee* .50%
Other Expenses** .48%
Total Fund Operating Expenses 1.98%
* As a result of distribution fees, a long-term
shareholder in the Evolving Venture Fund may pay
more than the economic equivalent of the maximum
front-end sales charge permitted by the Rules of
the National Association of Securities Dealers,
Inc.
**These expenses include legal fees, accounting
fees, transfer agent, administrative fees,
shareholder servicing fees, and custodial fees.
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C. EXAMPLE: You would pay the following
expenses on a $1,000 investment in the Fund,
assuming (1) a 5% annual return and (2) full
redemption at the end of each time period:
One Three
Year Years
---- -----
Evolving Venture Fund $ $
THE 5% RETURN AND EXPENSES SHOULD NOT BE
CONSIDERED INDICATIONS OF ACTUAL OR EXPECTED FUND
PERFORMANCE OR EXPENSES, BOTH OF WHICH MAY VARY.
EXPLANATION OF TABLE: The purpose of the table is
to assist you in understanding the various costs
and expenses that an investor in the Fund would
bear directly or indirectly. "Shareholder
Transaction Expenses" represent charges paid when
an investor purchases, redeems or exchanges shares
of the Fund. The "Estimated Annual Fund Operating
Expenses" summary shows the advisory fee, Rule
12b-1 fee and other operating expenses incurred by
the Fund. The "Example" set forth above assumes
that all dividends and other distributions are
reinvested and that the percentages under
"Estimated Annual Fund Operating Expenses" remain
the same in the years shown.
THE INVESTMENT ADVISER LM Capital Corporation ("LM Capital" or the
"Investment Adviser") serves as the Fund's
investment adviser. Under the terms of the Fund's
Investment Advisory Agreement (the "Advisory
Agreement"), the Investment Adviser supervises all
aspects of the Fund's operations and provides
investment advisory services to the Fund. As
compensation for these services, the Investment
Adviser receives a fee based on the Fund's average
daily net assets. LM Capital currently manages
partnerships for institutional investors which
invest in closely held leveraged buyout
investments and publicly traded securities. See
"Management and Operations of the Fund."
DISTRIBUTIONS The Evolving Venture Fund currently declares and
pays dividends from net investment income, if any,
on a semiannual basis, and makes distributions of
realized capital gains, if any, on an annual
basis. Dividends and distributions of the Fund may
be paid by check, or reinvested in additional
shares of the Fund. See "Dividends, Distributions
and Tax Matters."
REDEEMING SHARES Shareholders may redeem all or a portion of their
shares at net asset value at any time and without
charge. See "How to Redeem Shares."
PERFORMANCE The Fund may advertise total return, which
represents its overall change in value, including
changes in share price and assuming all the Fund's
dividends and capital gain distributions are
reinvested. A cumulative total return reflects the
Fund's performance over a stated period of time.
Average annual total return figures are annualized
and, therefore, represent the average annual
percentage change over the period in question. To
illustrate the components of overall performance,
the Fund may separate its cumulative and average
annual returns into income results and capital
gains or losses. A shareholder's investment in the
Fund is not insured or guaranteed. These factors
should be carefully considered by the investor
before making an investment in the Fund.
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From time to time, LM Capital Investments or its
affiliates may provide information including, but
not limited to, general economic conditions,
comparative performance data and rankings with
respect to comparable investments for the same
period and for unmanaged market indices such as
the Dow Jones Industrial Average and the Standard
and Poor's 500, and information from recognized
independent sources including Investors Business
Daily, Money, Forbes, Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc.,
Wiesenberger Investment Companies Services, Frank
Russell Company, Mutual Fund Values, Morningstar,
Mutual Fund Forecaster, Barron's, The Wall Street
Journal, Private Equity Analyst and Schabacker
Investment Management, Inc.
The performance of the Fund will vary from time to
time and past results are not necessarily
representative of future results. The Fund's
performance is a function of its portfolio
management in selecting the type and quality of
portfolio securities and is affected by operating
expenses of the Fund as well as by general market
conditions.
INVESTMENT OBJECTIVE, POLICIES & RISKS
The investment objective of the Fund is deemed to
be fundamental and may not be changed without the
approval of a majority of the Fund's outstanding
shares (as defined by the Investment Company Act
of 1940, as amended (the "1940 Act")). The Fund's
investment policies are non-fundamental and may be
changed by a majority of the Fund's Board of
Trustees. Individuals considering the purchase of
shares of the Fund should recognize that there are
risks in the ownership of any security and that no
assurance can be given that the Fund will attain
its investment objective.
INVESTMENT OBJECTIVE The Fund's investment objective is long term
AND POLICIES growth of capital. To achieve its objective, as a
non-fundamental policy the Fund will invest at
least 65% of its total assets in common stocks and
securities convertible into common stocks of
companies in "evolving stages of development". To
determine whether a company is in an "evolving
state of development", the Investment Adviser will
examine each potential investment for
characteristics that are indicative of significant
change within its organization. For this purpose,
at the time of the Fund's initial investment, such
companies would be (a) developing innovative
products or services that could create new markets
and therefore significantly effect future
earnings, (b) undergoing a recapitalization or
restructuring of operations, or (c) experiencing
significant changes in senior management (e.g.,
chief executive officer, chief operating officer,
or chief financial officer), ownership or capital
structure. It is the Investment Adviser's belief
that companies in "evolving stages of development"
are creating value that should result in increased
earnings and, accordingly, enhanced stock prices.
Up to 15% of the Evolving Venture Fund's assets
may be invested in private companies or limited
partnerships formed to invest in such private
companies ("Private Investments"). LM Capital
believes the Evolving Venture Fund's participation
in Private Investments offers individual investors
a unique opportunity for exposure to in venture
capital financing, providing access to investment
opportunities typically available only to pension
funds and other large institutional and accredited
investors. See "Additional Investment Strategies,
Policies & Risks - Illiquid Investments".
The Evolving Venture Fund may hold securities of
companies of any size. Although the Evolving
Venture Fund will invest primarily in U.S.
companies, up to 20% of the Evolving
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Venture Fund's assets may be invested in
securities of companies based in foreign
countries. Equity securities in which the Evolving
Venture Fund will invest are common stock,
preferred stock, warrants, securities convertible
or exchangeable into common stock, and partnership
interests.
The Evolving Venture Fund may engage in a variety
of strategies to reduce risk or enhance return
including engaging in short selling. The current
market value of the securities sold short will not
exceed 10% of the Fund's assets at the time of
such sale. See "Additional Investment Strategies,
Policies & Risks - Short Sales".
RISK CONSIDERATIONS An investor should be aware that there are risks
associated with certain investment techniques and
strategies employed by the Evolving Venture Fund,
including those relating to investments in foreign
securities. Risks related to investment in foreign
securities include among others currency
fluctuations, expropriation, confiscation,
diplomatic developments, social instability, and
withholding dividends at the source. In addition,
the Evolving Venture Fund invests in securities
that may not be popular during certain market
cycles, and may be subject to volatile price
changes.
The Evolving Venture Fund should be considered
only for the most aggressive portion of an
investor's portfolio and may not be appropriate
for all investors because of the nature of its
investments and certain strategies it may use,
such as investing in Private Investments. In
addition, venture capitalists may hold substantial
positions in companies that have been acquired at
prices significantly below their initial offering
price. This may create a potential adverse impact
in the short term on the market price of a
company's stock due to sales in the open market by
a venture capitalist or others who acquired the
stock at lower prices prior to the IPO. LM Capital
will consider the impact of such sales in
selecting investments, as well as the possible
involvement of venture capitalists in the affairs
of the companies in which the Evolving Venture
Fund invests.
ADDITIONAL INVESTMENT STRATEGIES, POLICIES & RISKS
BORROWING The Evolving Venture Fund may borrow funds for
temporary purposes by entering into reverse
repurchase agreements. Pursuant to such
agreements, the Fund would sell portfolio
securities to financial institutions such as banks
and broker-dealers, and agree to repurchase them
at a mutually agreed-upon date and price. Reverse
repurchase agreements involve the risk that the
market value of the securities sold by the Fund
may decline below the price at which the Fund is
obligated to repurchase the securities.
The Fund also may borrow money from banks
(including their custodian bank) or from other
lenders to the extent permitted under applicable
law, for temporary or emergency purposes and to
meet redemptions and may pledge their assets to
secure such borrowings.
SECURITIES LENDING In order to generate additional income, the
Evolving Venture Fund may, from time to time, lend
their portfolio securities to broker-dealers,
banks or institutional borrowers of securities.
Although the Fund will receive at least 100%
collateral in the form of cash or U.S. government
securities, lending securities may subject the
Fund to certain risks, such as delays or the
inability to regain the securities in the event
the borrower were to default on its lending
agreement or enter into bankruptcy.
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<PAGE>
REPURCHASE AGREEMENTS The Evolving Venture Fund may enter into
repurchase agreements. Pursuant to such
agreements, the Fund would buy portfolio
securities from financial institutions such as
banks and broker dealers, and agree to sell them
at a mutually agreed-upon price.
WHEN-ISSUED AND DELAYED The Evolving Venture Fund may purchase securities
DELIVERY PURCHASES AND SALES on a when issued basis and may purchase or sell
OF SECURITIES securities on a delayed delivery basis. When such
transactions are negotiated, the price is fixed at
the time the commitment is made, but delivery and
payment for the securities take place at a later
date which may be a month or more after the date
of the transaction. The market value for
securities purchased in this manner may change
before the delivery date, which could affect the
market value of the Fund's assets. Ordinarily, the
Fund will not earn interest on securities
purchased before they are delivered.
ILLIQUID SECURITIES The Evolving Venture Fund will not invest more
than 15% of its net assets in illiquid securities,
including repurchase agreements with maturities in
excess of seven days.
RESTRICTED SECURITIES The Evolving Venture Fund may invest in securities
that are subject to restrictions on resale because
they have not been registered under the Securities
Act of 1933 (the "1933 Act"). These securities are
sometimes referred to as private placements.
Although securities which may be resold only to
"qualified institutional buyers" in accordance
with the provisions of Rule 144A under the 1933
Act are technically considered "restricted
securities," the Fund may purchase Rule 144A
securities, along with other restricted
securities, without regard to the limitation on
investments in illiquid securities described above
provided that a determination is made by the
Investment Adviser, subject to the supervision of
the Fund's Board of Trustees, that such securities
have a readily available trading market.
FUTURES AND OPTIONS The Evolving Venture Fund may purchase and sell
TRANSACTIONS various kinds of futures contracts and write and
purchase call options and purchase put options on
such futures contracts, stock indexes or equity
securities; the Fund may also enter into closing
purchase and sale transactions with respect to any
of such contracts and options.
The use of futures and options involves certain
transaction costs and risks. While the Fund will
establish a future or option position only if
there appears to be a liquid secondary market
therefor, there can be no assurance that such a
market will exist for any particular futures or
option contract at any specific time. In addition,
the trading of futures and options on indexes
involves the additional risk of imperfect
correlation between movements in the future or
option price and the value of the underlying
index. Finally, it may not be possible to close
out a position held by the Fund, which could
require that the Fund purchase or sell the
instrument underlying the position, make or
receive a cash settlement, or meet ongoing
variation margin requirements.
FORWARD FOREIGN CURRENCY The Evolving Venture Fund may purchase or sell
EXCHANGE CONTRACTS forward foreign currency exchange contracts
("forward contracts") in order to manage
fluctuations in currency exchange rates. A forward
contract is an obligation to purchase or sell a
specific currency for an agreed price at a future
date which is individually negotiated and
privately traded by currency traders and their
customers. Unanticipated changes in currency
prices may result in poorer overall performance
for the Fund than if it had not entered into such
contracts.
SHORT SALES The Evolving Venture Fund may engage in the
technique of short selling. When the Investment
Adviser anticipates that the price of a security
will decline, it may sell the security short and
borrow the same security from a broker or other
institution to complete the sale. The Fund may
make a profit or incur a loss depending upon
whether the market price of the
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security decreases or increases between the date
of the short sale and the date on which the Fund
must replace the borrowed security.
All short sales must be fully collateralized, and
the Fund will not sell securities short if,
immediately after and as a result of the sale, the
value of all securities sold short by the Fund
exceeds 25% of its total assets. The Fund limits
short sales of any one issuer's securities to 2%
of its total assets and to 2% of any one class of
the issuer's securities.
PORTFOLIO TURNOVER It is anticipated that the annual portfolio
turnover rates for the Evolving Venture Fund
should not exceed ___%. A higher rate of portfolio
turnover will result in higher transaction costs,
including brokerage commissions. Also, to the
extent that portfolio turnover results in net
realized capital gains to the Fund, the portion of
the Fund's distributions constituting taxable
capital gains may increase.
TEMPORARY INVESTMENTS The Evolving Venture Fund does not intend to
engage in short-term trading on an ongoing basis.
However, when in the Investment Adviser's opinion,
abnormal economic or market conditions warrant a
temporary defensive position, the Fund may invest
up to 100% of its assets in U.S. government
securities such as Treasury bills, notes and
bonds; cash; or certificates of deposit, time
deposits, bankers' acceptances and other
"first-tier" as described herein, short-term debt
instruments.
MANAGEMENT AND OPERATIONS OF THE FUND
GOVERNANCE The overall management of the business and affairs
of the Fund is vested in LM Capital Investments'
Board of Trustees. The Board of Trustees approves
all significant agreements between LM Capital
Investments, on behalf of the Fund, and persons or
companies furnishing services to the Fund,
including the Fund's investment advisory agreement
with LM Capital, the Fund's agreement with LM
Capital Securities regarding distribution of the
Fund's shares, and other service providers. The
day-to-day operations of the Fund are delegated to
the officers of LM Capital Investments and to LM
Capital, subject always to the objectives and
policies of the Fund and to the general
supervision of LM Capital Investments' Board of
Trustees.
INVESTMENT ADVISER AND LM Capital, 515 North Flagler Drive, West Palm
ADVISORY AGREEMENT Beach, Florida 33401, serves as the investment
adviser to the Fund. Although LM Capital has no
previous experience in advising a mutual fund, LM
Capital has operated as an investment firm
specializing in closely held leveraged buyout
investments and investments in publicly traded
securities since 1988. LM Capital currently
manages two privately placed limited partnerships
for institutional investors and individuals.
The Fund's portfolio manager is Leslie M. Corley,
LM Capital's founder and chief investment officer.
For the last ten years Mr. Corley has been
assisted by Ricardo Corley in finding publicly
traded securities which are consistent with
investment strategies followed by LM Capital's
buyout efforts. Mr. Leslie M. Corley has over 25
years of investment experience . Prior to founding
LM Capital, Mr. Corley was a general partner for
seven years with Kelso & Company, a noted
leveraged buyout firm. Mr. Corley began his career
as a securities analyst with Fidelity Management &
Research Company in Boston, a position he held for
five years. Subsequently, he was manager of
mergers and acquisitions with Norton Simon, Inc.
for four years prior to joining Kelso & Company.
Mr. Corley earned an MBA from Harvard Business
School and a B.S. with high honors in Aeronautical
& Astronautical Engineering from the University of
Illinois.
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Under the terms of the Fund's Advisory Agreement,
LM Capital supervises all aspects of the Fund's
operations and provides investment advisory
services to the Fund, including the purchase and
sale of securities in the Fund's portfolio subject
at all times to the policies set forth by the
Board of Trustees. LM Capital is registered with
the Securities and Exchange Commission under the
Investment Advisers Act of 1940.
LM Capital receives a fee from the Evolving
Venture Fund, payable monthly, for the performance
of its services at an annual rate of 1.00% of the
average daily net assets of the Fund. The fee for
the Fund is accrued daily for purposes of
determining the offering and redemption price of
its shares. The advisory fee is higher than those
paid by most investment companies, but the Board
of Trustees believes it to be reasonable in light
of the services the Fund receives thereunder.
LM Capital may, from time to time, voluntarily
agree to defer or waive fees or absorb some or all
of the expenses of the Fund. To the extent LM
Capital should defer fees or absorb expenses, it
may seek repayment of such deferred or absorbed
expenses at a later date so long as the overall
expenses of the Fund are not greater than the
Total Fund Operating Expenses percentage found in
the table of Annual Fund Operating Expenses.
DISTRIBUTOR, DISTRIBUTION LM Capital Securities, Inc., a registered
PLAN AND RELATED AGREEMENTS broker-dealer affiliate of LM Capital, serves as
the Distributor of the shares of the Fund. The
address of LM Capital Securities is 515 North
Flagler Drive, West Palm Beach, Florida 33401.
Certain officers of LM Capital Investments are
affiliated with LM Capital Securities and LM
Capital. Under the terms of the Fund's
Distribution Agreement, LM Capital Securities has
the exclusive right to distribute shares of the
Fund through affiliated broker-dealers and through
other broker-dealers or financial institutions
with whom LM Capital Securities has entered into
selected dealer agreements.
The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act,
whereby the Fund may pay up to 0.50% per annum of
its average daily net assets for the purpose of
financing any activity which is primarily intended
to result in the sale of shares of the Fund,
including but not limited to: preparation and
distribution of advertising material and sales
literature; expenses of organizing and conducting
sales seminars; printing of prospectuses and
statements of additional information (and
supplements thereto) and reports for other than
existing shareholders; supplemental payments to
dealers under a dealer incentive program; and
costs of administering the Plan. For additional
information concerning the operation of the Plan,
see "Distribution Agreement and Marketing Plan" in
the Statement of Additional Information.
SHAREHOLDER SERVICING The Fund has adopted a Shareholder Servicing Plan.
PLAN In accordance with the Shareholder Servicing Plan,
the Fund may enter into Shareholder Service
Agreements under which it pays fees of up to
.25% of the average daily net assets for fees
incurred in connection with the personal service
and maintenance of accounts holding the shares of
the Fund. Such agreements are entered into between
the Fund and various shareholder servicing agents,
including the Distributor and its affiliates, and
other financial institutions and securities
brokers (each, a "Shareholder Servicing Agent").
Among the services provided by Shareholder
Servicing Agents are: answering customer inquiries
regarding account matters; assisting shareholders
in designating and changing various account
options; aggregating and processing purchase and
redemption orders and transmitting and receiving
funds for shareholder orders; transmitting, on
behalf of the Trust, proxy statements,
prospectuses and shareholder reports to
shareholders and tabulating proxies; processing
dividend payments and providing subaccounting
services for Fund shares held beneficially; and
providing such other services as the Fund or a
shareholder
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may request. Shareholder Servicing Agents may
periodically waive all or a portion of their
respective shareholder servicing fees.
ADMINISTRATOR AND Pursuant to an Administration Agreement,
ADMINISTRATION AGREEMENT Countrywide ("Countrywide"), serves as
administrator of the Fund. Under the
Administration Agreement, Countrywide supervises
the administration of all aspects of the Fund's
operations, including the provision of general
office facilities and, at the Fund's expense, the
provision of services of persons necessary to
perform such supervisory, administrative and
clerical functions as are needed to effectively
operate the Fund. For these services and
facilities, Countrywide receives a fee computed
and paid monthly at an annual rate of ___% of the
average daily net assets of the Fund, subject to
an annual minimum fee of $_____.
TRANSFER AGENT AND DIVIDEND Countrywide also serves as the Fund's transfer
PAYING AGENT agent and dividend paying agent. Countrywide
maintains an account for each shareholder of the
Fund (unless such accounts are maintained by
sub-transfer agents or processing agents) and
performs other transfer agency and related
functions. For these services, Countrywide will
receive an annual fee of $____ plus account
charges. The Fund will also reimburse Countrywide
for certain expenses incurred on behalf of the
Fund.
BROKERAGE ALLOCATION The Investment Adviser, subject to obtaining the
best price and execution, may allocate brokerage
transactions in a manner that takes into account
the sale of shares of the Fund. Generally, the
primary consideration in placing portfolio
securities transactions with broker-dealers for
execution is to obtain, and maintain the
availability of, execution at the best net price
available and in the most effective manner
possible. The Fund's brokerage allocation policies
may permit the Fund to pay a broker-dealer which
furnishes research services a higher commission
than that which might be charged by another
broker-dealer which does not furnish research
services, provided that such commission is deemed
reasonable in relation to the value of the
services provided to the Fund by such
broker-dealer. For a complete discussion of
portfolio transactions and brokerage allocation,
see "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
HOW TO PURCHASE SHARES
HOW TO OPEN AN ACCOUNT An investor may purchase shares of the Fund by
submitting a fully completed and signed New
Account Application form directly to LM Capital
Securities or through any dealer authorized by LM
Capital Securities to sell shares of the Fund. An
authorized dealer may charge a transaction fee for
the purchase. LM Capital Securities' mailing
address is: 515 North Flagler Drive, West Palm
Beach, Florida 33401. A New Account Application
accompanies this Prospectus. Checks mailed
directly to LM Capital Securities should be
payable to the LM Capital Evolving Venture Fund.
The minimum investment for initial purchases of
the Evolving Venture Fund is $2,500 except for
certain retirement accounts and participants in
the Pre-Authorized Investment Plan. The minimum
initial investment for an Individual Retirement
Account ("IRA") for the Fund is $250. There are no
minimum initial investment requirements for
participants in money- purchase/profit-sharing
plans, 401(k) plans, IRA/SEP, 403(b) plans or 457
(state deferred compensation) plans, or for
investment of dividends and distributions of the
Fund into any existing account. If you have any
questions or need extra applications call
1-800-37-LMCAP.
- 9 -
<PAGE>
HOW TO PURCHASE ADDITIONAL Additional shares may be purchased directly
SHARES through LM Capital Securities or through any
dealer who has entered into an agreement with LM
Capital Securities. Checks mailed directly to LM
Capital Securities should be payable to the LM
Capital Evolving Venture Fund and should be
accompanied by the stub from the confirmation form
previously sent to the shareholder or include a
letter giving the shareholder's name and account
number.
The minimum investment for additional purchases of
the Evolving Venture Fund is $250 except for
participants in the Pre-Authorized Investment
Plan. The minimum additional investment for
investment through an IRA is $250. There are no
minimum additional investment requirements for
participants in money-purchase/profit sharing
plans, 401(k), IRA/SEP, 403(b) or 457 plans. There
is no minimum investment requirement for
investment of dividends and distributions of the
Fund into any existing account.
To purchase additional shares of the Fund by a
wire transfer of funds, the following wire
instructions should be used:
ABA
Attn:
DDA _- -_
Fund Name/Reference Number
Shareholder Name
Shareholder Account Number
If wires are received after the close of the New
York Stock Exchange (currently 4:00 PM Eastern
time) or during a bank holiday, purchases will be
confirmed at the price determined on the next
business day of the Fund.
PRE-AUTHORIZED INVESTMENT An investor may establish a pre-authorized
PLAN investment plan whereby the investor's personal
bank account is automatically debited and Fund
account automatically credited with additional
full and fractional shares. This plan may be
authorized by attaching a canceled check to the
Account Application form and completing the
appropriate section of such form. Through the
pre-authorized investment plan, the minimum
initial investment in the Fund is $250 and the
minimum subsequent monthly investment is $25.
HOW TO REDEEM SHARES
DIRECT REDEMPTION Shares of the Fund may be redeemed directly
through LM Capital Securities or through any
dealer who has entered into an agreement with LM
Capital Securities. There is no redemption fee
imposed when shares are redeemed; however, dealers
may charge a transaction fee for the redemption.
REDEMPTIONS BY MAIL Redemption requests may be made in writing and
sent to either the transfer agent or LM Capital
Securities. Requests for redemption must include:
(a) signatures of each registered owner exactly as
the shares are registered; (b) the Fund, account
number and number of shares to be redeemed; (c)
share certificates, either properly endorsed or
accompanied by a duly executed stock power, for
the shares to be redeemed if such certificates
have been issued and the shares are not in the
custody of the transfer agent; (d) signature
guarantees, under circumstances as described
below; and (e) any additional documents that may
be required for redemption by corporations,
partnerships, trusts, or other entities. The
burden is on the shareholder to inquire as to
whether any additional documentation is required.
Any request not in proper form may be rejected and
in such case must be renewed in writing.
- 10 -
<PAGE>
In addition to these requirements, shareholders
who have invested in the Fund to establish an IRA
should include the following information along
with a written request for either partial or full
liquidation of fund shares: (a) a statement as to
whether or not the shareholder has attained age 59
1/2; and (b) a statement as to whether or not the
shareholder elects to have federal income tax
withheld from the proceeds of the liquidation.
REDEMPTIONS BY TELEPHONE Shareholders may request a redemption by telephone
by calling 1-800-37-LMCAP if they have selected
this option on their New Account Application or if
they have completed the telephone redemption
authorization form obtainable from LM Capital
Securities. The telephone redemption feature can
be used only if: (a) the redemption proceeds are
to be mailed to the pre-authorized bank account as
indicated on the New Account Application or
subsequent authorization; (b) there has been no
change of address of record on the account within
the preceding 30 days; (c) the shares to be
redeemed are not in certificate form; (d) the
person requesting the redemption can provide
proper identification information; and (e) the
proceeds of the redemption do not exceed $25,000.
Accounts in LM Capital Securities' prototype
retirement plans (such as IRA and IRA-SEP) or
403(b) plans are not eligible for the telephone
redemption option. LM Capital Securities has made
arrangements with certain dealers and investment
advisers to accept telephone instructions for the
redemption of shares. LM Capital Securities
reserves the right to impose conditions on these
dealers and investment advisers, including the
condition that they enter into agreements (which
contain additional conditions with respect to the
redemption of shares) with LM Capital Securities.
In order to protect itself and shareholders from
liability for unauthorized or fraudulent telephone
transactions, the Fund will use reasonable
procedures in an attempt to verify the identity of
a person making a telephone redemption request.
The Fund reserves the right to refuse a telephone
redemption request if it believes that the person
making the request is not the record owner of the
shares being redeemed, or is not authorized by the
shareholder to request the redemption.
Shareholders will be promptly notified of any
refused request for a telephone redemption. As
long as these normal identification procedures are
followed, neither the Fund nor its agents will be
liable for any loss, liability or cost which
results from acting upon instructions of a person
believed to be a shareholder with respect to the
telephone redemption privilege.
PAYMENT OF REDEEMED AMOUNT Payment of the proceeds of redeemed shares will be
made as soon as practicable, normally within seven
days following the redemption date. A charge for
special handling (such as wiring of funds or
expedited delivery services) may be made by the
transfer agent. The right of redemption may not be
suspended or the date of payment upon redemption
postponed except under unusual circumstances such
as when trading on the New York Stock Exchange is
restricted or suspended. Payment of the proceeds
of redemptions relating to shares for which checks
sent in payment have not yet cleared will be
delayed until it is determined that the check has
cleared, which may take up to fifteen days from
the date that the check is received.
SIGNATURE GUARANTEES A signature guarantee is designed to protect the
investor, the Fund, LM Capital Securities, and
their agents by verifying the signature of each
investor seeking to redeem or exchange shares of
the Fund. Signature guarantees are required in the
following circumstances: (1) redemptions by mail
of $25,000 or more; (2) redemptions by mail if the
proceeds are to be paid to someone other than the
name(s) in which the account is registered; (3)
written redemptions requesting proceeds to be sent
by wire; (4) redemptions requesting proceeds to be
sent to a new address or an address that has been
changed within the past 30 days; (5) requests to
transfer the registration of shares to another
owner; (6) telephone exchange and telephone
redemption authorizations of $25,000 or more; (7)
changes in previously designated
- 11 -
<PAGE>
wiring instructions; and (8) written redemptions
or exchanges of shares previously reported as
lost, whether or not the redemption amount is
under $25,000 or the proceeds are to be sent to
the address of record. These requirements may be
waived or modified upon notice to shareholders.
Acceptable guarantors include banks,
broker-dealers, credit unions, national securities
exchanges, savings associations and any other
organization, provided that such institution or
organization qualifies as an "eligible guarantor
institution" as that term is defined in rules
adopted by the Securities and Exchange Commission,
and further provided that such guarantor
institution is listed in one of the reference
guides contained in the transfer agent's current
Signature Guarantee Standards and Procedures. For
information regarding whether a particular
institution or organization qualifies as an
"eligible guarantor institution," an investor
should contact the Client Services Department of
LM Capital Securities.
TERMS AND CONDITIONS OF PURCHASE
DETERMINATION OF NET The net asset value per share (or share price) of
ASSET VALUE the Fund is determined at the close of the New
York Stock Exchange (currently 4:00 PM Eastern
time) on each "business day" of the Fund as
defined below. The net asset value per share is
calculated by subtracting the Fund's liabilities
from its assets and dividing the result by the
total number of Fund shares outstanding.
Securities for which market quotations are not
readily available are valued at fair value as
determined in good faith by or under the
supervision of the Fund's officers and in
accordance with methods which are specifically
authorized by its governing Board of Trustees.
Short-term obligations with maturities of 60 days
or less are valued at amortized cost as reflecting
fair value.
TIMING AND PRICING OF An investor whose purchase or redemption order is
PURCHASE AND REDEMPTION received by the Transfer Agent by 4: 00 PM Eastern
ORDERS time will acquire or redeem shares at the net
asset value set as of that day. An investor whose
purchase or redemption order is received by the
Transfer Agent after 4: 00 PM Eastern time will
acquire or redeem shares at the net asset value
set as of the next trading day. LM Capital
Securities is not responsible for any delay caused
by dealers in forwarding a purchase or redemption
order to the Transfer Agent. Any loss resulting
from the dealer's failure to submit an order on a
timely basis and within the prescribed time frame
will be borne by that dealer. A "business day" of
the Fund is any day on which the New York Stock
Exchange is open for business. It is expected that
the New York Stock Exchange will be closed during
the next twelve months on Saturdays and Sundays
and on the days on which New Year's Day,
Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and
Christmas Day are observed by the New York Stock
Exchange. The Fund will not accept requests which
specify a particular date for purchase or
redemption of shares or any other special
conditions.
PURCHASES BY CHECK An investor who uses a check to purchase shares
will be credited with the full number of shares
purchased at the time of receipt of the purchase
order, as previously described. If the check does
not clear, then the investor will be responsible
for any resulting loss to the Fund or to LM
Capital Securities.
- 12 -
<PAGE>
INITIAL SALES CHARGES Shares of the Fund may be purchased at its net
AND DEALER CONCESSIONS asset value plus an initial sales charge. The
following tables show the initial sales charge and
dealer concession at various investment levels for
the Evolving Venture Fund.
<TABLE>
<CAPTION>
Charge Up To Investment Of % Offering Price % Dealer Concession
-------------------------- ---------------- -------------------
<S> <C> <C> <C>
$25,000 4.50% 3.50%
$50,000 4.25% 3.25%
$75,000 4.00% 3.00%
$100,000 3.50% 2.75%
$250,000 2.50% 2.00%
$500,000 1.50% 1.00%
$1,000,000 1.00% 0.75%
$2,500,000 0.75% 0.50%
$5,000,000 0.50% 0.25%
$5,000,000+ 0.00% 0.00%
</TABLE>
Initial sales charges vary with the size of the
purchase as shown above. The reduced initial
charges apply to the aggregate of purchases of the
Fund made at one time by "any person", which term
includes an individual, spouse and children under
the age of 21, or a trustee or other fiduciary of
a trust, estate or fiduciary account.
Upon notice to dealers with whom it has a sales
agreement, LM Capital Securities may reallow up to
the full applicable sales charge and such dealer
may be deemed an "underwriter" under the
Securities Act of 1933, as amended, during such
periods. The Distributor may, from time to time,
provide promotional incentives to certain dealers
whose representatives have sold or are expected to
sell significant amounts of the Fund. At various
times, the Distributor may implement programs
under which a dealer's sales force may be eligible
to win cash or material awards for certain sales
efforts or under which the Distributor will
reallow an amount not exceeding the total
applicable sales charge on the sales generated by
the dealer during such programs to any dealer that
sponsors sales contests or recognition programs
conforming to criteria established by the
Distributor or participates in sales programs
sponsored by the Distributor. The Distributor may
provide marketing services to dealers with whom it
has sales agreements, consisting of written
informational material relating to sales incentive
campaigns conducted by such dealers for their
representatives.
PURCHASES AT NET ASSET VALUE There is no initial sales charge for "Qualified
Persons", which are active or retired Trustees,
officers, partners or employees (their spouses and
children under age 21) of (i) the Investment
Adviser and Distributor or any affiliates or
subsidiaries thereof (the Trustees, officers or
employees of which shall also include their
parents and siblings for all purchases of Fund
shares), (ii) dealers having a selected dealer
agreement with the Distributor, or (iii) trade
organizations to which the Investment Adviser or
an affiliate belongs.
Purchases of Fund shares also may be made with no
initial sales charge through a registered
investment adviser who has registered with the
Securities and Exchange Commission or appropriate
state authorities and who (a) clears such Fund
share transaction through a broker/dealer, bank or
trust company, (each of whom may impose
transaction fees with respect to such
transaction), or (b) purchases Fund shares for its
own account, or for an account for which the
investment adviser has discretion and is
authorized to make investment decisions.
s
- 13 -
<PAGE>
In addition, no initial sales charge will apply to
any purchase of the Fund by an investor through a
money-purchased profit sharing plan, 401(k) plan,
IRA/SEP, 403(b) plan or 457 (state deferred
compensation) plan.
Finally, shares of the Fund may be purchased at
net asset value by persons who have, within the
previous 30 days, redeemed their shares of the
Fund. The amount which may be purchased at net
asset value is limited to an amount up to, but not
exceeding, the net amount of redemption proceeds.
Such purchases may also be handled by a securities
dealer, who may charge the shareholder a fee for
this service.
The Fund reserves the right to cease offering
shares for sale at any time or to reject any order
for the purchase of shares.
REDUCED INITIAL SALES CHARGE
CUMULATIVE QUANTITY DISCOUNT Shares of the Fund may be purchased by any person
at a reduced initial sales charge which is
determined by (a) aggregating the dollar amount of
the new purchase and the greater of the
purchaser's total (i) net asset value or (ii) cost
of all shares of the Fund and (b) applying the
initial sales charge applicable to such aggregate.
The privilege of the cumulative quantity discount
is subject to modification or discontinuance at
any time with respect to all shares purchased
thereunder.
GROUP PURCHASES An individual who is a member of a qualified group
(as hereinafter defined) may also purchase shares
of the Fund at the reduced initial sales charge
applicable to the group taken as a whole. The
reduced initial sales charge is based upon the
aggregate dollar value of shares purchased and
still owned by the group plus the securities
currently being purchased and is determined as
stated under "Cumulative Quantity Discount". For
example, if members of the group had previously
invested and still held $90,000 of Fund shares and
now were investing $15,000, the initial sales
charge would be 3.5%. In order to obtain such
discount, the purchaser or investment dealer must
provide the transfer agent with sufficient
information, including the purchaser's total cost,
at the time of purchase to permit verification
that the purchaser qualifies for a cumulative
quantity discount, and confirmation that the order
is subject to such verification. Information
concerning the current initial sales charge
applicable to a group may be obtained by
contacting the Transfer Agent.
A qualified group is one which: (a) has been in
existence for more than six months; (b) has a
purpose other than acquiring Fund shares at a
discount; and (c) satisfies uniform criteria which
enables the Distributor to realize economies of
scale in its costs of distributing the shares. A
qualified group must have more than 10 members,
must be available to arrange for group meetings
between representatives of the Fund and the
members, and must agree to include sales and other
materials related to the Fund in its publications
and mailings to members at reduced or no cost to
the Distributor. This privilege is subject to
modification or discontinuance at any time with
respect to all shares purchased thereafter.
LETTER OF INTENT Investors may also qualify for reduced initial
sales charges by signing a Letter of Intent (the
"LOI"). This enables an investor to aggregate
purchases of the Fund with other investments in
the Fund during a 13-month period. The initial
sales charge is based on the total amount invested
during the 13-month period. All shares of the Fund
currently owned by the investor, plus the new Fund
purchases, if any, will be credited as purchases
(at their current offering prices on the date the
LOI is signed) toward completion of the LOI. A
90-day back-dating period can be used to include
earlier purchases at the investor's cost.
- 14 -
<PAGE>
The 13-month period would then begin on the date
of the first purchase during the 90-day period. No
retroactive adjustment will be made if purchases
exceed the amount indicated in the LOI. A
shareholder must notify the transfer agent or
Distributor whenever a purchase is being made
pursuant to an LOI. The LOI is not a binding
obligation on the investor to purchase the amount
indicated; however, on the initial purchase, if
required (or subsequent purchases if necessary),
5% of the dollar amount specified in the LOI will
be held in escrow by the transfer agent in shares
registered in the investor's name in order to
assure payment of the proper initial sales charge.
If total purchases pursuant to the LOI (less any
dispositions and exclusive of distributions on
such shares automatically reinvested) are less
than the amount specified, the investor will be
requested to remit to the transfer agent an amount
equal to the difference between the initial sales
charge and the initial sales charge applicable to
the aggregate purchases actually made. If not
remitted within 20 days after written request, an
appropriate number of escrowed shares will be
redeemed in order to realize the difference.
Investors will be paid distributions, either in
additional shares or cash, upon such escrowed
shares.
DIVIDENDS, DISTRIBUTIONS & TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS Net investment income of the Evolving Venture Fund
is declared and paid semiannually, normally in
June and December. The Evolving Venture Fund
distributes all or substantially all of its net
long term capital gains (if any) to shareholders
in December.
All dividends and distributions of the Fund are
automatically reinvested on the ex-dividend date
in full and fractional shares of the Fund.
Dividends and distributions will be reinvested at
the net asset value per share determined on the
ex-dividend date. Shareholders may elect, by
written notice to LM Capital Securities, to
receive such distributions, or the dividend
portion thereof, in cash, or to invest such
dividends and distributions in additional shares.
Changes in the form of dividend and distribution
payments may be made by the shareholder at any
time by notice to LM Capital Securities and are
effective as to any subsequent payment if such
notice is received by LM Capital Securities prior
to the record date of such payment. Any dividend
and distribution election remains in effect until
LM Capital Securities receives a revised written
election by the shareholder.
TAX MATTERS The Fund intends to qualify as a regulated
investment company by satisfying the requirements
under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), including the
requirements with respect to diversification of
assets, distribution of income and sources of
income. It is the Fund's policy to distribute to
shareholders all of its investment income (net of
expenses) and any capital gains (net of capital
losses) in accordance with the timing requirements
imposed by the Code, so that the Fund will satisfy
the distribution requirement of Subchapter M and
not be subject to Federal income taxes or the 4%
excise tax.
Distributions by the Fund of its net investment
income (including foreign currency gains and
losses) and the excess, if any, of its net
short-term capital gain over its net long-term
capital loss are taxable to shareholders as
ordinary income. Distributions by the Fund of the
excess, if any, of its net long-term capital gain
over its net short-term capital loss are
designated as capital gain dividends and are
taxable to shareholders as long-term capital
gains, regardless of the length of time
shareholders have held their shares.
- 15 -
<PAGE>
Distributions by the Fund which are taxable to
shareholders as ordinary income are treated as
dividends for Federal income tax purposes, but in
any year only the portion of such dividends paid
by the Evolving Venture Fund (which cannot exceed
the aggregate amount of qualifying dividends from
domestic corporations received by the Fund during
the year) may qualify for the 70%
dividends-received deduction for corporate
shareholders.
If the Fund fails to satisfy any of the Code
requirements for qualification as a regulated
investment company, it will be taxed at regular
corporate tax rates on all its taxable income
(including capital gains) without any deduction
for distributions to shareholders, and
distributions to shareholders will be taxable as
ordinary dividends (even if derived from the
Fund's net long-term capital gains) to the extent
of the Fund's current and accumulated earnings and
profits.
Distributions to shareholders will be treated in
the same manner for Federal income tax purposes
whether shareholders elect to receive them in cash
or reinvest them in additional shares. In general,
shareholders take distributions into account in
the year in which they are made. However,
shareholders are required to treat certain
distributions made during January as having been
paid by the Fund and received by shareholders on
December 31 of the preceding year. A statement
setting forth the Federal income tax status of all
distributions made (or deemed made) during the
year, and any foreign taxes "passed-through" to
shareholders, will be sent to shareholders
promptly after the end of each year.
Investors should be careful to consider the tax
implications of purchasing shares just prior to
the record date of an ordinary income dividend or
capital gain dividend. Those investors purchasing
shares just prior to an ordinary income or capital
gain dividend will be taxed on the entire amount
of the dividend received, even though the net
asset value per share on the date of such purchase
reflected the amount of such dividend.
If a shareholder is a non-resident alien or
foreign entity shareholder, ordinary income
dividends paid to such shareholder generally will
be subject to United States withholding tax at a
rate of 30% (or lower rate under an applicable
treaty). We urge non-United States shareholders to
consult their own tax adviser concerning the
applicability of the United States withholding
tax.
Under the back-up withholding rules of the Code,
shareholders may be subject to 31% withholding of
Federal income tax on ordinary income dividends,
capital gain dividends and redemption payments
made by the Fund. In order to avoid this back-up
withholding, shareholders must provide the Fund
with a correct taxpayer identification number
(which for an individual is usually his Social
Security number) and certify that the shareholder
is a corporation or otherwise exempt from or not
subject to back-up withholding.
The foregoing discussion of Federal income tax
consequences is based on tax laws and regulations
in effect on the date of this Prospectus, and is
subject to change by legislative or administrative
action. As the foregoing discussion is for general
information only, shareholders should also review
the more detailed discussion of Federal income tax
considerations relevant to the Fund that is
contained in the Statement of Additional
Information. In addition, shareholders should
consult with their own tax adviser as to the tax
consequences of investments in the Fund, including
the application of state and local taxes which may
differ from the Federal income tax consequences
described above.
- 16 -
<PAGE>
GENERAL INFORMATION
ABOUT THE FUND The Fund is a separate series of shares of LM
Capital Investments, a Delaware business trust
created on January 21,1 994 and registered under
the 1940 Act, as amended. The Fund operates as a
non-diversified, open-end management investment
company and expects to be treated as a regulated
investment company for federal income tax
purposes. The Fund continuously offer new shares
for sale to the public and stand ready to redeem
their outstanding shares for cash at their net
asset value.
CODE OF ETHICS The Code of Ethics of the Investment Adviser and
the Fund prohibits all affiliated personnel from
engaging in personal investment activities which
compete with or attempt to take advantage of the
Fund's planned portfolio transactions. The
objective of the Code of Ethics of both the Fund
and Investment Adviser is that their operations
with respect to the Fund be carried out for the
exclusive benefit of the Fund's shareholders. Both
organizations maintain careful monitoring of
compliance with the Code of Ethics.
INDEPENDENT ACCOUNTANTS _______________ serves as Independent Accountants
to LM Capital Investments. Generally, the
Independent Accountants will audit the financial
statement and the financial highlights of the
Fund, as well as provide reports to the Trustees.
CUSTODIAN Starbank, [address], serves as the Custodian of
the Fund. Generally, the Custodian holds the
securities, cash and other assets of the Fund.
- 17 -
<PAGE>
INVESTMENT ADVISER
LM Capital Corporation
515 North Flagler Drive
West Palm Beach, FL 33401
PRINCIPAL UNDERWRITER & SERVICE ADMINISTRATOR
LM Capital Securities, Inc.
515 North Flagler Drive
West Palm Beach, Florida 33401
INDEPENDENT AUDITORS
TRANSFER AGENT & CUSTODIAN
LEGAL COUNSEL
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
BOARD OF TRUSTEES
J. BRUCE LLEWELLYN
Chairman & Chief Executive Officer, Philadelphia Coca Cola Bottling Co., and
Queen City Broadcasting Co. Chairman, U.S. Small Business Administration
Advisory Committee on Small Business Director, Chemical Banking Corporation,
Adolph Coors Brewing Company, C-Span, Essence Communications, Inc., QVC/Home
Shopping Network, Inc., International Peace Academy, Museum of Television and
Radio, New York Law School, and New York Medical College New York, NY
LOUIS J. GANEM
Retired former Assistant National Sales Manager for
John Hancock Mutual Funds
West Palm Beach, FL
JOHN HALL
President, Miami Ventures Management Company
A wholly owned subsidiary of The Beacon Council
Miami, FL
- 18 -
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
LM CAPITAL INVESTMENTS TRUST
515 North Flagler Drive
West Palm Beach, Florida
- --------------------------------------------------------------------------------
LM CAPITAL INVESTMENTS TRUST, a Delaware business trust, is an open-end
management investment company that currently offers shares through LM CAPITAL
EVOLVING VENTURE FUND (the "Evolving Venture Fund") (the "Fund"). The Fund's
investment objective is long term growth of capital. To achieve its objective ,
as a non-fundamental policy, the Fund will invest at least 65% of its total
assets in common stocks and securities convertible into common stocks of
companies in "evolving stages of development," as defined in the Prospectus to
the Fund. AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE
UNITED STATES GOVERNMENT. This Statement of Additional Information is not a
prospectus but should be read in conjunction with the current prospectus dated
_______________, 1998 (the "Prospectus"), pursuant to which the Evolving Venture
Fund, is offered. Please retain this document for future reference.
- --------------------------------------------------------------------------------
To obtain the Prospectus please call the Funds at 1-800-37-LMCAP
- --------------------------------------------------------------------------------
Table of Contents
-----------------
Page No.
--------
Investment Strategies and Risks................................................
Investment Restrictions........................................................
Portfolio Transactions and Brokerage...........................................
Computation of Net Asset Value.................................................
Performance Calculation........................................................
Additional Purchase and Redemption Information.................................
Tax Matters....................................................................
The Management of the Fund.....................................................
Investment Adviser and Advisory Agreements.....................................
Distribution Agreement and Marketing Plan ...................................
Description of the Fund........................................................
Financial Statements...........................................................
Investment Adviser
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LM Capital Corporation
Distributor
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LM Capital Securities, Inc.
Custodian
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Star Bank
Transfer Agent
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Countrywide
Counsel
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Kramer, Levin, Naftalis & Frankel
Independent Accountants
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Dated: ___________, 1998
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INVESTMENT STRATEGIES AND RISKS
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NON-FUNDAMENTAL INVESTMENT STRATEGIES AND RISKS APPLICABLE TO THE FUND
The Fund has adopted the following non-fundamental investment polices
which may be changed by vote of the Board of Trustees.
1. LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, the Fund may lend its portfolio securities in an amount up to 33-1/3% of
its total assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. The borrower at all times during the loan
must maintain with the lending Fund cash or cash equivalent collateral equal in
value at all times to at least 100% of the value of the securities loaned.
During the time portfolio securities are on loan, the borrower pays the Fund any
dividends or interest paid on such securities, and the Fund may invest the cash
collateral and earn additional income, or it may receive an agreed-upon amount
of interest income from the borrower who has delivered equivalent collateral.
Loans are subject to termination at the option of the lending Fund or the
borrower at any time. The Fund will have the right to regain record ownership of
loaned securities to exercise beneficial rights, such as voting rights and
subscription rights. The Fund may pay reasonable administrative and custodial
fees in connection with a loan and may pay a negotiated portion of the income
earned on the cash to the borrower or placing broker. There is the risk of
failure by the borrower to return the securities involved in such transaction.
2. REPURCHASE AGREEMENTS. The Fund may enter into repurchase
agreements. Under a repurchase agreement, the Fund acquires a debt instrument
for a relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and such Fund to resell such debt
instrument at a fixed price. The resale price is in excess of the purchase price
in that it reflects an agreed-upon market interest rate effective for the period
of time during which the Fund's money is invested. The Fund's risk is limited to
the ability of the seller to pay the agreed-upon sum upon the delivery date.
When the Fund enters into a repurchase agreement, it obtains collateral having a
value at least equal to the amount of the purchase price. Repurchase agreements
can be considered loans as defined by the Investment Company Act of 1940, as
amended (the "1940 Act") collateralized by the underlying securities. The return
on the collateral may be more or less than that from the repurchase agreement.
The securities underlying a repurchase agreement will be marked to market every
business day and the value of the collateral maintained will at least equal to
the value of the loan, including the accrued interest earned. In evaluating
whether to enter into a repurchase agreement, the creditworthiness of the seller
will be carefully considered. If the seller defaults and the value of the
collateral securing the repurchase agreement declines, the Fund may incur a
loss.
3. ILLIQUID SECURITIES. The Fund will not invest in illiquid securities
if immediately after such investment more than 15% of the Fund's net assets
(taken at market value) would be invested in such securities. For this purpose,
illiquid securities include (a) securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual restrictions on
resale, (b) participation interests in loans that are not subject to puts, and
(c) repurchase agreements not terminable within seven days.
4. RESTRICTED SECURITIES. Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended ("Securities Act"). Securities that have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly
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or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act applicable to resales of certain securities to qualified institutional
buyers.
The Fund may invest up to 15% of its total assets in restricted
securities issued under Section 4(2) of the Securities Act, which exempts from
registration "transactions by an issuer not involving any public offering".
Section 4(2) instruments are restricted in the sense that they can only be
resold through the issuing dealer and only to institutional investors; they
cannot be resold to the general public without registration.
The Investment Adviser will monitor the liquidity of restricted
securities in the Fund's portfolio under the supervision of the Fund's Trustees.
In reaching liquidity decisions, the Investment Adviser will consider, inter
alia, the following factors: (1) the frequency of trades and quotes for the
security; (2) the number of dealers wishing to purchase or sell the security and
the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
5. U.S. GOVERNMENT SECURITIES. The Fund may purchase securities of the
U.S. Government, its agencies and instrumentalities. U.S. Government securities
include direct obligations issued by the United States Treasury, such as
Treasury bills, certificates of indebtedness, notes and bonds. U.S. Government
agencies and instrumentalities that issue or guarantee securities include, but
are not limited to, the Federal Home Loan Bank, the Federal National Mortgage
Association and the Student Loan Marketing Association. Except for U.S. Treasury
securities, obligations of U.S. Government agencies and instrumentalities may or
may not be supported by the full faith and credit of the United States. Some,
such as those of the Federal Home Loan Bank, are backed by the right of the
issuer to borrow from the Treasury; others by discretionary authority of the
U.S. Government to purchase the agencies' obligations; while still others, such
as the Student Loan Marketing Association, are supported only by the credit of
the instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment
and may not be able to assert a claim against the United States itself in the
event the agency or instrumentality does not meet its commitment.
6. "WHEN-ISSUED" AND DELAYED DELIVERY TRANSACTIONS. The Fund may
purchase securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed delivery" basis. Although the Fund will enter into such
transactions for the purpose of acquiring securities for its portfolio or, for
delivery pursuant to options contracts the Fund has entered into, the Fund may
dispose of a commitment
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prior to settlement. "When-issued" or "delayed delivery" refers to securities
whose terms and indenture are available and for which a market exists, but which
are not available for immediate delivery. When such transactions are negotiated,
the price (which is generally expressed in yield terms) is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. The Fund does not intend to make such purchases for speculative
purposes. Such securities may bear interest at a lower rate than longer-term
securities. The commitment to purchase a security for which payment will be made
on a future date may be deemed a separate security and involve a risk of loss if
the value of the security declines prior to the settlement date. During the
period between commitment by the Fund and settlement (generally within two
months but not to exceed 120 days), no payment is made for the securities
purchased by the purchaser, and no interest accrues to the purchaser from the
transaction. Such securities are subject to market fluctuation; the value at
delivery may be less than the purchase price. The Fund will maintain a
segregated account with its custodian, consisting of cash, U.S. Government
securities or other high grade debt obligations at least equal to the value of
purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of entering
into the obligation. When the Fund engages in when- issued or delayed delivery
transactions, it 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 losing the opportunity to obtain a price and yield considered to be
advantageous. At the time the Fund makes a commitment to purchase or sell a
security on a when-issued or forward commitment basis, it records the
transaction and reflects the value of the security purchased, or if a sale, the
proceeds to be received, in determining its net asset value. If the Fund chooses
to (i) dispose of the right to acquire a when-issued security prior to its
acquisition or (ii) dispose of its right to deliver or receive against a forward
commitment, it may incur a gain or loss.
When-issued transactions and forward commitments allow the Fund a
technique to use against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling prices, the Fund might
sell securities in its portfolio on a forward commitment basis to attempt to
limit its exposure to anticipated falling prices. In periods of falling interest
rates and rising prices, the Fund might sell portfolio securities and purchase
the same or similar securities on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher cash yields. Changes in
interest rates before settlement in a direction other than that expected by the
Investment Adviser will affect the value of such securities and may cause a loss
to the Fund.
INVESTMENT STRATEGIES AND RISKS APPLICABLE TO THE EVOLVING VENTURE FUND
7. FORWARDS, FUTURES AND OPTIONS.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. The Fund may purchase
covered put options to protect its portfolio holdings in an underlying security
against a decline in market value. Such hedge protection is provided during the
life of the put option since the Fund, as holder of the put option, is able to
sell the underlying security at the put exercise price regardless of any decline
in the underlying security's market price. In order for a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs. By using put options in this manner, the Fund will reduce any profit it
might otherwise have realized in its underlying security by the premium paid for
the put option and by transaction costs, but it will retain the ability to
benefit from future increases in market value.
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The Fund may also purchase covered call options to hedge against an
increase in prices of securities it wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Fund, as
holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. By using call options in this manner, the Fund
will reduce any profit it might have realized had it bought the underlying
security at the time it purchased the call option by the premium paid for the
call option and by transactions costs, but it limits the loss it will suffer if
the security declines in value to such premium and transaction costs.
The Fund may also purchase put or call options on futures contracts or
stock index futures contracts. Futures contracts and stock index futures
contracts are described below.
WRITING COVERED CALL OPTIONS ON SECURITIES. The Fund may write covered
call options on optionable securities of the types in which they are permitted
to invest from time to time as determined appropriate in seeking to attain its
objective. Call options written by the Fund gives the holder the right to buy
the underlying securities from the Fund at a stated exercise price.
The Fund will receive a premium for writing a covered call option,
which increases the Fund's return in the event the option expires unexercised or
is closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a covered call option, the
Fund limits its opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option.
The Fund may terminate an option that it has written prior to the
option's expiration by entering into a closing purchase transaction in which an
option is purchased having the same terms as the option written. The Fund will
realize a profit or loss from such transaction if the cost of such transaction
is less or more than the premium received from the writing of the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by the Fund.
FUTURES CONTRACTS. The Fund may enter into futures contracts. The
purpose of entering into a futures contract is to protect the Fund from
fluctuations in the value of its portfolio securities or to hedge against an
increase in prices of certain securities without necessarily buying or selling
the securities. Of course, because the value of portfolio securities will far
exceed the value of the futures contracts sold by the Fund, an increase in the
value of the futures contracts could only mitigate but not totally offset the
decline in the value of the Fund's assets. No consideration is paid or received
by the Fund upon entering into a futures contract. Upon entering into a futures
contract, the Fund will be required to deposit in a segregated account with its
custodian an amount of cash or cash equivalents, such as U.S. Government
securities or high grade debt obligations, equal to approximately 1% to 10% of
the contract amount (this amount is subject to change by the exchange on which
the contract is traded and brokers may charge a higher amount). This amount is
known as "initial margin" and is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
The broker will have access to amounts in the margin account if the Fund fails
to meet its contractual obligations. Subsequent payments, known as "variation
margin," to and from the broker, will be made daily as the price of the currency
or securities underlying the futures contract
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fluctuates, making the long and short positions in the futures contract more or
less valuable, a process known as "marking-to-market." At any time prior to the
expiration of a futures contract, the Fund may elect to close the position by
taking an opposite position, which will operate to terminate the Fund's existing
position in the contract.
There are several risks in connection with the use of futures contracts
as a hedging device. Successful use of futures contracts is subject to the
ability of Fund management to predict correctly movements in the price of the
securities or currencies underlying the particular hedge. These predictions and,
thus, the use of futures contracts involve skills and techniques that are
different from those involved in the management of the portfolio securities
being hedged. In addition, there can be no assurance that there will be a
correlation between movements in the price of the underlying securities and
movements in the price of the securities which are the subject of the hedge. A
decision concerning whether, when and how to hedge involves the exercise of
skill and judgment and even a well-conceived hedge may be unsuccessful to some
degree because of unexpected market behavior or trends in interest rates.
Positions in futures contracts may be closed out only on the exchange
on which they were entered into (or through a linked exchange). No secondary
market for such contracts exists. Although the Fund intends to enter into
futures contracts only if there is an active market for such contracts, there is
no assurance that an active market will exist for the contracts at any
particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. It is possible that futures contract prices could
move to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting the Fund to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the Fund's securities being hedged, if any, may partially or
completely offset losses on the futures contract. However, as described above,
there is no guarantee that the price of the securities being hedged will, in
fact, correlate with the price movements in a futures contract and thus provide
an offset to losses on the futures contract.
If the Fund has hedged against the possibility of an event adversely
affecting the value of securities held in its portfolio and that event does not
occur, the Fund will lose part or all of the benefit of the increased value of
securities which it has hedged because it will have offsetting losses in its
futures positions. Losses incurred in hedging transactions and the costs of
these transactions will affect the Fund's performance. In addition, in such
situations, if the Fund had insufficient cash, it might have to sell securities
to meet daily variation margin requirements at a time when it would be
disadvantageous to do so. These sales of securities could, but will not
necessarily, be at increased prices which reflect the change in interest rates
or currency values, as the case may be.
The Fund may not enter into futures transactions if the sum of the
amount of initial margin deposits on its existing futures contracts would exceed
5% of the fair market value of the Fund's total assets. The Fund will not use
leverage when it enters into long futures contracts and for each such long
position the Fund will deposit cash or cash equivalents, such as U.S. Government
securities or high grade debt obligations, having a value equal to the
underlying commodity value of the contract as collateral with its custodian in a
segregated account.
STOCK INDEX FUTURES CONTRACTS. The Fund may enter into stock index
futures contracts. The Fund will enter into these transactions for bona fide
hedging purposes, i.e., in order to hedge against changes
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in prices of the Fund's securities. A stock index futures contract is an
agreement pursuant to which one party agrees to deliver to the other an amount
of cash equal to a specific dollar amount times the difference between the value
of a specific stock index at the close of the last trading day of the contract
and the price at which the agreement is made. No physical delivery of securities
is made. If general stock market prices are expected to rise, the Fund might
purchase a stock index futures contract as a hedge against an increase in prices
of particular equity securities it wanted ultimately to buy. If in fact the
stock index did rise, the price of the equity securities intended to be
purchased might also increase, but that increase would be offset in part by the
increase in the value of the Fund's futures contract resulting from the increase
in the index. On the other hand, if general stock market prices are expected to
decline, the Fund might sell a futures contract on the index. If that index did
in fact decline, the value of some or all of the equity securities held by the
Fund might also be expected to decline, but that decrease would be offset in
part by the increase in the value of the futures contract. Transactions are
covered by owning or having the right to acquire corresponding securities or by
maintenance of a cash segregated account pursuant to applicable provisions and
staff interpretations of the 1940 Act. For a discussion of the general treatment
and risks related to futures contracts, see "Futures Contracts" in this
Statement of Additional Information.
FORWARD CONTRACTS. The Fund may enter into foreign currency exchange
contracts ("forward contracts"), which obligate the seller to deliver and the
purchaser to take a specific amount of foreign currency at a specific future
date for a fixed price. A forward contract involves bilateral obligations of one
party to purchase, and another party to sell, a specific currency at a future
date (which may be any fixed number of days from the date of the contract agreed
upon by the parties), at a price set at the time the contract is entered into.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. The Fund
may enter into a forward contract in order to "lock in" the U.S. dollar price of
a security denominated in a foreign currency which it has purchased or sold but
which has not yet settled, or to protect against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and a foreign
currency. There is a risk that use of forward contracts may reduce the gain that
would otherwise result from a change in the relationship between the U.S. dollar
and a foreign currency. Forward contracts include standardized foreign currency
futures contracts which are traded on exchanges and are subject to procedures
and regulations applicable to other futures. The Fund may also enter into a
forward contract to sell a foreign currency denominated in a currency other than
that in which the underlying security is denominated. This is done in the
expectation that there is a greater correlation between the foreign currency of
the forward contract and the foreign currency of the underlying investment than
between the U.S. dollar and the foreign currency of the underlying investment.
This technique is referred to as "cross hedging." The success of cross hedging
is dependent on many factors, including the ability of the Investment Adviser to
correctly identify and monitor the correlation between foreign currencies and
the U.S. dollar. To the extent that the correlation is not identical, the Fund
may experience losses or gains on both the underlying security and the cross
currency hedge.
The Fund may use forward contracts to protect against uncertainty in
the level of future exchange rates. The use of forward contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund owns
or intends to acquire, but it does fix a rate of exchange in advance. In
addition, although forward contracts limit the risk of loss due to a decline in
the value of the hedged currencies, at the same time they limit any potential
gain that might result should the value of the currencies increase.
There is no limitation as to the percentage of the Fund's assets that
may be committed to foreign currency exchange contracts. The Fund does not enter
into such forward contracts or maintain a net exposure in such contracts to the
extent that the Fund would be obligated to deliver an amount of foreign currency
in excess of the value of the Fund's assets denominated in that currency, or
enter into a "cross
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hedge," unless it is denominated in a currency or currencies that the Investment
Adviser believes will have price movements that tend to correlate closely with
the currency in which the investment being hedged is denominated. See "Tax
Status" below for a discussion of the tax treatment of foreign currency exchange
contracts.
The Fund may enter into forward contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency,
or when the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such payment by entering into a forward contract, for
a fixed amount of U.S. dollars per unit of foreign currency, for the purchase or
sale of the amount of foreign currency involved in the underlying transaction
("transaction hedge"). The Fund will thereby be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
currency exchange rates during the period between the date on which the security
is purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
The Fund may also use forward contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a substantial
decline against the U.S. dollar, it may enter into a forward sale contract to
sell an amount of that foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency, or when
the Fund believes that the U.S. dollar may suffer a substantial decline against
a foreign currency, it may enter into a forward purchase contract to buy that
foreign currency for a fixed dollar amount. In this situation the Fund may, in
the alternative, enter into a forward contract to sell a different foreign
currency for a fixed U.S. dollar amount where the Fund believes that the U.S.
dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross hedge").
The Fund's custodian will place cash or U.S. Government securities or
other liquid high-quality debt securities in a separate account of the Fund
having a value equal to the aggregate amount of the Fund's commitments under
forward contracts entered into with respect to position hedges and cross hedges.
If the value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account on a daily basis so
that the value of the account will equal the amount of the Fund's commitments
with respect to such contracts. As an alternative to maintaining all or part of
the separate account, the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price, or the Fund may purchase a
put option permitting the Fund to sell the amount of foreign currency subject to
a forward purchase contract at a price as high or higher than the forward
contract price. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the forward contract
is entered into and the date it is sold. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.
The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term
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hedging strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transactions costs.
At or before the maturity of a forward contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, the Fund may
close out a forward contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting forward contract
under either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The cost to the Fund of engaging in forward contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward contracts are usually
entered into on a principal basis, no fees or commissions are involved. Because
such contracts are not traded on an exchange, the Fund must evaluate the credit
and performance risk of each particular counterparty under a forward contract.
Although the Fund value its assets daily in terms of U.S. dollars, they
do not intend to convert their holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Foreign exchange
dealers do not charge a fee for conversion, but they do seek to realize a profit
based on the difference between the prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
ADDITIONAL RISK FACTORS ASSOCIATED WITH FORWARDS, FUTURES AND OPTIONS.
In addition to any risk factors which may be described above, the following sets
forth certain information regarding the potential risks associated with the
Fund's futures and options transactions and forward contracts.
Risk of Imperfect Correlation. The Fund's ability to hedge effectively
all or a portion of its portfolio through transactions in futures, options on
futures or options on securities and indexes depends on the degree to which
movements in the value of the securities or index underlying such hedging
instrument correlate with movements in the value of the relevant portion of the
Fund's portfolio. If the values of the portfolio securities being hedged do not
move in the same amount or direction as the underlying security or index, the
hedging strategy for the Fund might not be successful and the Fund could sustain
losses on its hedging transactions which would not be offset by gains on its
portfolio. It is also possible that there may be a negative correlation between
the security or index underlying a futures or option contract and the portfolio
securities being hedged, which could result in losses both on the hedging
transaction and the portfolio securities. In such instances, the Fund's overall
return could be less than if the hedging transactions had not been undertaken.
Stock index futures or options based on a narrower index of securities may
present greater risk than options or futures based on a broad market index, as a
narrower index is more susceptible to rapid and extreme fluctuations resulting
from changes in the value of a small number of securities. The Fund would,
however, effect transactions in such futures or options only for hedging
purposes (or to close out open positions).
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The trading of futures and options on indexes involves the additional
risk of imperfect correlation between movements in the futures or option price
and the value of the underlying index. The anticipated spread between the prices
may be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase of
an option on a futures contract also involves the risk that changes in the value
of underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that the Fund will not
be able to establish hedging positions, or that any hedging strategy adopted
will be insufficient to completely protect the Fund.
The Fund will purchase or sell futures contracts or options only if, in
the Investment Adviser's judgment, there is expected to be a sufficient degree
of correlation between movements in the value of such instruments and changes in
the value of the relevant portion of the Fund's portfolio for the hedge to be
effective. There can be no assurance that the Investment Adviser's judgment will
be accurate.
Potential Lack of a Liquid Secondary Market. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation margin
requirements. This could require the Fund to post additional cash or cash
equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures or options market may be lacking. Prior to exercise or expiration, a
futures or option position may be terminated only by entering into a closing
purchase or sale transaction, which requires a secondary market on the exchange
on which the position was originally established. While the Fund will establish
a futures or option position only if there appears to be a liquid secondary
market therefor, there can be no assurance that such a market will exist for any
particular futures or option contract at any specific time. In such event, it
may not be possible to close out a position held by the Fund, which could
require the Fund to purchase or sell the instrument underlying the position,
make or receive a cash settlement, or meet ongoing variation margin
requirements. The inability to close out futures or option positions also could
have an adverse impact on the Fund's ability effectively to hedge its portfolio,
or the relevant portion thereof.
The liquidity of a secondary market in a futures contract or an option
on a futures contract may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the amount of fluctuation in
the price of a contract during a single trading day and prohibit trading beyond
such limits once they have been reached. The trading of futures and options
contracts also is subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of the
brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
Risk of Predicting Interest Rate Movements. Investments in futures
contracts on fixed income securities and related indexes involve the risk that
if the Investment Adviser's investment judgment concerning the general direction
of interest rates is incorrect, the Fund's overall performance may be poorer
than if it had not entered into any such contract. For example, if the Fund has
been hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest rates
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decrease instead, the Fund will lose part or all of the benefit of the increased
value of its bonds which have been hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell bonds from its portfolio to meet daily
variation margin requirements, possibly at a time when it may be disadvantageous
to do so. Such sale of bonds may be, but will not necessarily be, at increased
prices which reflect the rising market.
Trading and Position Limits. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Investment Adviser does not believe that
these trading and position limits will have an adverse impact on the hedging
strategies regarding the Fund's portfolio.
Restrictions on the Use of Futures and Option Contracts. Commodity
Futures Trading Commission regulations require that all short futures positions
be entered into for the purpose of hedging the value of securities held in the
Fund's portfolio, and that all long futures positions either constitute bona
fide hedging transactions, as defined in such regulations, or have a total value
not in excess of an amount determined by reference to certain cash and
securities positions maintained for the Fund, and accrued profits on such
positions.
8. FOREIGN SECURITIES. The Fund may invest in foreign securities.
Investments in foreign securities offer potential benefits not available solely
through investment in securities of domestic issuers. Foreign securities offer
the opportunity to invest in foreign issuers that appear to offer growth
potential, or in foreign countries with economic policies or business cycles
different from those of the United States, or to reduce fluctuations in
portfolio value by taking advantage of foreign stock markets that may not move
in a manner parallel to U.S. markets. Investments in securities of foreign
issuers involve certain risks not ordinarily associated with investments in
securities of domestic issuers. Such risks include fluctuations in exchange
rates, adverse foreign political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or
restrictions. Since the Fund may invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the value of securities in the portfolio and the unrealized
appreciation or depreciation of investments so far as U.S. investors are
concerned. In addition, with respect to certain countries, there is the
possibility of expropriation of assets, confiscatory taxation, political or
social instability, or diplomatic developments that could adversely affect
investments in those countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing, and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies. Foreign securities
markets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets. Securities of many foreign companies are less liquid
and their prices more volatile than securities of comparable U.S. companies.
Transactional costs in non-U.S. securities markets are generally higher than in
U.S. securities markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in the U.S. The Fund
might have greater difficulty taking appropriate legal action with respect to
foreign investments in non-U.S. courts than with respect to domestic issuers in
U.S. courts. In addition, transactions in foreign securities may involve greater
time from the trade date until settlement than domestic securities transactions
and involve the risk of possible losses through the holding of securities by
custodians and securities depositories in foreign countries.
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Currently, direct investment in equity securities in certain countries
is restricted, and investments may only be made through a limited number of
approved vehicles. At present this includes investment in listed and unlisted
investment companies, subject to limitations under the 1940 Act. Investment in
these closed-end funds may involve the payment of additional premiums to acquire
shares in the open-market and the yield of these securities will be reduced by
the operating expenses of such companies. In addition, investors should
recognize that they will bear not only their proportionate share of the expenses
of the Fund, but also indirectly bear similar expenses of the underlying
closed-end fund. Also, as a result of the Fund's policy of investing in
closed-end mutual funds, investors in the Fund may receive taxable capital gains
distributions to a greater extent than if the investor had invested directly in
the underlying closed-end fund.
Dividend and interest income from foreign securities may generally be
subject to withholding taxes by the country in which the issuer is located and
may not be recoverable by the Fund or its investors.
Depository receipts are typically dollar denominated, although their
market price is subject to fluctuations of the foreign currency in which the
underlying securities are denominated. Depository receipts include: American
Depository Receipts (ADRs), which are typically designed for U.S. investors. The
ADR securities are held either in physical form or in book entry form; European
Depository Receipts (EDRs), which are similar to ADRs, but may be listed and
traded on a European exchange as well as in the U.S. Typically, these securities
are traded on the Luxembourg exchange in Europe; and Global Depository Receipts
(GDRs), which are similar to EDRs, although they may be held through foreign
clearing agents, such as Euroclear and other foreign depositories. All
depository receipts will be considered foreign securities for purposes of the
Fund's investment limitation concerning investment in foreign securities.
9. SHORT-TERM INVESTMENTS. The Fund may invest in short-term
securities. During those times when substantially all of Fund's assets should be
invested in equity securities, all or part of the Fund's assets may be invested
temporarily in short-term investments. Under normal market conditions, it is
expected that investments in such short-term instruments may range from zero
(fully invested) to 30% of the Fund's assets. However, when in the Investment
Adviser's opinion, economic or market conditions warrant a temporary defensive
position, the Fund may invest up to 100% of its assets in such securities. The
short-term investments that may be purchased by the Fund consist of high quality
debt obligations maturing in one year or less from the date of purchase, such as
U.S. Government securities, certificates of deposit, bankers' acceptances and
commercial paper. High quality means the obligations have been rated at least
A-1 by S&P or Prime-1 by Moody's, or have an outstanding issue of debt
securities rated at least A by S&P or Moody's, or are of comparable quality in
the opinion of the Investment Adviser. Short-term investments also include
repurchase agreements with respect to the high quality debt obligations listed
above. See "Repurchase Agreements" above.
10. SHORT SALES. The Fund may seek to hedge investments or realize
additional gains through short sales. Short sales are transactions in which the
Fund sells a security it does not own, in anticipation of a decline in the
market value of that security. To complete such a transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund then is obligated to
replace the security borrowed by purchasing it at the market price at or prior
to the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to repay the lender any dividends or interest
that accrue during the period of the loan. To borrow the security, the Fund also
may be required to pay a premium, which would increase the cost of the security
sold. The net proceeds of the short sale will be retained by the broker (or by
the Fund's custodian in a special custody account), to the extent necessary to
meet margin requirements, until the short position is closed out. The Fund also
will incur transaction costs in effecting short sales.
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The Fund will incur a loss as a result of the short sale if the price
of the security increases between the date of the short sale and the date on
which the Fund replaces the borrowed security. The Fund will realize a gain if
the security declines in price between those dates. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of the
premium, dividends, interest or expenses the Fund may be required to pay in
connection with a short sale.
INVESTMENT RESTRICTIONS
-----------------------
Investment restrictions are fundamental and cannot be changed without
approval of the holders of a majority (as defined in the 1940 Act) of the
outstanding shares of the Fund. As used in the Prospectus and the Statement of
Additional Information, the term "majority of the outstanding shares" of the
Fund means, respectively, the vote of the lesser of (i) 67% or more of the
shares of the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. The following are the Fund's
investment restrictions set forth in their entirety. Investment policies are not
fundamental and may be changed by the Board of Trustees without shareholder
approval.
INVESTMENT RESTRICTIONS
The Fund may not:
1. Issue senior securities, except that the Fund may borrow up to 33
1/3% of the value of its total assets from a bank (i) to increase its holdings
of portfolio securities, (ii) to meet redemption requests, or (iii) for such
short-term credits as may be necessary for the clearance or settlement of the
transactions. The Fund may pledge its assets to secure such borrowings.
2. Invest 25% or more of the total value of its assets in a particular
industry, except that this restriction shall not apply to U.S. Government
Securities.
3. Buy or sell commodities or commodity contracts or real estate or
interests in real estate (including real estate limited partnerships), except
that it may purchase and sell futures contracts on stock indices, interest rate
instruments and foreign currencies, securities which are secured by real estate
or commodities, and securities of companies which invest or deal in real estate
or commodities.
4. Make loans, except through repurchase agreements to the extent
permitted under applicable law.
5. Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under applicable securities laws.
INVESTMENT POLICIES
The Fund may not:
1. Purchase securities on margin, except such short-term credits as may
be necessary for clearance of transactions and the maintenance of margin with
respect to futures contracts.
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2. Purchase or otherwise acquire the securities of any open-end
investment company (except in connection with a merger, consolidation,
acquisition of substantially all of the assets or reorganization of another
investment company) if, as a result, the Fund and all of its affiliates would
own more than 3% of the total outstanding stock of that company.
3. Purchase or retain securities of any issuer (other than the shares
of the Fund) if to the Fund's knowledge, those officers and Trustees of the Fund
and the officers and directors of LM Capital, who individually own beneficially
more than 1/2 of 1% of the outstanding securities of such issuer, together own
beneficially more than 5% of such outstanding securities.
4. Invest directly in oil, gas or other mineral exploration or
development programs or leases; provided, however, that if consistent with the
objective of the Fund, the Fund may purchase securities of issuers whose
principal business activities fall within such areas.
Percentage restrictions apply at the time of acquisition and any
subsequent change in percentages due to changes in market value of portfolio
securities or other changes in total assets will not be considered a violation
of such restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
------------------------------------
Most orders for the purchase or sale of portfolio securities are placed
on behalf of the Fund by LM Capital Corporation ("LM Capital" or the "Investment
Adviser") subject to the supervision of LM Capital Investments Trust and the
Trustees and pursuant to authority contained in the investment advisory
agreement (the "Advisory Agreement") between the Fund and the Investment
Adviser. The Investment Adviser will select brokers who will purchase and sell
all the securities of the Fund. In selecting brokers or dealers, the Investment
Adviser will consider various relevant factors, including, but not limited to
the best net price available, the size and type of the transaction, the nature
and character of the markets for the security to be purchased or sold, the
execution efficiency, settlement capability, financial condition of the
broker-dealer firm, the broker-dealer's execution services rendered on a
continuing basis and the reasonableness of any commissions.
In addition to meeting the primary requirements of execution and price,
brokers or dealers may be selected who provide research services, or statistical
material or other services to the Fund, to the Investment Adviser for the Fund's
use, which in the opinion of the Trustees, are reasonable and necessary to the
Fund's normal operations. Those services may include economic studies, industry
studies, security analysis or reports, sales literature and statistical services
furnished either directly to the Fund or to the Investment Adviser. Such
allocation shall be in such amounts as the Investment Adviser shall determine
and the Investment Adviser will report to the Trustees on the allocation of
brokerage for such services.
The receipt of research from broker-dealers may be useful to the
Investment Adviser in rendering investment management services to its other
clients, and conversely, such information provided by brokers or dealers who
have executed orders on behalf of the Investment Adviser's other clients may be
useful to the Investment Adviser in carrying out its obligations to the Fund.
The receipt of such research may not reduce the Investment Adviser's normal
independent research activities.
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Brokers or dealers who execute portfolio transactions on behalf of the
Fund may receive commissions which are in excess of the amount of commissions
which other brokers or dealers would have charged for effecting such
transactions; provided, the Investment Adviser determines in good faith that
such commissions are reasonable in relation to the value of the brokerage and/or
research services provided by such executing brokers or dealers viewed in terms
of a particular transaction or the Investment Adviser's overall responsibilities
to the Fund.
The Trustees have adopted certain procedures incorporating the
standards of Rule 17e-1 issued under the 1940 Act which requires that the
commissions paid the Distributor or to a Subadviser or an affiliated
broker-dealer must be "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time." Rule 17e-1 and the procedures also contain review requirements
and require the Investment Adviser to furnish reports to the Trustees and to
maintain records in connection with such reviews.
The Investment Adviser is authorized, subject to best price and
execution, to place portfolio transactions with brokerage firms that have
provided assistance in the distribution of shares of the Funds and is authorized
to use LM Capital Securities (the "Distributor"), as later described, or an
affiliated broker-dealer on an agency basis, to effect a substantial amount of
the portfolio transactions which are executed on the New York or American Stock
Exchanges, regional exchanges where relevant, or which are traded in the
over-the-counter market. Any profits resulting from brokerage commissions earned
by the Distributor as a result of transactions on behalf of the Fund will accrue
to the benefit of the shareholders of the Distributor who are also shareholders
of the Investment Adviser. The Management Agreement does not provide for any
reduction in the management fee as a result of profits resulting from brokerage
commissions effected through the Distributor.
It may happen that the same security will be held by other clients of
the Investment Adviser. When the other clients are simultaneously engaged in the
purchase or sale of the same security, the prices and amounts will be allocated
in accordance with a formula considered by the Investment Adviser to be
equitable to each, taking into consideration such factors as size of account,
concentration of holdings, investment objectives, tax status, cash availability,
purchase cost, holding period and other pertinent factors relative to each
account. In some cases this system could have a detrimental effect on the price
or volume of the security as far as the Fund is concerned. In other cases,
however, the ability of the Fund to participate in volume transactions will
produce better executions for the Fund.
COMPUTATION OF NET ASSET VALUE
------------------------------
The net asset value of the Fund is determined at the close of trading
on the New York Stock Exchange (currently at 4:00 p.m. New York time), on each
day that the New York Stock Exchange is open for business and on such other days
as there is sufficient trading in the Fund's securities to affect materially the
net asset value per share of the Fund. The Fund will be closed on New Years Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
When portfolio securities are traded, the valuation will be the last
reported sale price on the day of valuation. If there is no such reported sale
or the valuation is based on the over-the-counter market, the securities will be
valued at the last available bid price. Securities for which reliable quotations
are not
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readily available and all other assets will be valued at their respective fair
market value as determined in good faith by, or under procedures established by,
the Trustees of the Fund.
Money market instruments with less than sixty days remaining to
maturity when acquired by the Fund will be valued on an amortized cost basis by
the Fund, excluding unrealized gains or losses thereon from the valuation. This
is accomplished by valuing the security at cost and then assuming a constant
amortization to maturity of any premium or discount. If the Fund acquires a
money market instrument with more than sixty days remaining to its maturity, it
will be valued at current market value until the 60th day prior to maturity, and
will then be valued on an amortized cost basis based upon the value on such date
unless the Board determines during such 60-day period that this amortized cost
value does not represent fair market value.
All liabilities incurred or accrued are deducted from the Fund's total
assets. The resulting net assets are divided by the number of shares of the Fund
outstanding at the time of the valuation and the result (adjusted to the nearest
cent) is the net asset value per share.
Orders received by dealers prior to 4: 00 P.M. (New York time) will be
confirmed at the net asset value computed that day, provided the order is
received by the Fund's Transfer Agent prior to 4: 00 P.M. on that day. It is the
responsibility of the dealer to insure that all orders are transmitted timely to
the Fund. Orders received by dealers after 4: 00 P.M. will be confirmed at the
next computed offering price.
PERFORMANCE CALCULATION
-----------------------
For purposes of quoting and comparing the performance of the Fund to
that of other mutual funds and to other relevant market indices in
advertisements or in reports to shareholders, performance may be stated in terms
of total return. Under rules promulgated by the SEC, a fund's advertising
performance must include total return quotations calculated according to the
following formula:
P(1 + T)^n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1,5 or 10 year
period, at the end of such period (or fractional
portion thereof.)
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover 1, 5 and 10 year periods ended on the date of the most recent balance
sheet included in the registration statement. In calculating the ending
redeemable value, all dividends and distributions by the Fund are assumed to
have been reinvested at net asset value as described in the Prospectus on the
reinvestment dates during the period. Total return, or "T" in the formula above,
is computed by finding the average annual compounded rates of return over the 1,
5 and 10 year periods (or fractional portion thereof) that would equate the
initial amount invested to the ending redeemable value. Any recurring account
charges that might in the future be imposed by the Fund would be included at
that time.
All advertisements containing performance data of any kind will
include a legend disclosing that such performance data represents past
performance and that the investment return and principal value of an
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investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
The Fund has elected to be governed by Rule 18f-1 of the 1940 Act,
under which the Fund is obligated to redeem the shares of any shareholder solely
in cash up to the lesser of 1% of the net asset value of the Fund or $250,000
during any 90-day period. Should any shareholder's redemption exceed this
limitation, the Fund can, at its sole option, redeem the excess in cash or in
portfolio securities. Such securities would be selected solely by the Fund and
valued as in computing net asset value. In these circumstances a shareholder
selling such securities would probably incur a brokerage charge and there can be
no assurance that the price realized by a shareholder upon the sale of such
securities will not be less than the value used in computing net asset value for
the purpose of such redemption.
A complete description of the manner by which the Fund's shares may be
purchased and redeemed appears in the Prospectus under the headings "Purchase of
Shares" and "Redemption of Shares", respectively.
TAX MATTERS
-----------
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund is not subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) for the taxable
year (the "Distribution Requirement"), and satisfies certain other requirements
of the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated
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hedging transactions that are offset by realized or unrealized losses on
offsetting positions) from the sale or other disposition of stock, securities or
foreign currencies (or options, futures or forward contracts thereon) held for
less than three months (the "Short-Short Gain Test"). However, foreign currency
gains, including those derived from options, futures and forwards, will not in
any event be characterized as Short-Short Gain if they are directly related to
the regulated investment company's investments in stock or securities (or
options or futures thereon). Because of the Short-Short Gain Test, the Fund may
have to limit the sale of appreciated securities that it has held for less than
three months. However, the Short-Short Gain Test will not prevent the Fund from
disposing of investments at a loss, since the recognition of a loss before the
expiration of the three-month holding period is disregarded for this purpose.
Interest (including original issue discount) received by the Fund at maturity or
upon the disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of such
security within the meaning of the Short-Short Gain Test. However, income that
is attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition of
an asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Code Section 1256, will generally be
treated as ordinary income or loss.
Further, the Code also treats as ordinary income, a portion of the
capital gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of the Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property by
the Fund and a contemporaneous contract to sell substantially identical property
in the future; (2) the transaction is a straddle within the meaning of Section
1092 of the Code; (3) the transaction is one that was marketed or sold to the
Fund on the basis that it would have the economic characteristics of a loan but
the interest-like return would be taxed as capital gain; or (4) the transaction
is described as a conversion transaction in the Treasury Regulations. The amount
of the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate, depending
upon the type of instrument at issue, reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction; and (2) the
capitalized interest on acquisition indebtedness under Code Section 263(g).
Built-in losses will be preserved where the Fund has a built-in loss with
respect to property that becomes a part of a conversion transaction. No
authority exists that indicates that the converted character of the income will
not be passed to the Fund's shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (i) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (ii) the asset is otherwise held by the Fund as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the Fund
grants a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (iii) the asset is stock and the
Fund grants an in-the-money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be
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reduced only in the case of clause (i) above. In addition, the Fund may be
required to defer the recognition of a loss on the disposition of an asset held
as part of a straddle to the extent of any unrecognized gain on the offsetting
position.
Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by the Fund will commence on the date it is written and end on the date it
lapses or the date a closing transaction is entered into. Accordingly, the Fund
may be limited in its ability to write options which expire within three months
and to enter into closing transactions at a gain within three months of the
writing of options.
Transactions that may be engaged in by the Fund (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. The Fund, however,
may elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the Fund that are
not Section 1256 contracts. The Internal Revenue Service (the "IRS") has held in
several private rulings (and Treasury Regulations now provide) that gains
arising from Section 1256 contracts will be treated for purposes of the
Short-Short Gain Test as being derived from securities held for not less than
three months if the gains arise as a result of a constructive sale under Code
Section 1256.
The Evolving Venture Fund may purchase securities of certain foreign
investment funds or trusts which constitute passive foreign investment companies
("PFICs") for federal income tax purposes. If the Fund invests in a PFIC, it may
elect to treat the PFIC as a qualifying electing fund (a "QEF") in which event
the Fund each year will have ordinary income equal to its pro rata share of the
PFIC's ordinary earnings for the year and long-term capital gain equal to its
pro rata share of the PFIC's net capital gain for the year, regardless of
whether the Fund receives distributions of any such ordinary earning or capital
gain from the PFIC. If the Fund does not (because it is unable to, chooses not
to or otherwise) elect to treat the PFIC as a QEF, then in general (i) any gain
recognized by the Fund upon sale or other disposition of its interest in the
PFIC or any excess distribution received by the Fund from the PFIC will be
allocated ratably over the Fund's holding period of its interest in the PFIC,
(ii) the portion of such gain or excess distribution so allocated to the year in
which the gain is recognized or the excess distribution is received shall be
included in the Fund's gross income for such year as ordinary income (and the
distribution of such portion by the Fund to shareholders will be taxable as an
ordinary income dividend, but such portion will not be subject to tax at the
Fund level), (iii) the Fund shall be liable for tax on the portions of such gain
or excess distribution so allocated to prior years in an amount equal to, for
each such prior year, (A) the amount of gain or excess distribution allocated to
such prior year multiplied by the highest tax rate (individual or corporate) in
effect for such prior year plus (B) interest on the amount determined under
clause (A) for the period from the due date for filing a return for such prior
year until the date for filing a return for the year in which the gain is
recognized or the excess distribution is received at the rates and methods
applicable to underpayments of tax for such period, and (iv) the distribution by
the Fund to shareholders of the portions of such gain or excess
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distribution so allocated to prior years (net of the tax payable by the Fund
thereon) will again be taxable to the shareholders as an ordinary income
dividend.
Under recently proposed Treasury Regulations , the Fund could elect to
recognize as gain the excess, as of the last day of its taxable year, of the
fair market value of each share of PFIC stock over the electing Fund's adjusted
tax basis in that share ("mark to market gain"). Such mark to market gain will
be included by the Fund as ordinary income, such gain will not be subject to the
Short-Short Gain Test, and the Fund's holding period with respect to such PFIC
stock commences on the first day of the next taxable year. If the Fund makes
such election in the first taxable year it holds PFIC stock, the Fund will
include ordinary income from any mark to market gain, if any, and will not incur
the tax described in the previous paragraph.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or any part of any net
capital loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security not the issuer of the option. However, with regard to forward currency
contracts, there does not appear to be any formal or informal authority which
identifies the issuer of such instrument.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
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For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year; and (2) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for Federal income
tax purposes. Such dividends paid by the Evolving Venture Fund, however, may
qualify for the 70% dividends-received deduction for corporate shareholders to
the extent discussed below.
The Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. The Fund currently intends to distribute
any such amounts. If net capital gain is distributed and designated
as a capital gain dividend, it will be taxable to shareholders as long-term
capital gain, regardless of the length of time the shareholder has held his
shares or whether such gain was recognized by the Fund prior to the date on
which the shareholder acquired his shares. The Code provides, however, that
under certain conditions only 50% of the capital gain recognized upon the Fund's
disposition of "small business" stock will be subject to tax.
Conversely, if the Fund elects to retain its net capital gain, the Fund
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If the Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Ordinary income dividends paid by the Evolving Venture Fund with
respect to a taxable year will qualify for the 70% dividends-received deduction
generally available to corporations (other than corporations, such as S
corporations, which are not eligible for the deduction because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) to the extent of
the amount of qualifying dividends received by the Fund from domestic
corporations for the taxable year. A dividend received by the Fund will not be
treated as a qualifying dividend (1) if it has been received with respect to any
share of stock that the Fund has held for less than 46 days (91 days in the case
of certain preferred stock), excluding for this purpose under the rules of Code
Section 246(c) (3) and (4): (i) any day more than 45 days (or 90 days in the
case of certain preferred stock) after the date on which the stock becomes
ex-dividend and (ii) any period during which the Fund has an option to sell, is
under a contractual obligation to sell, has made and not closed a short sale of,
is the grantor of a deep-in-the-money or otherwise nonqualified option to buy,
or has otherwise diminished its risk of loss by
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<PAGE>
holding other positions with respect to, such (or substantially identical)
stock; (2) to the extent that the Fund is under an obligation (pursuant to a
short sale or otherwise) to make related payments with respect to positions in
substantially similar or related property; or (3) to the extent the stock on
which the dividend is paid is treated as debt-financed under the rules of Code
Section 246A. Moreover, the dividends-received deduction for a corporate
shareholder may be disallowed or reduced (i) if the corporate shareholder fails
to satisfy the foregoing requirements with respect to its shares of the Fund or
(ii) by application of Code Section 246(b) which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction and certain other
items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum marginal
rate of 28% for noncorporate taxpayers and 20% for corporate taxpayers on the
excess of the taxpayer's alternative minimum taxable income ("AMTI") over an
exemption amount. In addition, under the Superfund Amendments and
Reauthorization Act of 1986, a tax is imposed for taxable years beginning after
1986 and before 1996 at the rate of 0.12% on the excess of a corporate
taxpayer's AMTI (determined without regard to the deduction for this tax and the
AMT net operating loss deduction) over $2 million. For purposes of the corporate
AMT and the environmental super fund tax (which are discussed above), the
corporate dividends-received deduction is not itself an item of tax preference
that must be added back to taxable income or is otherwise disallowed in
determining a corporation's AMTI. However, corporate shareholders will generally
be required to take the full amount of any dividend received from the Fund into
account (without a dividends-received deduction) in determining its adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMT net
operating loss deduction)) includable in AMTI.
Investment income that may be received by the Evolving Venture Fund
from sources within foreign countries may be subject to foreign taxes withheld
at the source. The United States has entered into tax treaties with many foreign
countries which entitle the Fund to a reduced rate of, or exemption from, taxes
on such income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of the Fund's assets to be invested in various
countries is not known. If more than 50% of the value of the Fund's total assets
at the close of its taxable year consist of the stock or securities of foreign
corporations, the Fund may elect to "pass through" to the Fund's shareholders
the amount of foreign taxes paid by the Fund. If the Fund so elects, each
shareholder would be required to include in gross income, even though not
actually received, his pro rata share of the foreign taxes paid by the Fund, but
would be treated as having paid his pro rata share of such foreign taxes and
would therefore be allowed to either deduct such amount in computing taxable
income or use such amount (subject to various Code limitations) as a foreign tax
credit against federal income tax (but not both). For purposes of the foreign
tax credit limitation rules of the Code, each shareholder would treat as foreign
source income his pro rata share of such foreign taxes plus the portion of
dividends received from the Fund representing income derived from foreign
sources. No deduction for foreign taxes could be claimed by an individual
shareholder who does not itemize deductions. Each shareholder should consult his
own tax adviser regarding the potential application of foreign tax credits.
Distributions by the Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount
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equal to the fair market value of the shares received, determined as of the
reinvestment date. In addition, if the net asset value at the time a shareholder
purchases shares of the Fund reflects undistributed net investment income or
recognized capital gain net income, or unrealized appreciation in the value of
the assets of the Fund, distributions of such amounts will be taxable to the
shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. Federal
Income Tax consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient".
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) (discussed above in connection with the dividends-received
deduction for corporations) generally will apply in determining the holding
period of shares. Long-term capital gains of noncorporate taxpayers are
currently taxed at a maximum rate 11.6% lower than the maximum rate applicable
to ordinary income. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of
ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of the
Fund, (ii) disposes of such shares less than 91 days after they are acquired and
(iii) subsequently acquires shares of the Fund or another fund at a reduced
sales load pursuant to a right to reinvest at such reduced sales load acquired
in connection with the acquisition of the shares disposed of, then the sales
load on the shares disposed of (to the extent of the reduction in the sales load
on the shares subsequently acquired) shall not be taken into account in
determining gain or loss on the shares disposed of but shall be treated as
incurred on the acquisition of the shares subsequently acquired.
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<PAGE>
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
paid to a foreign shareholder will be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate) upon the gross amount of the dividend.
Furthermore, such a foreign shareholder may be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) on the gross income resulting from the
Fund's election to treat any foreign taxes paid by it as paid by its
shareholders, but may not be allowed a deduction against this gross income or a
credit against this U.S. withholding tax for the foreign shareholder's pro rata
share of such foreign taxes which it is treated as having paid. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of the Fund, capital gain dividends and amounts
retained by the Fund that are designated as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. Federal Income Tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be
required to withhold U.S. Federal Income Tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. Federal Income Tax
consequences is based on the Code and the Treasury Regulations issued thereunder
as in effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. Federal Income Taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other state
and local tax rules affecting investment in the Fund.
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<PAGE>
THE MANAGEMENT OF THE FUNDS
The overall management of the business and affairs of the Fund is
vested in LM Capital Investments' Board of Trustees. The Board of Trustees
approves all significant agreements between LM Capital Investments, on behalf of
the Fund, and persons or companies furnishing services to the Fund, including
the Fund's Advisory Agreement with LM Capital, the Fund's agreement with LM
Capital Securities regarding distribution of the Fund's shares, the agreement
with ____________________ as the custodian and the agreement with
____________________ as the transfer agent. The day-to-day operations of the
Fund are delegated to the officers of LM Capital Investments and to LM Capital,
subject always to the objective and policies of the Funds and to the general
supervision of LM Capital Investments' Board of Trustees. The following are
biographies of LM Capital Investments' Board of Trustees and officers:
LESLIE M. CORLEY* - President, Chief Executive Officer and Chief
Investment Officer. Mr. Corley currently serves as LM Capital's Chief
Executive and Chief Investment Officer, positions that he has held
since he founded the company in 1988. Mr. Corley has over 25 years of
experience in the investment industry, spanning investment management,
corporate finance, and strategic planning. Prior to the creation of LM
Capital, he spent seven years with Kelso & Company, a company that
specializes in leveraged buyouts. While a general partner at Kelso &
Company, Mr. Corley chaired its Executive Committee and developed the
investment criteria followed in completing more than two dozen buyouts
valued at approximately $4 billion. As lead partner, he personally
directed eleven buyouts valued at over $1.5 billion. Early in his
career, Mr. Corley worked with Peter Lynch at Fidelity Investments in
Boston for five years as an analyst in the firm's investment research
department. Mr. Corley earned a BS Degree with High Honors in
Aeronomical and Astronomical Engineering from the University of
Illinois and an MBA from the Harvard Graduate School of Business
Administration. Mr. Corley is currently Chairman of the board of
directors of Convenience Corporation of America, Inc. (the second
largest U.S. 7-Eleven licensee), and serves on the boards of directors
of d'essence Designer Fragrances, LLC, the National Association of
Investment Companies, LM Foods, Inc., Roberts Brothers, Inc., and the
Urban League of Palm Beach County.
RICARDO CORLEY* - Vice President & Assistant Portfolio Manager. Mr.
Corley is an assistant portfolio manager of the Fund and has been a
senior executive with LM Capital since its inception in 1988. He is
also responsible for monitoring and directing the firm's closely held
portfolio investments. Mr. Corley serves on the board of directors of
LM Capital Corporation, LM Capital Securities, Inc., Roberts Brothers,
Inc., and LM Foods, Inc. He also serves as director of the African
American Chamber of Commerce of Polk County, Florida and as a director
of the Central Florida Development Council. Mr. Corley earned an
Associate of Arts degree from Olive Harvey City College.
LOUIS J. GANEM - Trustee of the Fund. Mr. Ganem started his career in
the investment industry in the late 1950's with IDS. In the late 1960's
he joined A.G. Edwards, and from 1991 until he retired in 1996, he
served as Assistant National Sales Manager for John Hancock Mutual
Funds. Prior to that he was President of Sales & Marketing for American
Funds which was acquired by John Hancock Mutual Funds in 1991. He is a
graduate of St. Bonaventure University and holds a B.S. in Economics.
JOHN HALL - Trustee of the Fund. Since 1992, Mr. Hall has been the
Vice-President of minority business and economic development, with a
principal focus on the needs of emerging black-owned firms based in
Dade County Florida, at The Beacon Council, an organization located in
Miami, Florida. His responsibilities include designing and managing the
$10 million Hurricane Andrew Small Business Emergency Bridge Loan
Program. Mr. Hall is also responsible for managing the
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<PAGE>
NETWORK 100 Project, the NETWORK 10 Project, and the Network Venture
Capital Fund. Mr. Hall has a B.S. degree from Howard University and an
MBA from Harvard Business School.
J. BRUCE LLEWELLYN - Director of the Funds. Mr. Llewellyn currently
serves as the Chairman and CEO of the Philadelphia Coca-Cola Bottling
Company, The Coca-Cola Bottling Company of Wilmington, Inc., Queen City
Broadcasting, parent of the ABC network television affiliate in
Buffalo, N.Y. and Garden State Cablevision, Inc., one of the largest
cable television systems in the country. He also serves on the boards
of directors of Chemical Banking Corp., Adolf Coors Brewing Company,
C-Span, Essence Communications, Inc., QVC Network Inc., International
Peace Academy, Museum of Television and Radio, New York Law School, and
New York Medical College. Mr. Llewellyn has previously served as a
regional director of the Small Business Administration, Deputy
Commissioner of Housing for the City of New York, and President of OPIC
(Overseas Private Investment Corporation), and prior to that he worked
in the New York City District Attorney's office and was a partner in
his own law firm. Mr. Llewellyn earned a Bachelor degree from the City
University of New York, a juris doctor degree from New York Law School,
an MBA from Columbia University, and a degree in public administration
from New York University.
- ---------
* Indicates an "Interested Person" as defined in the Investment Company
Act of 1940, as amended.
As of the date of this Statement of Additional Information, the Board
of Trustees [and officers of the Funds], as a group, owned of record ____% of
the Fund's outstanding Shares.
INVESTMENT ADVISER AND ADVISORY AGREEMENTS
------------------------------------------
LM Capital, 515 North Flagler Drive, West Palm Beach, Florida 33401,
serves as the investment adviser to the Fund pursuant to an Advisory Agreement,
dated as of ______, 1997 (the "Advisory Agreement"). LM Capital provides
investment management and financial advisory services, including causing the
purchase and sale of securities in the Fund's portfolios subject at all times to
the policies set forth by the Board of Trustees, and is registered with the SEC
under the 1940 Act. Under the terms of the Advisory Agreement, LM Capital
supervises all aspects of the Fund's operations and provides investment advisory
services to the Fund.
Pursuant to the Advisory Agreement, LM Capital is paid a monthly fee
calculated at an annual rate of 1.00% of the Evolving Venture Fund's average
daily assets. The fee for the Fund is accrued daily for the purposes of
determining the offering and redemption price of the Fund's shares.
Other than those expenses specifically assumed by LM Capital or the
Fund's distributor, the Fund pays, under the terms of the Advisory Agreement,
the cost of all of their expenses including the pro rata costs incurred in
connection with the Fund's maintenance of its registration under the Securities
Act, and the 1940 Act, printing of prospectuses distributed to shareholders,
taxes or governmental fees, brokerage commissions, custodial, transfer and
shareholder servicing agent costs, expenses of outside counsel and independent
accountants, preparation of shareholder reports, and expenses of Board of
Trustees and shareholder meetings.
DISTRIBUTION AGREEMENT AND MARKETING PLAN
-----------------------------------------
DISTRIBUTION AGREEMENT
The Fund has entered into a Distribution Agreement dated _____________,
1997 with LM Capital Securities, a __________ corporation organized on
___________, 19__ and an affiliate of LM Capital. The Distributor is a
broker-dealer registered under the Securities Exchange Act of 1934 and a member
of the National Association of Securities Dealers, Inc. The Distributor is
reimbursed for distribution expenses under the Distribution and Service Plan
described below. Promotional and administrative expenses, including printing
prospectuses used in connection with the offer and sale of shares, which are not
paid pursuant to the Distribution and Service Plan described below, are to be
paid by the Distributor without reimbursement by the Fund.
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<PAGE>
DISTRIBUTION AND SERVICE PLAN
The Fund has adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act (the "Rule 12b-1 Plan") whereby the Fund, either
directly or through the Distributor, may make payments periodically (i) to the
Distributor or to any broker-dealer who is registered under the Securities
Exchange Act of 1934 and a member in good standing of the National Association
of Securities Dealers, Inc. and who has entered into a selected dealer agreement
with the Distributor, [(ii) to other persons or organizations who have entered
into shareholder processing and servicing agreements with the Fund, with respect
to the Fund's shares owned by shareholders] for which such broker is the dealer
or holder of record or such servicing agent has a servicing relationship and
(iii) for advertising, printing of prospectuses and reports for other than
existing shareholders, preparation and distribution of advertising material and
sales literature. The Rule 12b-1 Plan may pay for certain overhead expenses of
the Distributor which may include salaries and benefits of salespersons,
training, stationery, travel and meeting expenses, supplies, communications and
seminars. Such payments will be reviewed quarterly by the Trustees and based on
their good faith determination that the amounts and purposes of such payments
for services are fair and reasonable, the Distributor will be reimbursed for
such expenses. These expenses may not exceed .50% per annum of the Fund's
average daily net assets.
The Rule 12b-1 Plan and related agreements were approved on
___________, 1996 by the Trustees including all of the "Qualified Trustees"
(Trustees who are not "interested" persons of the Fund, as defined in the 1940
Act, and who have no direct or indirect financial interest in the Rule 12b-1
Plan or any related agreement). The Rule 12b-1 Plan provides that the Fund may
finance activities which are primarily intended to result in the sale of the
Fund's shares. In approving the Rule 12b-1 Plan, in accordance with the
requirements of Rule 12b-1 under the 1940 Act, the Trustees (including the
Qualified Trustees) considered various factors and determined that there is a
reasonable likelihood that the Rule 12b-1 Plan will benefit the Fund and its
shareholders. The Rule 12b-1 Plan may not be amended to increase materially the
amount to be spent by the Fund under the Rule 12b-1 Plan without shareholder
approval, and all material amendments to the provisions of the Rule 12b-1 Plan
must be approved by a vote of the Trustees and of the Qualified Trustees, cast
in person at a meeting called for the purpose of such vote. During the
continuance of the Rule 12b-1 Plan, LM Capital Investments Trust. will report in
writing to the Trustees quarterly the amounts and purposes of such payments for
services rendered to shareholders pursuant to the Rule 12b-1 Plan. Further,
during the term of the Rule 12b-1 Plan, the selection and nomination of those
Trustees who are not "interested" persons of the Fund must be committed to the
discretion of the Qualified Trustees. The Rule 12b-1 Plan will continue in
effect from year to year provided that such continuance is specifically approved
annually (a) by the vote of a majority of the Fund's outstanding voting shares
or by the Fund's Trustees and (b) by the vote of a majority of the Qualified
Trustees.
Provided that the Rule 12b-1 Plan continues in effect, any cumulative
expenses incurred by the Distributor on or after __________, 1997, but not yet
reimbursed by the Fund, may be reimbursed through future distribution fees from
the Fund. If the Rule 12b-1 Plan is terminated or discontinued in accordance
with its terms, the obligation of the Fund to make payments to the Distributor
pursuant to the Rule 12b-1 Plan will cease and the Fund will not be required to
make any payments past the date the Rule 12b-1 Plan is terminated.
SHAREHOLDER SERVICING PLAN
The Fund has adopted a Shareholder Servicing Plan. In accordance with the
Shareholder Servicing Plan, the Fund may enter into Shareholder Service
Agreements under which it pays fees of up to .25% of the
-27-
<PAGE>
average daily net assets for fees incurred in connection with the personal
service and maintenance of accounts holding the shares of the Fund. Such
agreements are entered into between the Fund and various shareholder servicing
agents, including the Distributor and its affiliates, and other financial
institutions and securities brokers (each, a "Shareholder Servicing Agent").
Among the services provided by Shareholder Servicing Agents are: answering
customer inquiries regarding account matters; assisting shareholders in
designating and changing various account options; aggregating and processing
purchase and redemption orders and transmitting and receiving funds for
shareholder orders; transmitting, on behalf of the Trust, proxy statements,
prospectuses and shareholder reports to shareholders and tabulating proxies;
processing dividend payments and providing subaccounting services for Fund
shares held beneficially; and providing such other services as the Fund or a
shareholder may request. Shareholder Servicing Agents may periodically waive all
or a portion of their respective shareholder servicing fees.
DESCRIPTION OF THE FUND
-----------------------
Organization and Description of Shares
LM Capital Investments Trust. was organized under the laws of the State
of Delaware on January 21, 1994. The Trust Instrument authorizes the Board of
Trustees to issue an aggregate one billion shares of stock, par value $.___ per
share. LM Capital Investments presently has one series of shares which represent
interest in the Evolving Venture Fund. LM Capital Investments' Trust Instrument
authorize the Board of Trustees to classify or reclassify any unissued shares
into one or more additional series or classes.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectus and this
Statement of Additional Information, the shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of LM Capital
Investments, shareholders of the Fund are entitled to receive the assets
available for distribution belonging to the Fund.
Shares of the Fund are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Shareholders vote as a single class on all matters except (i)
when required by the 1940 Act, shares shall be voted by individual series, and
(ii) when the Trustees have determined that the matter affects only the
interests of one or more series, then only shareholders of such series shall be
entitled to vote thereon. There will normally be no meetings of shareholders for
the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees have been elected by the shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. [In addition, Trustees may be removed from office by a written
consent signed by the holders of two-thirds of the outstanding shares of the
Fund and filed with the Fund or by vote of the holders of two-thirds of the
outstanding shares of the Fund at a meeting duly called for the purpose, which
meeting shall be held upon the written request of the holders of not less than
10% of the outstanding shares of the Fund. Except as set forth above, the
Trustees shall continue to hold office and may appoint their successors.
FINANCIAL STATEMENTS
--------------------
Shareholders will receive reports semi-annually showing the investments
of the Fund and other information. In addition, shareholders will receive annual
financial statements audited by the Fund's independent accountants.
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<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS. Commercial paper ratings of Standard & Poor's
Corporation ("S&P") are current assessments of the likelihood of timely payment
of debts having original maturities of no more than 365 days. Commercial paper
rated A-1 by S&P indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted A-1+. Commercial paper rated A-2
by S&P indicates that capacity for timely payment on issues is strong. However,
the relative degree of safety is not as high as for issues designated A-1.
Commercial paper rated A-3 indicates capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations. Commercial
paper rated B is regarded as having only an adequate capacity for timely
payment. However, such capacity may be damaged by changing conditions or
short-term adversities. Commercial paper rated D represents an issue either in
default or expected to be in default upon maturity.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of Prime-1 rated issuers, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variations.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained. Issuers rated
Prime-3 have an acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market composition may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
CORPORATE DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA: Bonds which 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 which 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 which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which 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 which
suggest a susceptibility to impairment sometime in the future.
-29-
<PAGE>
BAA: Bonds which 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 which 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
characterize bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Ca are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which 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.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS GROUP (S&P)
AAA: Debt rated AAA has the highest rating assigned by the S&P. 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 higher rated issues only to a 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.
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<PAGE>
BB, B, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
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 a 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, or 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 is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C: The rating C is typically 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 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 of debt service payments are jeopardized.
Note: Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
Moody's applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa, A or Baa. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
-31-
<PAGE>
PREFERRED STOCK RATINGS
The following summarizes the three highest ratings used by Moody's for
preferred stock:
"aaa" An issue which is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within
the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a
reasonable assurance that earnings and asset protection will
remain relatively well maintained in the foreseeable future.
"a" An issue which is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are judged to
be somewhat greater than in the "aaa" and "aa" classification,
earnings and asset protection are, nevertheless, expected to
be maintained at adequate levels.
The following summarizes the three highest ratings used by S &
P for preferred stock:
"AAA" This is the highest rating that may be assigned by S & P
to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
"AA" A preferred stock issue rated "AA" also qualifies as a
high-quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA".
"A" An issue rated "A" is backed by a sound capacity to pay
the preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions.
-32-
<PAGE>
PART C. OTHER INFORMATION
-------------------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial statements.
In Part A:
None
In Part B:
To be filed at a later date.
In Part C:
None.
(b) Exhibits
EX-99.B1 (a) Certificate of Trust is filed herewith.
(b) Trust Instrument is filed herewith
EX-99.B2 By-laws of Registrant are filed herewith.
EX-99.B3 None.
EX-99.B4 To be filed at a later date.
EX-99.B5 To be filed at a later date.
EX-99.B6 To be filed at a later date.
EX-99.B7 None.
EX-99.B8 To be filed at a later date.
EX-99.B9 To be filed at a later date.
EX-99.B10 To be filed at a later date.
EX-99.B11 (a) Consent of Kramer, Levin,
Naftalis & Frankel, counsel for the
Registrant is filed herewith.
(b) To be filed at a later date.
EX-99.B12 None.
EX-99.B13 To be filed at a later date.
C-1
<PAGE>
EX-99.B14 None.
EX-99.B15 To be filed at a later date.
EX-99.B16 To be filed at a later date.
EX-99.B17 None.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
-------------------------------------------------------------
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
-------------------------------
Title of Class; Shares Number of Record Holders
($0.001 par value) as of December 24, 1997
--------------------------
LM Capital Evolving Venture Fund 0
ITEM 27. INDEMNIFICATION
---------------
Article X, Section 10.02 of the Registrant's Delaware Trust Instrument,
filed as Exhibit 99.B2 hereto, provides for the indemnification of Registrant's
Trustee and Officers, as follows:
"SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law
against liability and against all expenses reasonably incurred or paid
by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or
thereafter, and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of
C-2
<PAGE>
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or (B) not to have
acted in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or
other body approving the settlement; (B) by at least a majority of
those Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written opinion
of independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
Subsection (a) of this Section 10.02 may be paid by the Trust or Series from
time to time prior to final disposition thereof upon receipt of an undertaking
by or on behalf of such Covered Person that such amount will be paid over by him
to the Trust or Series if it is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however, that either (i)
such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 10.02."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to trustees, officers, and controlling persons or
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 Investment Company
Act of 1940, as amended, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, 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 of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
C-3
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
----------------------------------------------------
LM Capital Corporation provides management services to the Registrant
and its series.
ITEM 29. PRINCIPAL UNDERWRITERS
----------------------
(a) not applicable
(b) The following information is furnished with respect to the officers
and directors of LM Capital Securities, Inc., Registrant's principal
underwriter:
Name and Principal Position and Offices with Position and Offices
Business Address Principal Underwriter with Registrant
- ---------------- --------------------- ---------------
Leslie M. Corley Chief Executive Officer President
515 North Flagler Drive
West Palm Beach, Florida
33401
Ricardo Corley Chief Financial Officer Treasurer
515 North Flagler Drive
West Palm Beach, Florida
33401
(c) not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
The accounts, books or other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder are
maintained by Countrywide Fund Services, Inc., 312 Walnut Street, Cincinnati,
Ohio 45202.
ITEM 31. MANAGEMENT SERVICES
-------------------
Not applicable.
ITEM 32. UNDERTAKINGS
------------
(1) Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a director or directors if
requested to do so by the holders of at least 10% of the Registrant's
outstanding voting securities, and to assist in communications with other
shareholders as required by Section 16(c) of the 1940 Act.
(2) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of Registrant's 1933 Act Registration Statement.
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<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 to its Registration Statement on Form N-1A to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Weat
Palm Beach, and the State of Florida on this 24th day of December, 1997.
LM CAPITAL INVESTMENTS TRUST
By: /s/Leslie M. Corley
-------------------
Leslie M. Corley
President
Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective
Amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Ricardo Corley Treasurer December 24, 1997
- -----------------
Ricardo Corley
Trustee
- ------------------
Bruce Llewellyn
/s/Louis J. Ganem Trustee December 24, 1997
- -----------------
Louis J. Ganem
/s/John Hall Trustee December 24, 1997
- -----------------
John Hall
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<PAGE>
EXHIBIT INDEX
EX-99.B1(a) Certificate of Trust
EX-99.B1(b) Trust Instrument
EX-99.B2 By-laws
EX-99.B11(a) Consent of Kramer, Levin, Naftalis & Frankel, counsel for the
Registrant
CERTIFICATE OF TRUST
OF
LM CAPITAL INVESTMENTS TRUST
This Certificate of Trust is being executed as of January 10, 1997 for
the purpose of organizing a business trust pursuant to the Delaware Business
Trust Act, 12 Del. C. ss.ss. 3801 et seq.
The undersigned hereby certifies as follows:
1. Name. The name of the business trust is LM Capital Investments Trust
("Trust").
2. Registered Investment Company. The Trust is or will become a
registered investment company under the Investment Company Act of 1940, as
amended.
3. Registered Office and Registered Agent. The registered office of the
Trust in the State of Delaware is located at 1201 North Market Street, P.O. Box
1347, Wilmington, Delaware 19899-1347. The name of the registered agent of the
Trust for service of process at such location is Delaware Corporation
Organizers, Inc.
4. Notice of Limitation of Liabilities of Series. Notice is hereby
given that the Trust is or may hereafter be constituted a series trust. The
debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to any particular series shall be enforceable
against the
<PAGE>
assets of such series only, and not against the assets of the Trust generally.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has duly executed this Certificate of Trust as of the day and year first
above written.
Trustee
/s/Leslie M. Corley
-------------------
Leslie M. Corley
LM CAPITAL INVESTMENTS TRUST
TRUST INSTRUMENT
DATED JANUARY 10, 1997
<PAGE>
LM CAPITAL INVESTMENTS TRUST
TABLE OF CONTENTS
Page
ARTICLE I - NAME AND DEFINITION............................................ 1
Section 1.01 Name................................................ 1
Section 1.02 Definitions......................................... 1
ARTICLE II - BENEFICIAL INTEREST........................................... 2
Section 2.01 Shares of Beneficial Interest....................... 2
Section 2.02 Issuance of Shares.................................. 2
Section 2.03 Register of Shares and Share Certificates........... 3
Section 2.04 Transfer of Shares.................................. 3
Section 2.05 Treasury Shares..................................... 3
Section 2.06 Establishment of Series............................. 3
Section 2.07 Investment in the Trust............................. 4
Section 2.08 Assets and Liabilities of Series.................... 4
Section 2.09 No Preemptive Rights................................ 5
Section 2.10 No Personal Liability of Shareholder................ 5
Section 2.11 Assent to Trust Instrument.......................... 5
ARTICLE III - THE TRUSTEES................................................. 6
Section 3.01 Management of the Trust............................. 6
Section 3.02 Initial Trustees.................................... 6
Section 3.03 Term of Office...................................... 6
Section 3.04 Vacancies and Appointments.......................... 7
Section 3.05 Temporary Absence................................... 7
Section 3.06 Number of Trustees.................................. 7
Section 3.07 Effect of Ending of a Trustee's Service............. 7
Section 3.08 Ownership of Assets of the Trust.................... 7
ARTICLE IV - POWERS OF THE TRUSTEES........................................ 8
Section 4.01 Powers.............................................. 8
Section 4.02 Issuance and Repurchase of Shares................... 11
Section 4.03 Trustees and Officers as Shareholders............... 11
Section 4.04 Action by the Trustees.............................. 11
Section 4.05 Chairman of the Trustees............................ 11
Section 4.06 Principal Transactions.............................. 11
ARTICLE V - EXPENSES OF THE TRUST.......................................... 12
ARTICLE VI - INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR AND TRANSFER AGENT.................................. 12
Section 6.01 Investment Adviser.................................. 12
Section 6.02 Principal Underwriter............................... 13
i
<PAGE>
Section 6.03 Administration...................................... 13
Section 6.04 Transfer Agent...................................... 13
Section 6.05 Parties to Contract................................. 13
Section 6.06 Provisions and Amendments........................... 14
ARTICLE VII - SHAREHOLDERS' VOTING POWERS AND MEETINGS..................... 14
Section 7.01 Voting Powers....................................... 14
Section 7.02 Meetings............................................ 15
Section 7.03 Quorum and Required Vote............................ 15
ARTICLE VIII - CUSTODIAN................................................... 16
Section 8.01 Appointment and Duties.............................. 16
Section 8.02 Central Certificate System.......................... 16
ARTICLE IX - DISTRIBUTIONS AND REDEMPTIONS................................. 17
Section 9.01 Distributions....................................... 17
Section 9.02 Redemptions......................................... 17
Section 9.03 Determination of Net Asset Value
and Valuation of Portfolio Assets................. 17
Section 9.04 Suspension of the Right of Redemption............... 18
Section 9.05 Redemption of Shares in Order to Qualify as
Regulated Investment Company...................... 18
Section 9.06 Redemption of Small Accounts........................ 19
ARTICLE X - LIMITATION OF LIABILITY AND INDEMNIFICATION.................... 19
Section 10.01 Limitation of Liability............................ 19
Section 10.02 Indemnification.................................... 19
Section 10.03 Shareholders....................................... 20
ARTICLE XI - MISCELLANEOUS................................................. 21
Section 11.01 Trust Not A Partnership............................ 21
Section 11.02 Trustee's Good Faith Action, Expert Advice,
No Bond or Surety................................ 21
Section 11.03 Establishment of Record Dates...................... 21
Section 11.04 Termination of Trust............................... 22
Section 11.05 Reorganization..................................... 23
Section 11.06 Filing of Copies, References, Headings............. 23
Section 11.07 Applicable Law..................................... 24
Section 11.08 Amendments......................................... 24
Section 11.09 Fiscal Year........................................ 24
Section 11.10 Name Reservation................................... 24
Section 11.11 Provisions in Conflict With Law.................... 25
ii
<PAGE>
LM CAPITAL INVESTMENTS TRUST
January 10, 1997
TRUST INSTRUMENT, made by Leslie M. Corley (the "Trustee").
WHEREAS, the Trustee desires to establish a business trust for the
investment and reinvestment of funds contributed thereto;
NOW THEREFORE, the Trustee declares that all money and property
contributed to the trust hereunder shall be held and managed in trust under this
Trust Instrument as herein set forth below.
ARTICLE I
NAME AND DEFINITION
SECTION 1.01 NAME. The name of the trust created hereby is "LM Capital
Investments Trust."
SECTION 1.02 DEFINITIONS. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time. Whenever reference is made hereunder to the 1940 Act, such
references shall be interpreted as including any applicable order or orders of
the Commission or any rules or regulations adopted by the Commission thereunder
or interpretive releases of the Commission staff;
(b) "Bylaws" means the Bylaws of the Trust as adopted by the Trustee,
as amended from time to time;
(c) "Commission" has the meaning given it in the 1940 Act. In addition,
"Affiliated Person," "Interested Person" and "Principal Underwriter" shall have
the respective meanings given them in the 1940 Act;
(d) "Delaware Act" means the Delaware Business Trust Act, to Chapter 38
of Title 12 of the Delaware Code, as amended from time to time;
(e) "Net Asset Value" means the net asset value of each Series of the
Trust determined in the manner provided in Article IX, Section 9.03 hereof;
(f) "Outstanding Shares" means those Shares shown from time to time in
the books of the Trust or its transfer agent as then issued and outstanding, but
shall not include Shares which have been redeemed or repurchased by the Trust
and which are at the time held in the treasury of the Trust;
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(g) "Series" means a series of Shares of the Trust established in
accordance with the provisions of Article II, Section 2.06 hereof;
(h) "Shareholder" means a record owner of Outstanding Shares of the
Trust;
(i) "Shares" means the equal proportionate transferable units of
beneficial interest into which the beneficial interest of each Series of the
Trust or class thereof shall be divided and may include fractions of Shares as
well as whole Shares;
(j) The "Trust" means LM Capital Investments Trust, a Delaware business
trust, and reference to the Trust when applicable to one or more Series of the
Trust, shall refer to any such Series;
(k) The "Trustees" means the person or persons who has or have signed
this Trust Instrument so long as he or they shall continue in office in
accordance with the terms hereof and all other persons who may from time to time
be duly qualified and serving as Trustees in accordance with the provisions of
Article III hereof, and reference herein to a Trustee or to the Trustees shall
refer to the individual Trustees in their respective capacity as Trustees
hereunder;
(l) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of one or
more of the Trust or any Series, or the Trustees on behalf of the Trust or any
Series.
ARTICLE II
BENEFICIAL INTEREST
SECTION 2.01 SHARES OF BENEFICIAL INTEREST. The beneficial interest in
the Trust shall be divided into such Shares of one or more separate and distinct
Series or classes of a Series as set forth in Section 2.06 or as the Trustees
shall otherwise from time to time create and establish as provided in Section
2.06. The number of Shares of each Series and class thereof authorized hereunder
is unlimited. Except as otherwise determined by the Trustees, each Share shall
have no par value. All Shares issued hereunder, including without limitation
Shares issued in connection with a dividend paid in Shares or a split or reverse
split of Shares, shall be fully paid and nonassessable.
SECTION 2.02 ISSUANCE OF SHARES. The Trustees in their discretion may,
from time to time, without a vote of the Shareholders, issue Shares, in addition
to the then issued and outstanding Shares and Shares held in the treasury, to
such party or parties and for such amount and type of consideration, subject to
applicable law, including cash or securities, at such time or times and on such
terms as the Trustees may deem appropriate, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with,
the assumption of liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares and Shares held in the
treasury. The Trustees may from time to time divide or combine the Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may beaccepted for, and
Shares shall
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be redeemed as, whole Shares and/or 1/1000th of a Share or integral multiples
thereof. The Trustees or any person the Trustees may authorize for the purpose
may, in their discretion, reject any application for the issuance of shares.
SECTION 2.03 REGISTER OF SHARES AND SHARE CERTIFICATES. A register
shall be kept at the principal office of the Trust or an office of the Trust's
transfer agent which shall contain the names and addresses of the Shareholders
of each Series, the number of Shares of that Series (or any class or classes
thereof) held by them respectively and a record of all transfers thereof. No
share certificates shall be issued by the Trust except as the Trustees may
otherwise authorize, and the persons indicated as shareholders in such register
shall be entitled to receive dividends or other distributions or otherwise to
exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled
to receive payment of any dividend or other distribution, nor to have notice
given to him as herein or in the Bylaws provided, until he has given his address
to the transfer agent or such officer or other agent of the Trustees as shall
keep the said register for entry thereon.
SECTION 2.04 TRANSFER OF SHARES. Except as otherwise provided by the
Trustees, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer and such evidence of the genuineness of such execution
and authorization and of such other matters as may be required by the Trustees.
Upon such delivery the transfer shall be recorded on the register of the Trust.
Until such record is made, the Shareholder of record shall be deemed to be the
holder of such Shares for all purposes hereunder and neither the Trustees nor
the Trust, nor any transfer agent or registrar nor any officer, employee or
agent of the Trust shall be affected by any notice of the proposed transfer.
SECTION 2.05 TREASURY SHARES. Shares held in the treasury shall, until
reissued pursuant to Section 2.02 hereof, not confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
SECTION 2.06 ESTABLISHMENT OF SERIES AND CLASSES. The Trust created
hereby shall consist initially of one Series which is specified by name on
Schedule A attached hereto, and such Series shall initially consist of such
classes of Shares as are designated on Schedule A. Such initial Series (or class
thereof, as applicable) shall have the investment objectives, purposes and
policies, and such relative rights, powers, duties and other attributes, as are
specified in the Registration Statement and related prospectus and statement of
additional information approved by the Trustees in connection with the
registration and offer of Shares of such Series (or class thereof). Distinct
records shall be maintained by the Trust for each Series and the assets and
liabilities associated with the Series shall be held and accounted for
separately from the assets and liabilities of the Trust or any other Series. The
Trustees shall have full power and authority, in their sole discretion and
without obtaining any prior authorization or vote of the Shareholders of any
Series, to establish and designate and to change in any manner any Series or any
classes of initial or additional Series and to fix such preferences, voting
powers, rights and privileges of such Series or classes thereof as the Trustees
may from time to time determine, to divide or combine the Shares or any Series
or classes thereof into a greater or lesser number, to classify or reclassify
any issued Shares or any Series or classes thereof into one or more Series or
classes
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of Shares, and to take such other action with respect to the Shares as the
Trustees may deem desirable. The establishment and designation of any Series
(other than those established pursuant to the first sentence of this Section
2.06) shall be effective upon the adoption of a resolution by a majority of the
Trustees setting forth such establishment and designation and the relative
rights and preferences of the Shares of such Series. A Series may issue any
number of Shares, but need not issue Shares. At any time that there are no
Shares outstanding of any particular Series previously established and
designated, the Trustees may by a majority vote abolish that Series and the
establishment and designation thereof.
All references to Shares in this Trust Instrument shall be deemed to be
Shares of any or all Series, or classes thereof as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust, and each class thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive his proportionate share of all distributions made
with respect to such Series, based upon the number of full and fractional Shares
of the Series held. Upon redemption of his Shares, such Shareholder shall be
paid solely out of the funds and property of such Series of the Trust.
SECTION 2.07 INVESTMENT IN THE TRUST. The Trustees shall accept
investments in any Series from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which the
affected Series is authorized to invest, valued as provided in Article IX
Section 9.03 hereof. Investments in a Series shall be credited to each
Shareholder's account in the form of full and fractional Shares at the net asset
value per Share next determined after the investment is received or accepted as
may be determined by the Trustees; provided, however, that the Trustees may, in
their sole discretion, (a) fix minimum amounts for initial and subsequent
investments or (b) impose a sales charge upon investments in such manner and at
such time determined by the Trustees.
SECTION 2.08 ASSETS AND LIABILITIES OF SERIES. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall be held and accounted for separately from the other assets of
the Trust and of every other Series and may be referred to herein as "assets
belonging to" that Series. The assets belonging to a particular Series shall
belong to that Series for all purposes, and to no other Series, and shall be
subject only to the rights of creditors of that Series. In addition, any assets,
income, earnings, profits or funds, or payments and proceeds with respect
thereto, which are not readily identifiable as belonging to any particular
Series shall be allocated by the Trustees between and among one or more of the
Series in such manner as the Trustees, in their sole discretion, deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all Series for all purposes, and such assets, income, earnings,
profits or funds, or payments and proceeds with respect thereto shall be assets
belonging to that Series.
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The assets belonging to a particular Series shall be so recorded upon the books
of the Trust, and shall be held by the Trustees in trust for the benefit of the
holders of Shares of that Series. The assets belonging to each particular Series
shall be charged with the liabilities of that Series and all expenses, costs,
charges and reserves attributable to that Series. Any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Trustees between or among any one or more of the Series in such
manner as the Trustees in their sole discretion deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series for all purposes. Without limitation of the foregoing provisions of this
Section 2.08, but subject to the right of the Trustees in their discretion to
allocate general liabilities, expenses, costs, changes or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Series shall be
enforceable against the assets of such Series only, and not against the assets
of the Trust generally. Notice of this contractual limitation on inter-Series
liabilities may, in the Trustee's sole discretion, be set forth in the
certificate of trust of the Trust (whether originally or by amendment) as filed
or to be filed in the Office of the Secretary of State of the State of Delaware
pursuant to the Delaware Act, and upon the giving of such notice in the
certificate of trust, the statutory provisions of Section 3804 of the Delaware
Act relating to limitations on inter-Series liabilities (and the statutory
effect under Section 3804 of setting forth such notice in the certificate of
trust) shall become applicable to the Trust and each Series. Any person
extending credit to, contracting with or having any claim against any Series may
look only to the assets of that Series to satisfy or enforce any debt, with
respect to that Series. No Shareholder or former Shareholder of any Series shall
have a claim on or any right to any assets allocated or belonging to any other
Series.
SECTION 2.09 NO PREEMPTIVE RIGHTS. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust or the Trustees, whether of the same or other
Series.
SECTION 2.10 NO PERSONAL LIABILITY OF SHAREHOLDER. No Shareholder shall
be personally liable for the debts, liabilities, obligation and expenses
incurred by, contracted for, or otherwise existing with respect to, the Trust or
by or on behalf of any Series. The Trustees shall have no power to bind any
Shareholder personally or to call upon any Shareholder for the payment of any
sum of money or assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay by way of subscription for any Shares or
otherwise. Every note, bond, contract or other understanding issued by or on
behalf of the Trust or the Trustees relating to the Trust or to a Series shall
include a recitation limiting the obligation represented thereby to the Trust or
to one or more Series and its or their assets (but the omission of such a
recitation shall not operate to bind any Shareholder or Trustee of the Trust).
SECTION 2.11 ASSENT TO TRUST INSTRUMENT. Every Shareholder, by virtue
of having purchased a Share shall become a Shareholder and shall be held to have
expressly assented and agreed to be bound by the terms hereof.
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ARTICLE III
THE TRUSTEES
SECTION 3.01 MANAGEMENT OF THE TRUST. The Trustees shall have exclusive
and absolute control over the Trust Property and over the business of the Trust
to the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Trust Instrument. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the State of Delaware, in any and
all states of the United States of America, in the District of Columbia, in any
and all commonwealths, territories, dependencies, colonies, or possessions of
the United States of America, and in any foreign jurisdiction and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Trust Instrument, the presumption shall be
in favor of a grant of power to the Trustees.
The enumeration of any specific power in this Trust Instrument shall
not be construed as limiting the aforesaid power. The powers of the Trustees may
be exercised without order of or resort to any court.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 3.04 of this Article III and except as otherwise provided in
Section 3.02 of this Article III, the Trustees shall be elected by the
Shareholders owning of record a plurality of the Shares voting at a meeting of
Shareholders. Any Shareholder meeting held for such purpose shall be held on a
date fixed by the Trustees. In the event that less than a majority of the
Trustees holding office have been elected by Shareholders, the Trustees then in
office will call a Shareholders' meeting for the election of Trustees in
accordance with the provisions of the 1940 Act.
SECTION 3.02 INITIAL TRUSTEE. The initial Trustee shall be the person
named herein. The initial Trustee shall appoint additional or substitute
Trustees at an organizational meeting of Trustees. Thereafter, Trustees shall be
appointed or elected as provided in Sections 3.01 and 3.04 of this Article III.
SECTION 3.03 TERM OF OFFICE. The Trustees shall hold office during the
lifetime of this Trust, and until its termination as herein provided; except (a)
that any Trustee may resign his trust by written instrument signed by him and
delivered to the other Trustees, which shall take effect upon such delivery or
upon such later date as is specified therein; (b) that any Trustee may be
removed at any time by written instrument, signed by at least two-thirds of the
number of Trustees prior to such removal specifying the date when such removal
shall become effective; (c) that any Trustee who requests in writing to be
retired or who has died, become physically or mentally incapacitated by reason
of illness or otherwise, or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other Trustees, specifying the
date of his retirement; and (d) that a Trustee may be removed at any meeting of
the Shareholders of the Trust by a vote of Shareholders owning at least
two-thirds of the Outstanding Shares of the Trust.
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SECTION 3.04 VACANCIES AND APPOINTMENTS. In case of a Trustee's
declination to serve, death, resignation, retirement, removal, physical or
mental incapacity by reason of illness, disease or otherwise, or if a Trustee is
otherwise unable to serve, or if there is an increase in the number of Trustees,
a vacancy shall occur. Whenever a vacancy in the Board of Trustees shall occur,
until such vacancy is filled, the other Trustees shall have all the powers
hereunder and the certificate of the other Trustees of such vacancy shall be
conclusive. In the case of a vacancy, the remaining Trustees shall fill such
vacancy by appointing such other person as they in their discretion see fit, to
the extent consistent with the limitations provided under the 1940 Act. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office or by resolution of the Trustees, duly adopted, which
shall be recorded in the minutes of a meeting of the Trustees, whereupon the
appointment shall take effect.
An appointment of a Trustee may be made by the Trustees then in office
in anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. As soon as any person
appointed as a Trustee pursuant to this Section 3.04 shall have accepted this
Trust, the trust estate shall vest in the new Trustee or Trustees, together with
the continuing Trustees, without any further act or conveyance, and such person
shall be deemed a Trustee.
SECTION 3.05 TEMPORARY ABSENCE. Any Trustee may, by power of attorney,
delegate his power for a period not exceeding six months at any time to any
other Trustee or Trustees, provided that in no case shall fewer than two
Trustees personally exercise the other powers hereunder except as herein
otherwise expressly provided.
SECTION 3.06 NUMBER OF TRUSTEES. From and after the date of appointment
of Trustees by the initial Trustees named herein, the number of Trustees shall
be at least three (3), and thereafter shall be such number as shall be fixed
from time to time by a majority of the Trustees, provided, however, that the
number of Trustees shall in no event be more than twelve (12).
SECTION 3.07 EFFECT OF ENDING OF A TRUSTEE'S SERVICE. The declination
to serve, death, resignation, retirement, removal, incapacity, or inability of
the Trustees, or any one of them, shall not operate to terminate the Trust or to
revoke any existing agency created pursuant to the terms of this Trust
Instrument.
SECTION 3.08 OWNERSHIP OF ASSETS OF THE TRUST. The assets of the Trust
and of each Series shall be held separate and apart from any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. Legal title in all of the assets of the Trust and the
right to conduct any business shall at all times be considered as vested in the
Trustees on behalf of the Trust, except that the Trustees may cause legal title
to any Trust Property to be held by, or in the name of, the Trust or in the name
of any person as nominee. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or of any Series or any right of
partition or possession thereof but each Shareholder shall have, except as
otherwise provided for herein, a proportionate undivided beneficial interest in
the Trust or Series based upon the number of Shares owned. The Shares shall be
personal property giving only the rights specifically set forth in this Trust
Instrument.
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ARTICLE IV
POWERS OF THE TRUSTEES
SECTION 4.01 POWERS. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall not in any way be bound or limited by present or future laws or
customs in regard to trust investments, but shall have full authority and power
to make any and all investments which they, in their sole discretion, shall deem
proper to accomplish the purpose of this Trust without recourse to any court or
other authority. Subject to any applicable limitation in this Trust Instrument
or the Bylaws of the Trust, the Trustees shall have the power and authority:
(a) To invest and reinvest cash and other property (including
investment, notwithstanding any other provision hereof, of all of the assets of
any Series in a single open-end investment company, including investment by
means of transfer of such assets in exchange for an interest or interests in
such investment company), and to hold cash or other property of the Trust
uninvested, without in any event being bound or limited by any present or future
law or custom in regard to investments by trustees, and to sell, exchange, lend,
pledge, mortgage, hypothecate, write options on and lease any or all of the
assets of the Trust:
(b) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations;
(c) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of an obligation or engagement of any other Person and
to lend Trust Property;
(d) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for or by the
Trust itself, or both, or otherwise pursuant to a plan of distribution of any
kind;
(e) To adopt Bylaws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the Shareholders; such
Bylaws shall be deemed incorporated and included in this Trust Instrument;
(f) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
(g) To employ one or more banks, trust companies or companies that are
members of a national securities exchange or such other entities as the
Commission may permit as
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custodians of any assets of the Trust subject to any conditions set forth in
this Trust Instrument or in the Bylaws;
(h) To retain one or more transfer agents and shareholder servicing
agents, or both;
(i) To set record dates in the manner provided herein or in the Bylaws;
(j) To delegate such authority as they consider desirable (with power
of subdelegation) to any officers or employees of the Trust and to any
investment adviser, manager, custodian, underwriter or other agent or
independent contractor;
(k) To sell or exchange any or all of the assets of the Trust, subject
to the provisions of Article XI, subsection 11.04(b) hereof;
(l) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property, and to execute and deliver
powers of attorney to such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(m) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(n) To hold any security or property in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form; or
either in the name of the Trust or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the usual
practice of Delaware business trusts or investment companies;
(o) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article II hereof and to establish classes of
such Series having relative rights, powers and duties as they may provide
consistent with applicable law;
(p) Subject to the provisions of Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series or
to apportion the same between or among two or more Series, provided that any
liabilities or expenses incurred by a particular Series shall be payable solely
out of the assets belonging to that Series as provided for in Article II hereof;
(q) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern, and to pay calls or
subscriptions with respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
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(s) To make distributions of income and of capital gains to
Shareholders in the manner provided herein;
(t) To establish, from time to time, a minimum investment for
Shareholders in the Trust or in one or more Series or class, and to require the
redemption of the Shares of any Shareholders whose investment is less than such
minimum upon giving notice to such Shareholder;
(u) To establish one or more committees, to delegate any of the powers
of the Trustees to said committees and to adopt a committee charter providing
for such responsibilities, membership (including Trustees, officers or other
agents of the Trust therein) and any other characteristics of said committees as
the Trustees may deem proper. Notwithstanding the provisions of this Article IV,
and in addition to such provisions or any other provision of this Trust
Instrument or of the Bylaws, the Trustees may by resolution appoint a committee
consisting of less than the whole number of Trustees then in office, which
committee may be empowered to act for and bind the Trustees and the Trust, as if
the acts of such committee were the acts of all the Trustees then in office,
with respect to the institution, prosecution, dismissal, settlement, review or
investigation of any action, suit or proceeding which shall be pending or
threatened to be brought before any court, administrative agency or other
adjudicatory body;
(v) To interpret the investment policies, practices or limitations of
any Series;
(w) To establish a registered office and have a registered agent in the
state of Delaware; and
(x) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed as objects and powers, and the
foregoing enumeration of specific powers shall not be held to limit or restrict
in any manner the general powers of the Trustees. Any action by one or more of
the Trustees in their capacity as such hereunder shall be deemed an action on
behalf of the Trust or the applicable Series, and not an action in an individual
capacity.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see the application
of any payments made or property transferred to the Trustees or upon their
order.
SECTION 4.02 ISSUANCE AND REPURCHASE OF SHARES. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of and
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otherwise deal in Shares and, subject to the provisions set forth in Article II
and Article IX, to apply to any such repurchase, redemption, retirement,
cancellation or acquisition of Shares any funds or property of the Trust, or the
particular Series of the Trust, with respect to which such Shares are issued.
SECTION 4.03 TRUSTEES AND OFFICERS AS SHAREHOLDERS. Any Trustee,
officer or other agent of the Trust may acquire, own and dispose of Shares to
the same extent as if he were not a Trustee, officer or agent; and the Trustees
may issue and sell or cause to be issued and sold Shares to and buy such Shares
from any such person or any firm or company in which he is interested, subject
only to the general limitations herein contained as to the sale and purchase of
such Shares; and all subject to any restrictions which may be contained in the
Bylaws.
SECTION 4.04 ACTION BY THE TRUSTEES. In any action taken by the
Trustees hereunder, unless otherwise specified, the Trustees shall act by
majority vote at a meeting duly called or by unanimous written consent without a
meeting or by telephone meeting provided a quorum of Trustees participate in any
such telephone meeting, unless the 1940 Act requires that a particular action be
taken only at a meeting at which the Trustees are present in person. At any
meeting of the Trustees, a majority of the Trustees shall constitute a quorum.
Meetings of the Trustees may be called orally or in writing by the Chairman of
the Board of Trustees or by any two other Trustees. Notice of the time, date and
place of all meetings of the Trustees shall be given by the person calling the
meeting to each Trustee by telephone, facsimile or other electronic mechanism
sent to his home or business address at least twenty-four hours in advance of
the meeting or by written notice mailed to his home or business address at least
seventy-two hours in advance of the meeting. Notice need not be given to any
Trustee who attends the meeting without objecting to the lack of notice or who
executes a written waiver of notice with respect to the meeting. Any meeting
conducted by telephone shall be deemed to take place at the principal office of
the Trust, as determined by the Bylaws or by the Trustees. Subject to the
requirements of the 1940 Act, the Trustees by majority vote may delegate to any
one or more of their number their authority to approve particular matters or
take particular actions on behalf of the Trust. Written consents or waivers of
the Trustees may be executed in one or more counterparts. Execution of a written
consent or waiver and delivery thereof to the Trust may be accomplished by
facsimile or other similar electronic mechanism.
SECTION 4.05 CHAIRMAN OF THE TRUSTEES. The Trustees shall appoint one
of their number to be Chairman of the Board of Trustees. The Chairman shall
preside at all meetings of the Trustees, shall be responsible for the execution
of policies established by the Trustees and the administration of the Trust, and
may be (but is not required to be) the chief executive, financial and/or
accounting officer of the Trust.
SECTION 4.06 PRINCIPAL TRANSACTIONS. Except to the extent prohibited by
applicable law, the Trustees may, on behalf of the Trust, buy any securities
from or sell any securities to, or lend any assets of the Trust to, any Trustee
or officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with any investment
adviser,
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administrator, distributor or transfer agent for the Trust or with any
Interested Person of such person; and the Trust may employ any such person, or
firm or company in which such person is an Interested Person, as broker, legal
counsel, registrar, investment adviser, administrator, distributor, transfer
agent, dividend disbursing agent, custodian or in any other capacity upon
customary terms.
ARTICLE V
EXPENSES OF THE TRUST
Subject to the provisions of Article II, Section 2.08 hereof, the
Trustees are authorized to pay or cause to be paid from the Trust estate or the
assets belonging to the appropriate Series, expenses and disbursements,
including, without limitation, interest charges, taxes, brokerage fees and
commissions; expenses of issue, repurchase and redemption of Shares; certain
insurance premiums; applicable fees, interest charges and expenses of third
parties, including the Trust's investment advisers, managers, administrators,
distributors, custodian, transfer agent and fund accountant; fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; telecommunications expenses; funds transmission expenses;
auditing, legal and compliance expenses; costs of forming the Trust and
maintaining its existence; costs of preparing and printing the Trust's
prospectuses, statements of additional information and shareholder reports and
delivering them to existing Shareholders; expenses of meetings of Shareholders
and proxy solicitations therefor; costs of maintaining books and accounts; costs
of reproduction, stationery and supplies; fees and expenses of the Trust's
trustees; compensation of the Trust's officers and employees and costs of other
personnel performing services for the Trust; costs of Trustee meetings;
Commission registration fees and related expenses; state or foreign securities
laws registration fees and related expenses and for such non-recurring items as
may arise, including litigation to which the Trust (or a Trustee acting as such)
is a party, and for all losses and liabilities by them incurred in administering
the Trust, and for the payment of such expenses, disbursements, losses and
liabilities the Trustees shall have a lien on the assets belonging to the
appropriate Series, or in the case of an expense allocable to more than one
Series, on the assets of each such Series, prior to any rights or interests of
the Shareholders thereto. This section shall not preclude the Trust from
directly paying any of the aforementioned fees and expenses.
ARTICLE VI
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR AND TRANSFER AGENT
SECTION 6.01 INVESTMENT ADVISER. (a) The Trustees may in their
discretion, from time to time, enter into an investment advisory contract or
contracts with respect to the Trust or any Series whereby the other party or
parties to such contract or contracts shall undertake to furnish the Trustees
with such investment advisory, statistical and research facilities and services
and such other facilities and services, if any, all upon such terms and
conditions (including any Shareholder vote) that may be required under the 1940
Act, as may be prescribed in the Bylaws, or as the Trustees may in their
discretion determine (such terms and conditions not to be inconsistent with the
provisions of this Trust Instrument or of the Bylaws). Notwithstanding any other
provision of this Trust Instrument, the Trustees may authorize any investment
adviser (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales or exchanges of portfolio
securities, other investment instruments of the Trust, or other Trust
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Property on behalf of the Trustees, or may authorize any officer, agent, or
Trustee to effect such purchases, sales or exchanges pursuant to recommendations
of the investment adviser (and all without further action by the Trustees). Any
such purchases, sales and exchanges shall be deemed to have been authorized by
all of the Trustees.
(b) The Trustees may authorize the investment adviser to employ, from
time to time, one or more sub-advisers to perform such of the acts and services
of the investment adviser, and upon such terms and conditions, as may be agreed
upon between the investment adviser and sub- adviser (such terms and conditions
not to be inconsistent with the provisions of this Trust Instrument or of the
Bylaws). Any reference in this Trust Instrument to the investment adviser shall
be deemed to include such sub-advisers, unless the context otherwise requires;
provided that no Shareholder approval shall be required with respect to any
sub-adviser unless required under the 1940 Act or other law, contract or order
applicable to the Trust.
SECTION 6.02 PRINCIPAL UNDERWRITER. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
underwriting contract or contracts providing for the sale of Shares, whereby the
Trust may either agree to sell Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as may be prescribed in the
Bylaws and as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws); and such contract may also provide for the repurchase or sale
of Shares by such other party as principal or as agent of the Trust.
SECTION 6.03 ADMINISTRATION. The Trustees may in their discretion from
time to time enter into one or more management or administrative contracts
whereby the other party or parties shall undertake to furnish the Trustees with
management or administrative services. The contract or contracts shall be on
such terms and conditions as may be prescribed in the Bylaws and as the Trustees
may in their discretion determine (such terms and conditions not to be
inconsistent with the provisions of this Trust Instrument or of the Bylaws).
SECTION 6.04 TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into one or more transfer agency and shareholder service
contracts whereby the other party or parties shall undertake to furnish the
Trustees with transfer agency and shareholder services. The contract or
contracts shall be on such terms and conditions as may be prescribed in the
Bylaws and as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws).
SECTION 6.05 PARTIES TO CONTRACT. Any contract of the character
described in Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or any
contract of the character described in Article VIII hereof may be entered into
with any corporation, firm, partnership, trust or association, although one or
more of the Trustees or officers of the Trust may be an officer, director,
trustee, shareholder, or member of such other party to the contract, and no such
contract shall be invalidated or rendered void or voidable by reason of the
existence of any relationship, nor shall any person holding such relationship be
disqualified from voting on or executing the same in his capacity as Shareholder
and/or Trustee, nor shall any person holding such relationship be liable merely
by reason of such relationship for any loss or expense to the Trust under or by
reason of
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said contract or accountable for any profit realized directly or indirectly
therefrom, provided that the contract when entered into was not inconsistent
with the provisions of this Article VI or Article VIII hereof or of the Bylaws.
The same person (including a corporation, firm, partnership, trust, or
association) may be the other party to contracts entered into pursuant to
Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or pursuant to Article
VIII hereof and any individual may be financially interested or otherwise
affiliated with persons who are parties to any or all of the contracts mentioned
in this Section 6.05.
SECTION 6.06 PROVISIONS AND AMENDMENTS. Any contract entered into
pursuant to Section 6.01 or 6.02 of this Article VI shall be consistent with and
subject to the requirements of Section 15 of the 1940 Act, if applicable, or
other applicable Act of Congress hereafter enacted with respect to its
continuance in effect, its termination, and the method of authorization and
approval of such contract or renewal thereof, and no amendment to any contract
entered into pursuant to Section 6.01 of this Article VI shall be effective
unless assented to in a manner consistent with the requirements of said Section
15, as modified by any applicable rule, regulation or order of the Commission.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.01 VOTING POWERS. (a) The Shareholders shall have power to
vote only (a) for the election of Trustees to the extent provided in Article
III, Section 3.01 hereof, (b) for the removal of Trustees to the extent provided
in Article III, Section 3.03(d) hereof, (c) with respect to any investment
advisory contract to the extent provided in Article VI, Section 6.01 hereof, (d)
with respect to an amendment of this Trust Instrument, to the extent provided in
Article XI, Section 11.08, and (e) with respect to such additional matters
relating to the Trust as may be required by law, by this Trust Instrument, or
any registration of the Trust with the Commission or any State, or as the
Trustees may consider desirable.
(b) Notwithstanding paragraph (a) of this Section 7.01 or any other
provision of this Trust Instrument (including the Bylaws) which would by its
terms provide for or require a vote of Shareholders, the Trustees may take
action without a Shareholder vote if (i) the Trustees shall have obtained an
opinion of counsel that a vote or approval of such action by Shareholders is not
required under (A) the 1940 Act or any other applicable laws, or (B) any
registrations, undertakings or agreements of the Trust known to such counsel,
and the Trustees determine in good faith that the taking of such action without
a Shareholder vote would be consistent with the best interests of the
Shareholders.
(c) On any matter submitted to a vote of the Shareholders, all Shares
shall be voted separately by individual Series, and whenever the Trustees
determine that the matter affects only certain Series, may be submitted for a
vote by only such Series, except (i) when required by the 1940 Act, Shares shall
be voted in the aggregate and not by individual Series; and (ii) when the
Trustees have determined that the matter affects the interests of more than one
Series and that voting by shareholders of all Series would be consistent with
the 1940 Act, then the Shareholders of all such Series shall be entitled to vote
thereon (either by individual Series or by Shares voted
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in the aggregate, as the Trustees in their discretion may determine). The
Trustees may also determine that a matter affects only the interests of one or
more classes of a Series, in which case (or if required under the 1940 Act) such
matter shall be voted on by such class or classes. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. There
shall be no cumulative voting in the election of Trustees. Shares may be voted
in person or by proxy or in any manner provided for in the Bylaws. A proxy may
be given in writing. The Bylaws may provide that proxies may also, or may
instead, be given by any electronic or telecommunications device or in any other
manner. Notwithstanding anything else herein or in the Bylaws, in the event a
proposal by anyone other than the officers or Trustees of the Trust is submitted
to a vote of the Shareholders, or in the event of any proxy contest or proxy
solicitation or proposal in opposition to any proposal by the officers or
Trustees of the Trust, Shares may be voted only in person or by written proxy.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted by law, this Trust Instrument or
any of the Bylaws of the Trust to be taken by Shareholders.
SECTION 7.02 MEETINGS. Meetings of Shareholders may be held within or
without the State of Delaware. Special meetings of the Shareholders of any
Series for the purpose of voting upon the removal of a Trustee or Trustees may
be called by the Trustees and shall be called by the Trustees upon the written
request of Shareholders owning at least one tenth of the Outstanding Shares of
the Trust entitled to vote. Whenever ten or more Shareholders meeting the
qualifications set forth in Section 16(c) of the 1940 Act, as the same may be
amended from time to time, seek the opportunity of furnishing materials to the
other Shareholders with a view to obtaining signatures on such a request for a
meeting, the Trustees shall comply with the provisions of said Section 16(c)
with respect to providing such Shareholders access to the list of the
Shareholders of record of the Trust or the mailing of such materials to such
Shareholders of record, subject to any rights provided to the Trust or any
Trustees provided by said Section 16(c). Notice shall be sent, by First Class
Mail or such other means determined by the Trustees, at least 10 days prior to
any such meeting. Notwithstanding anything to the contrary in this Section 7.02,
the Trustees shall not be required to call a special meeting of the Shareholders
of any Series or to provide Shareholders seeking the opportunity of furnishing
the materials to other Shareholders with a view to obtaining signatures on a
request for a meeting except to the extent required under the 1940 Act.
SECTION 7.03 QUORUM AND REQUIRED VOTE. One-third of Shares outstanding
and entitled to vote in person or by proxy as of the record date for a
Shareholders' meeting shall be a quorum for the transaction of business at such
Shareholders' meeting, except that where any provision of law or of this Trust
Instrument permits or requires that holders of any Series shall vote as a Series
(or that holders of a class shall vote as a class), then one-third of the
aggregate number of Shares of that Series (or that class) entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
Series (or that class). Any meeting of Shareholders may be adjourned from time
to time by a majority of the votes properly cast upon the question of adjourning
a meeting to another date and time, whether or not a quorum is present. Any
adjourned session or sessions may be held, within a reasonable time after the
date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by law or by any provision of this Trust
Instrument or the Bylaws, a majority of the Shares voted
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in person or by proxy at a meeting at which a quorum is present shall decide any
questions and a plurality shall elect a Trustee, provided that where any
provision of law or of this Trust Instrument permits or requires that the
holders of any Series shall vote as a Series (or that the holders of any class
shall vote as a class), then a majority of the Shares voted in person or by
proxy at a meeting of that Series (or class), at which a quorum is present shall
decide that matter insofar as that Series (or class) is concerned. Shareholders
may act by unanimous written consent, to the extent not inconsistent with the
1940 Act, and any such actions taken by a Series (or class) may be consented to
unanimously in writing by Shareholders of that Series (or class).
ARTICLE VIII
CUSTODIAN
SECTION 8.01 APPOINTMENT AND DUTIES. The Trustees shall employ a bank,
a company that is a member of a national securities exchange, or a trust
company, that in each case shall have capital, surplus and undivided profits of
at least twenty million dollars ($20,000,000) and that is a member of the
Depository Trust Company (or such other person or entity as may be permitted to
act as custodian of the Trust's assets under the 1940 Act) as custodian with
authority as its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the Bylaws of the Trust: (a) to
hold the securities owned by the Trust and deliver the same upon written order
or oral order confirmed in writing; (b) to receive and receipt for any moneys
due to the Trust and deposit the same in its own banking department or elsewhere
as the Trustees may direct; and (c) to disburse such funds upon orders or
vouchers.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank, a company that is a member of a
national securities exchange, or a trust company organized under the laws of the
United States or one of the states thereof and having capital, surplus and
undivided profits of at least twenty million dollars ($20,000,000) and that is a
member of the Depository Trust Company or such other person or entity as may be
permitted by the Commission or is otherwise able to act as custodian of the
Trust's assets in accordance with the 1940 Act.
SECTION 8.02 CENTRAL CERTIFICATE SYSTEM. Subject to the 1940 Act and
such other rules, regulations and orders as the Commission may adopt, the
Trustees may direct the custodian to deposit all or any part of the securities
owned by the Trust in a system for the central handling of securities
established by a national securities exchange or a national securities
association registered with the Commission under the Securities Exchange Act of
1934, as amended, or such other person as may be permitted by the Commission, or
otherwise in accordance with the 1940 Act, pursuant to which system all
securities of any particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of such securities, provided that all such
deposits shall be subject to withdrawal only upon the order of the Trust or its
custodians, sub-custodians or other agents.
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ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
SECTION 9.01 DISTRIBUTIONS.
(a) The Trustees may from time to time declare and pay dividends or
other distributions with respect to any Series and/or class of a Series. The
amount of such dividends or distributions and the payment of them and whether
they are in cash or any other Trust Property shall be wholly in the discretion
of the Trustees.
(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times
as the Trustees shall determine, which dividends or distributions, at the
election of the Trustees, may be paid pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary notwithstanding,
the Trustees may at any time declare and distribute a share dividend to the
Shareholders of a particular Series, or class thereof, as of the record date of
that Series fixed as provided in Subsection 9.01(b) hereof.
SECTION 9.02 REDEMPTIONS. In case any holder of record of Shares of a
particular Series desires to dispose of his Shares or any portion thereof he may
deposit at the office of the transfer agent or other authorized agent of that
Series a written request or such other form of request as the Trustees may from
time to time authorize, requesting that the Series purchase the Shares in
accordance with this Section 9.02; and, subject to Section 9.04 hereof, the
Shareholder so requesting shall be entitled to require the Series to purchase,
and the Series or the principal underwriter of the Series shall purchase his
said Shares, but only at the Net Asset Value thereof (as described in Section
9.03 of this Article IX). The Series shall make payment for any such Shares to
be redeemed, as aforesaid, in cash or property from the assets of that Series
and, subject to Section 9.04 hereof, payment for such Shares shall be made by
the Series or the principal underwriter of the Series to the Shareholder of
record within seven (7) days after the date upon which the request is effective.
Upon redemption and unless otherwise determined by the Trustees shares shall
become Treasury shares and may be re-issued from time to time.
SECTION 9.03 DETERMINATION OF NET ASSET VALUE AND VALUATION OF
PORTFOLIO ASSETS. The term "Net Asset Value" of any Series shall mean that
amount by which the assets of that Series exceed its liabilities, all as
determined by or under the direction of the Trustees. The Trustees may delegate
any of their powers and duties under this Section 9.03 with respect to valuation
of assets and liabilities. Such value shall be determined separately for each
Series and shall be determined on such days and at such times as the Trustees
may determine. Such determination shall be made with respect to securities for
which market quotations are readily available, at the market value of such
securities; and with respect to other securities and assets, at the fair value
as determined in good faith by the Trustees; provided, however, that the
Trustees, without Shareholder approval, may alter the method of valuing
portfolio securities insofar as permitted
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under the 1940 Act. The resulting amount, which shall represent the total Net
Asset Value of the particular Series, shall be divided by the total number of
shares of that Series outstanding at the time and the quotient so obtained shall
be the Net Asset Value per Share of that Series. At any time the Trustees may
cause the Net Asset Value per Share last determined to be determined again in
similar manner and may fix the time when such redetermined value shall become
effective.
The Trustees shall not be required to adopt, but may at any time adopt,
discontinue or amend a practice of seeking to maintain the Net Asset Value per
Share of the Series at a constant amount. If, for any reason, the net income of
any Series, determined at any time, is a negative amount, the Trustees shall
have the power with respect to that Series (a) to offset each Shareholder's pro
rata share of such negative amount from the accrued dividend account of such
Shareholder, (b) to reduce the number of Outstanding Shares of such Series by
reducing the number of Shares in the account of each Shareholder by a pro rata
portion of that number of full and fractional Shares which represents the amount
of such excess negative net income, (c) to cause to be recorded on the books of
such Series an asset account in the amount of such negative net income (provided
that the same shall thereupon become the property of such Series with respect to
such Series and shall not be paid to any Shareholder), which account may be
reduced by the amount of dividends declared thereafter upon the Outstanding
Shares of such Series on the day such negative net income is experienced, until
such asset account is reduced to zero; (d) to combine the methods described in
clauses (a) and (b) and (c) of this sentence; or (e) to take any other action
they deem appropriate, in order to cause (or in order to assist in causing) the
Net Asset Value per Share of such Series to remain at a constant amount per
Outstanding Share immediately after each such determination and declaration. The
Trustees shall also have the power not to declare a dividend out of net income
for the purpose of causing the Net Asset Value per Share to be increased.
In the event that any Series is divided into classes, the provisions of
this Section 9.03, to the extent applicable as determined in the discretion of
the Trustees and consistent with the 1940 Act and other applicable law, may be
equally applied to each such class.
SECTION 9.04 SUSPENSION OF THE RIGHT OF REDEMPTION. The Trustees may
declare a suspension of the right of redemption or postpone the date of payment
if permitted under the 1940 Act. Such suspension shall take effect at such time
as the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value per Share next determined after the termination of
the suspension.
SECTION 9.05 REDEMPTION OF SHARES IN ORDER TO QUALIFY AS REGULATED
INVESTMENT COMPANY. If the Trustees shall, at any time and in good faith, be of
the opinion that direct or indirect ownership of Shares of any Series has or may
become concentrated in any Person to an extent which would disqualify any Series
as a regulated investment company under the Internal Revenue Code, then the
Trustees shall have the power (but not the obligation) by lot or other means
deemed equitable by them (a) to call for redemption by any such person of a
number, or principal amount, of Shares sufficient to maintain or bring the
direct or indirect ownership of
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Shares into conformity with the requirements for such qualification and (b) to
refuse to transfer or issue Shares to any person whose acquisition of Shares in
question would result in such disqualification. The redemption shall be effected
at the redemption price and in the manner provided in this Article IX.
The holders of Shares shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
as the Trustees deem necessary to comply with the requirements of any taxing
authority or this Section 9.05.
SECTION 9.06 REDEMPTION OF SMALL ACCOUNTS. Subject to the
requirements of the 1940 Act, the Trustees may cause the Trust to redeem, at the
price and in the manner provided in this Article IX, Shares of any Series or
class of a Series held by any Shareholder (i) if such Shareholder is no longer
qualified to hold such Shares in accordance with such qualifications as may be
established by the Trustees, (ii) if the net asset value of such Shares is below
$500 or such other amount as determined by the Trustees or (iii) if otherwise
deemed by the Trustees to be in the best interest of the Trust or that
particular Series (or class) as a whole.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 10.01 LIMITATION OF LIABILITY. Neither a Trustee nor an officer
of the Trust, when acting in such capacity, shall be personally liable to any
person other than the Trust or the Shareholders for any act, omission or
obligation of the Trust, any Trustee or any officer of the Trust. Neither a
Trustee nor an officer of the Trust shall be liable for any act or omission or
any conduct whatsoever in his capacity as Trustee or as an officer of the Trust,
provided that nothing contained herein or in the Delaware Act shall protect any
Trustee or any officer of the Trust against any liability to the Trust or to
Shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee or officer of the Trust
hereunder.
SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):
(i) every person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in
office or thereafter, and the words "liability" and "expenses" shall
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include, without limitation, attorneys' fees, costs, judgments, amounts
paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or other
body approving the settlement; (B) by at least a majority of those
Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written opinion of
independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
Subsection (a) of this Section 10.02 may be paid by the Trust or Series from
time to time prior to final disposition thereof upon receipt of an undertaking
by or on behalf of such Covered Person that such amount will be paid over by him
to the Trust or Series if it is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however, that either (i)
such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 10.02.
SECTION 10.03 SHAREHOLDERS. In case any Shareholder of any Series shall
be held to be personally liable solely by reason of his being or having been a
Shareholder of such Series and not because of his acts or omissions or for some
other reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives, or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled out
of
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the assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability. The Trust,
on behalf of the affected Series, shall, upon request by the Shareholder, assume
the defense of any claim made against the Shareholder for any act or obligation
of the Series and satisfy any judgment thereon from the assets of the Series.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 TRUST NOT A PARTNERSHIP. It is hereby expressly declared
that a trust and not a partnership is created hereby. No Trustee hereunder shall
have any power to bind personally either the Trust officers or any Shareholder.
All persons extending credit to, contracting with or having any claim against
the Trust or the Trustees shall look only to the assets of the appropriate
Series or (if the Trustees shall have yet to have established Series) of the
Trust for payment under such credit, contract or claim; and neither the
Shareholders nor the Trustees, nor any of their agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Trust Instrument
shall protect a Trustee against any liability to the Trust or a Shareholder to
which the Trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee hereunder.
SECTION 11.02 TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR
SURETY. The exercise by the Trustees or the officers of the Trust of their
powers and discretion hereunder in good faith and with reasonable care under the
circumstances then prevailing shall be binding upon everyone interested. Subject
to the provisions of Article X hereof and to Section 11.01 of this Article XI,
the Trustees and the officers of the Trust shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees and the officers of the Trust
may take advice of counsel or other experts with respect to the meaning and
operation of this Trust Instrument, and subject to the provisions of Article X
hereof and Section 11.01 of this Article XI, shall be under no liability for any
act or omission in accordance with such advice or for failing to follow such
advice. The Trustees and the officers of the Trust shall not be required to give
any bond as such, nor any surety if a bond is obtained.
SECTION 11.03 ESTABLISHMENT OF RECORD DATES. The Trustees may close the
Share transfer books of the Trust for a period not exceeding sixty (60) days
preceding the date of any meeting of Shareholders, or the date for the payment
of any dividends or other distributions, or the date for the allotment of
rights, or the date when any change or conversion or exchange of Shares shall go
into effect; or in lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding sixty (60) days preceding the
date of any meeting of Shareholders, or the date for payment of any dividend or
other distribution, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive payment of any such dividend
or other distribution, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of Shares, and in
such case such Shareholders and only such Shareholders as shall be Shareholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting, or to receive payment of such dividend or other distribution,
or to receive
21
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such allotment or rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any Shares on the books of the Trust after any
such record date fixed as aforesaid.
SECTION 11.04 TERMINATION OF TRUST.
(a) This Trust shall continue without limitation of time but subject to
the provisions of Subsection 11.04(b).
(b) The Trustees may, subject to any necessary Shareholder, Trustee,
and regulatory approvals:
(i) sell and convey all or substantially all of the assets of
the Trust or any affected Series to another trust, partnership,
association or corporation, or to a separate series of shares thereof,
organized under the laws of any state which trust, partnership,
association or corporation is an open-end management investment company
as defined in the 1940 Act, or is a series thereof, for adequate
consideration which may include the assumption of all outstanding
obligations, taxes and other liabilities, accrued or contingent, of the
Trust or any affected Series, and which may include shares of
beneficial interest, stock or other ownership interests of such trust,
partnership, association or corporation or of a series thereof;
(ii) enter into a plan of liquidation in order to terminate
and liquidate any Series (or class) of the Trust, or the Trust; or
(iii) at any time sell and convert into money all of the
assets of the Trust or any affected Series.
Upon making reasonable provision, in the determination of the Trustees, for the
payment of all liabilities by assumption or otherwise, the Trustees shall
distribute the remaining proceeds or assets (as the case may be) of each Series
(or class) ratably among the holders of Shares of the affected Series, based
upon the ratio that each Shareholder's Shares bears to the number of Shares of
such Series (or class) then outstanding.
(c) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in Subsection 11.04(b), the Trust or any
affected Series shall terminate and the Trustees and the Trust shall be
discharged of any and all further liabilities and duties hereunder and the
right, title and interest of all parties with respect to the Trust or Series
shall be cancelled and discharged.
Upon termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's certificate of trust to be filed in accordance with the Delaware Act,
which certificate of cancellation may be signed by any one Trustee.
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SECTION 11.05 REORGANIZATION.
(a) Notwithstanding anything else herein, the Trustees, in order to
change the form or jurisdiction of organization of the Trust, may (i) cause the
Trust to merge or consolidate with or into one or more trusts, partnerships
(general or limited), associations or corporations so long as the surviving or
resulting entity is an open-end management investment company under the 1940
Act, or is a series thereof, that will succeed to or assume the Trust's
registration under that Act and which is formed, organized or existing under the
laws of a state, commonwealth, possession or colony of the United States or (ii)
cause the Trust to incorporate under the laws of Delaware.
(b) The Trustees may, subject to a vote of a majority of the Trustees
and any shareholder vote required under the 1940 Act, if any, cause the Trust to
merge or consolidate with or into one or more Trusts, partnerships (general or
limited), associations, limited liability companies or corporations formed,
organized or existing under the laws of a state, commonwealth, possession or
colony of the United States.
(c) Any agreement of merger or consolidation or certificate of merger
or consolidation may be signed by a majority of Trustees and facsimile
signatures conveyed by electronic or telecommunication means shall be valid.
(d) Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, and notwithstanding anything to the contrary
contained in this Trust Instrument, an agreement of merger or consolidation
approved by the Trustees in accordance with paragraph (a) or (b) this Section
11.05 may effect any amendment to the Trust Instrument or effect the adoption of
a new trust instrument of the Trust if it is the surviving or resulting trust in
the merger or consolidation.
SECTION 11.06 FILING OF COPIES, REFERENCES, HEADINGS. The original or a
copy of this Trust Instrument and of each amendment hereof or Trust Instrument
supplemental hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer or Trustee of the Trust as to whether or not any such
amendments or supplements have been made and as to any matters in connection
with the Trust hereunder, and with the same effect as if it were the original,
may rely on a copy certified by an officer or Trustee of the Trust to be a copy
of this Trust Instrument or of any such amendment or supplemental Trust
Instrument. In this Trust Instrument or in any such amendment or supplemental
Trust Instrument, references to this Trust Instrument, and all expressions such
as "herein," "hereof" and "hereunder," shall be deemed to refer to this Trust
Instrument as amended or affected by any such supplemental Trust Instrument. All
expressions such as "his," "he" and "him," shall be deemed to include the
feminine and neuter, as well as masculine, genders. Headings are placed herein
for convenience of reference only and in case of any conflict, the text of this
Trust Instrument, rather than the headings, shall control. This Trust Instrument
may be executed in any number of counterparts each of which shall be deemed an
original.
SECTION 11.07 APPLICABLE LAW. The trust set forth in this instrument is
made in the State of Delaware, and the Trust and this Trust Instrument, and the
rights and obligations of the Trustees and Shareholders hereunder, are to be
governed by and construed and administered according to the Delaware Act and the
laws of said State; provided, however, that there shall not be applicable to the
Trust, the Trustees or this Trust Instrument (a) the provisions of Section 3540
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of Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or
common) of the State of Delaware (other than the Delaware Act) pertaining to
trusts which relate to or regulate (i) the filing with any court or governmental
body or agency of trustee accounts or schedules of trustee fees and charges,
(ii) affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (iv) fees or other sums payable to trustees, officers,
agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards of responsibilities or limitations
on the acts or powers of trustees, which are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or referenced
in this Trust Instrument. The Trust shall be of the type commonly called a
"business trust," and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
SECTION 11.08 AMENDMENTS. Except as specifically provided herein, the
Trustees may, without shareholder vote, amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument supplemental hereto or an
amended and restated trust instrument. Shareholders shall have the right to vote
(a) on any amendment which would affect their rights to vote granted in Section
7.01 of Article VII hereof, (b) on any amendment to this Section 11.08, (c) on
any amendment as may be required by law or by the Trust's registration statement
filed with the Commission and (d) on any amendment submitted to them by the
Trustees. Any amendment required or permitted to be submitted to Shareholders
which, as the Trustees determine, shall affect the Shareholders of one or more
Series shall be authorized by vote of the Shareholders of each Series affected
and no vote of shareholders of a Series not affected shall be required.
Notwithstanding any other provision of this Trust Instrument, any amendment to
Article X hereof shall not limit the rights to indemnification or insurance
provided therein with respect to action or omission of Covered Persons prior to
such amendment.
SECTION 11.09 FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the Bylaws, provided, however, that the Trustees
may change the fiscal year of the Trust.
SECTION 11.10 NAME RESERVATION. The Trustees on behalf of the Trust
acknowledge that LM Capital Securities, Inc. has licensed to the Trust the
non-exclusive right to use the words "LM Capital" as part of the name of the
Trust, and has reserved the right to grant the non-exclusive use of the words
"LM Capital" or any derivative thereof to any other party. In addition, LM
Capital Corporation reserves the right to grant the non-exclusive use of the
words "LM Capital" to, and to withdraw such right from, any other business or
other enterprise. LM Capital Corporation reserves the right to withdraw from the
Trust the right to use said words "LM Capital" and will withdraw such right if
the Trust ceases to employ, for any reason, LM Capital Corporation, an affiliate
or any successor as adviser of the Trust.
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SECTION 11.11 PROVISIONS IN CONFLICT WITH LAW. The provisions of this
Trust Instrument are severable, and if the Trustees shall determine, with the
advice of counsel, that any of such provisions is in conflict with the 1940 Act,
the regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision of this Trust Instrument shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any matter affect such provision in any other jurisdiction or any
other provision of this Trust Instrument in any jurisdiction.
IN WITNESS WHEREOF, the undersigned, being the initial Trustee of the
Trust, has executed this instrument as of date first written above.
/s/Leslie M. Corley
----------------------------
Leslie M. Corley, as Trustee
and not individually
25
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SCHEDULE A
LM Venture Capital Evolving Venture Fund
26
LM CAPITAL INVESTMENTS TRUST
BYLAWS
JANUARY 10, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
PRINCIPAL OFFICE................................................................................................ 1
ARTICLE II
OFFICERS AND THEIR ELECTION..................................................................................... 1
Section 2.01 Officers.................................................................................. 1
Section 2.02 Election of Officers...................................................................... 1
Section 2.03 Resignations.............................................................................. 1
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES...................................................................... 1
Section 3.01 Management of the Trust................................................................... 1
Section 3.02 Executive And Other Committees............................................................ 2
Section 3.03 Compensation.............................................................................. 2
Section 3.04 Chairman Of The Trustees.................................................................. 2
Section 3.05 President................................................................................. 2
Section 3.06 Treasurer................................................................................. 2
Section 3.07 Secretary................................................................................. 3
Section 3.08 Vice President............................................................................ 3
Section 3.09 Assistant Treasurer....................................................................... 3
Section 3.10 Assistant Secretary....................................................................... 3
Section 3.11 Subordinate Officers...................................................................... 3
Section 3.12 Surety Bonds.............................................................................. 3
Section 3.13 Removal................................................................................... 4
Section 3.14 Remuneration.............................................................................. 4
ARTICLE IV
SHAREHOLDERS' MEETINGS.......................................................................................... 4
Section 4.01 Special Meetings.......................................................................... 4
Section 4.02 Notices................................................................................... 4
Section 4.03 Voting-Proxies............................................................................ 5
Section 4.04 Place of Meeting.......................................................................... 5
Section 4.05 Action Without a Meeting.................................................................. 5
ARTICLE V
TRUSTEES' MEETINGS.............................................................................................. 6
Section 5.01 Special Meetings.......................................................................... 6
Section 5.02 Regular Meetings.......................................................................... 6
Section 5.03 Quorum.................................................................................... 6
Section 5.04 Notice.................................................................................... 6
Section 5.05 Place of Meeting.......................................................................... 6
Section 5.06 Special Action............................................................................ 6
Section 5.07 Action by Consent......................................................................... 6
Section 5.08 Participation in Meetings By Conference
Telephone............................................................................... 6
ARTICLE VI
FISCAL YEAR; REGISTERED OFFICE AND REGISTERED AGENT............................................................. 7
Section 6.01 Fiscal Year............................................................................... 7
Section 6.02 Registered Office and Registered Agent.................................................... 7
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ARTICLE VII
INSPECTION OF BOOKS............................................................................................. 7
ARTICLE VIII
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES.................................................................. 7
ARTICLE IX
SEAL............................................................................................................ 8
ARTICLE X
AMENDMENTS...................................................................................................... 8
</TABLE>
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LM CAPITAL INVESTMENTS TRUST
BYLAWS
These Bylaws of LM Capital Investments Trust (the "Trust"), a Delaware
business trust, are subject to the Trust Instrument of the Trust, dated January
10, 1997, as from time to time amended, supplemented or restated (the "Trust
Instrument"). Capitalized terms used herein which are defined in the Trust
Instrument are used as therein defined.
ARTICLE I
PRINCIPAL OFFICE
The principal office of the Trust shall be located in Cincinnati, Ohio
or such other location as the Trustees may, from time to time, determine. The
Trust may establish and maintain such other offices and places of business as
the Trustees may, from time to time, determine.
ARTICLE II
OFFICERS AND THEIR ELECTION
SECTION 2.01 OFFICERS. The officers of the Trust shall be a President,
a Treasurer, a Secretary, and such other officers as the Trustees may from time
to time elect. The Trustees may delegate to any officer or committee the power
to appoint any subordinate officers or agents. It shall not be necessary for any
Trustee or other officer to be a holder of Shares in the Trust.
SECTION 2.02 ELECTION OF OFFICERS. The Treasurer and Secretary shall be
chosen by the Trustees. The President shall be chosen by and from the Trustees.
Two or more offices may be held by a single person except the offices of
President and Secretary. Subject to the provisions of Section 3.13 hereof the
President, the Treasurer and the Secretary shall each hold office until their
successors are chosen and qualified and all other officers shall hold office at
the pleasure of the Trustees.
SECTION 2.03 RESIGNATIONS. Any officer of the Trust may resign,
notwithstanding Section 2.02 hereof, by filing a written resignation with the
President, the Trustees or the Secretary, which resignation shall take effect on
being so filed or at such time as may be therein specified.
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES
SECTION 3.01 MANAGEMENT OF THE TRUST. The business and affairs of the
Trust shall be managed by, or under the direction
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of the Trustees, and they shall have all powers necessary and desirable to carry
out their responsibilities, so far as such powers are not inconsistent with the
laws of the State of Delaware, the Trust Instrument or with these Bylaws.
SECTION 3.02 EXECUTIVE AND OTHER COMMITTEES. The Trustees may elect
from their own number an executive committee, which shall have any or all of the
powers of the Board of Trustees while the Board of Trustees is not in session.
The Trustees may also elect from their own number other committees from time to
time. The number composing such committees and the powers conferred upon the
same are to be determined by vote of a majority of the Trustees. All members of
such committees shall hold such offices at the pleasure of the Trustees. The
Trustees may abolish any such committee at any time. Any committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees. The Trustees shall have
power to rescind any action of any committee, but no such rescission shall have
retroactive effect.
SECTION 3.03 COMPENSATION. Each Trustee and each committee member may
receive such compensation for his services and reimbursement for his expenses as
may be fixed from time to time by resolution of the Trustees.
SECTION 3.04 CHAIRMAN OF THE TRUSTEES. The Trustees may appoint from
among their number a Chairman who shall serve as such at the pleasure of the
Trustees. When present, he shall preside at all meetings of the Shareholders and
the Trustees, and he may, subject to the approval of the Trustees, appoint a
Trustee to preside at such meetings in his absence. He shall perform such other
duties as the Trustees may from time to time designate.
SECTION 3.05 PRESIDENT. The President shall be the chief executive
officer of the Trust and, subject to the direction of the Trustees, shall have
general administration of the business and policies of the Trust. Except as the
Trustees may otherwise order, the President shall have the power to grant,
issue, execute or sign such powers of attorney, process, agreements or other
documents as may be deemed advisable or necessary in the furtherance of the
interests of the Trust or any Series thereof. He shall also have the power to
employ attorneys, accountants and other advisors and agents and counsel for the
Trust. The President shall perform such duties additional to all of the
foregoing as the Trustees may from time to time designate.
SECTION 3.06 TREASURER. The Treasurer shall be the principal financial
and accounting officer of the Trust. He shall deliver all funds and securities
of the Trust which may come into his hands to such company as the Trustees shall
employ as Custodian in accordance with the Trust Instrument and
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<PAGE>
applicable provisions of law. He shall make annual reports regarding the
business and condition of the Trust, which reports shall be preserved in Trust
records, and he shall furnish such other reports regarding the business and
condition of the Trust as the Trustees may from time to time require. The
Treasurer shall perform such additional duties as the Trustees may from time to
time designate.
SECTION 3.07 SECRETARY. The Secretary shall record in books kept for
the purpose all votes and proceedings of the Trustees and the Shareholders at
their respective meetings. He shall have the custody of the seal of the Trust.
The Secretary shall perform such additional duties as the Trustees may from time
to time designate.
SECTION 3.08 VICE PRESIDENT. Any Vice President of the Trust shall
perform such duties as the Trustees or the President may from time to time
designate. At the request or in the absence or disability of the President, the
Vice President (or, if there are two or more Vice Presidents, then the senior of
the Vice Presidents) present and able to act may perform all the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
SECTION 3.09 ASSISTANT TREASURER. Any Assistant Treasurer of the Trust
shall perform such duties as the Trustees or the Treasurer may from time to time
designate, and, in the absence of the Treasurer, the senior Assistant Treasurer,
present and able to act, may perform all the duties of the Treasurer and, when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Treasurer.
SECTION 3.10 ASSISTANT SECRETARY. Any Assistant Secretary of the Trust
shall perform such duties as the Trustees or the Secretary may from time to time
designate, and, in the absence of the Secretary, the senior Assistant Secretary,
present and able to act, may perform all the duties of the Secretary and, when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Secretary.
SECTION 3.11 SUBORDINATE OFFICERS. The Trustees from time to time may
appoint such officers or agents as they may deem advisable, each of whom shall
have such title, hold office for such period, have such authority and perform
such duties as the Trustees may determine. The Trustees from time to time may
delegate to one or more officers or committees of Trustees the power to appoint
any such subordinate officers or agents and to prescribe their respective terms
of office, authorities and duties.
SECTION 3.12 SURETY BONDS. The Trustees may require any officer or
agent of the Trust to execute a bond (including without limitation, any bond
required by the 1940 Act and the
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<PAGE>
rules and regulations of the Commission) to the Trust in such sum and with such
surety or sureties as the Trustees may determine, conditioned upon the faithful
performance of his duties to the Trust including responsibility for negligence
and for the accounting of any of the Trust's property, funds or securities that
may come into his hands.
SECTION 3.13 REMOVAL. Any officer may be removed from office, with or
without cause, whenever in the judgment of the Trustees the best interest of the
Trust will be served thereby, by the vote of a majority of the Trustees given at
any regular meeting or any special meeting of the Trustees. In addition, any
officer or agent appointed in accordance with the provisions of Section 3.10
hereof may be removed, either with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Trustees.
SECTION 3.14 REMUNERATION. The salaries or other compensation, if any,
of the officers of the Trust shall be fixed from time to time by resolution of
the Trustees.
ARTICLE IV
SHAREHOLDERS' MEETINGS
SECTION 4.01 SPECIAL MEETINGS. A special meeting of the shareholders
shall be called by the Secretary whenever (a) ordered by the Trustees or (b)
requested in writing by the holder or holders of at least 10% of the Outstanding
Shares entitled to vote for the purpose of voting upon the question of removal
of Trustees. If the meeting is a meeting of the Shareholders of one or more
Series or classes of Shares, but not a meeting of all Shareholders of the Trust,
then only special meetings of the Shareholders of such one or more Series or
classes shall be called and only the shareholders of such one or more Series or
classes shall be entitled to notice of and to vote at such meeting.
SECTION 4.02 NOTICES. Except as provided in Section 4.01, notices of
any meeting of the Shareholders shall be given by the Secretary by delivering or
mailing, postage prepaid, to each Shareholder entitled to vote at said meeting,
written or printed notification of such meeting at least ten (10) days before
the meeting, to such address as may be registered with the Trust by the
Shareholder. Notice of any Shareholder meeting need not be given to any
Shareholder if a written waiver of notice, executed before or after such
meeting, is filed with the records of such meeting, or to any Shareholder who
shall attend such meeting in person or by proxy. Notice of adjournment of a
Shareholder's meeting to another time or place need not be given, if such time
and place are announced at the meeting or reasonable notice is given to persons
present at the meeting and the adjourned meeting is held within a reasonable
time after the date set for the original meeting.
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<PAGE>
SECTION 4.03 VOTING-PROXIES. Subject to the provisions of the Trust
Instrument, shareholders entitled to vote may vote either in person or by proxy,
provided that either (a) an instrument authorizing such proxy to act is executed
by the Shareholder in writing and dated not more than eleven (11) months before
the meeting, unless the instrument specifically provides for a longer period or
(b) the Trustees adopt by resolution an electronic, telephonic, computerized or
other alternative to execution of a written instrument authorizing the proxy to
act, which authorization is received not more than eleven (11) months before the
meeting. Proxies shall be delivered to the Secretary of the Trust or other
person responsible for recording the proceedings before being voted. A proxy
with respect to shares held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the Trust
receives a specific written notice from any one of them. Unless otherwise
specifically limited by their terms, proxies shall entitle the holder thereof to
vote at any adjournment of a meeting. A proxy purporting to be exercised by or
on behalf of a Shareholder shall be deemed valid unless challenged at or prior
to its exercise and the burden of proving invalidity shall rest on the
challenger. At all meetings of the Shareholders, unless the voting is conducted
by inspectors, all questions relating to the qualifications of voters, the
validity of proxies, and the acceptance or rejection of votes shall be decided
by the Chairman of the meeting. Except as otherwise provided herein or in the
Trust Instrument, as these Bylaws or such Trust Instrument may be amended or
supplemented from time to time, all matters relating to the giving, voting or
validity of proxies shall be governed by the General Corporation Law of the
State of Delaware relating to proxies, and judicial interpretations thereunder,
as if the Trust were a Delaware corporation and the Shareholders were
shareholders of a Delaware corporation.
SECTION 4.04 PLACE OF MEETING. All special meetings of the Shareholders
shall be held at the principal place of business of the Trust or at such other
place in the United States as the Trustees may designate.
SECTION 4.05 ACTION WITHOUT A MEETING. Any action to be taken by
Shareholders may be taken without a meeting if all Shareholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of meetings of Shareholders of the Trust. Such consent
shall be treated for all purposes as a vote at a meeting of the Shareholders
held at the principal place of business of the Trust.
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<PAGE>
ARTICLE V
TRUSTEES' MEETINGS
SECTION 5.01 SPECIAL MEETINGS. Special meetings of the Trustees may be
called orally or in writing by the Chairman of the Board of Trustees or any two
other Trustees.
SECTION 5.02 REGULAR MEETINGS. Regular meetings of the Trustees may be
held at such places and at such times as the Trustees may from time to time
determine; each Trustee present at such determination shall be deemed a party
calling the meeting and no call or notice will be required to such Trustee
provided that any Trustee who is absent when such determination is made shall be
given notice of the determination by the Chairman or any two other Trustees, as
provided for in Section 4.04 of the Trust Instrument.
SECTION 5.03 QUORUM. A majority of the Trustees shall constitute a
quorum for the transaction of business at any meeting and an action of a
majority of the Trustees in attendance constituting a quorum shall constitute
action of the Trustees.
SECTION 5.04 NOTICE. Except as otherwise provided, notice of any
special meeting of the Trustees shall be given by the party calling the meeting
to each of the Trustees, as provided for in Section 4.04 of the Trust
Instrument. A written notice may be mailed, postage prepaid, addressed to him at
his address as registered on the books of the Trust or, if not so registered, at
his last known address.
SECTION 5.05 PLACE OF MEETING. All special meetings of the Trustees
shall be held at the principal place of business of the Trust or such other
place as the Trustees may designate. Any meeting may adjourn to any place.
SECTION 5.06 SPECIAL ACTION. When all the Trustees shall be present at
any meeting however called or wherever held, or shall assent to the holding of
the meeting without notice, or shall sign a written assent thereto filed with
the records of such meeting, the acts of such meeting shall be valid as if such
meeting had been regularly held.
SECTION 5.07 ACTION BY CONSENT. Any action by the Trustees may be taken
without a meeting if a written consent thereto is signed by all the Trustees and
filed with the records of the Trustees' meeting. Such consent shall be treated,
for all purposes, as a vote at a meeting of the Trustees held at the principal
place of business of the Trustees.
SECTION 5.08 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Except
when presence in person is required at a meeting under the 1940 Act or other
applicable laws, Trustees may participate in a meeting of Trustees by conference
telephone or similar communications equipment by means of which all persons
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participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting. Any meeting conducted by
telephone shall be deemed to take place at and from the principal office of the
Trust.
ARTICLE VI
FISCAL YEAR; REGISTERED OFFICE AND REGISTERED AGENT
SECTION 6.01 FISCAL YEAR. The fiscal year of the Trust and of each
Series of the Trust shall end on December 31 of each year; provided that the
last fiscal year of the Trust and each Series shall end on the date on which the
Trust or each such Series is terminated, as applicable; and further provided
that the Trustees by resolution and without a Shareholder vote may at any time
change the fiscal year of the Trust and of any or all Series (and the Trust and
each Series may have different fiscal years as determined by the Trustees).
SECTION 6.02 REGISTERED OFFICE AND REGISTERED AGENT. The initial
registered office of the Trust in the State of Delaware shall be located at 1201
North Market Street, P.O. Box 1347, Wilmington, Delaware 19899-1347. The
registered agent of the Trust at such location shall be Delaware Corporation
Organizers, Inc.; provided that the Trustees by resolution and without a
Shareholder vote may at any time change the Trust's registered office or its
registered agent, or both.
ARTICLE VII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what
extent, and at what times and places, and under what conditions and regulations
the accounts and books of the Trust or any of them shall be open to the
inspection of the Shareholders; and no Shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by law
or otherwise by the Trustees or by resolution of the Shareholders.
ARTICLE VIII
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES
The Trust may purchase and maintain insurance on behalf of any Covered
Person (as defined in Section 10.02 of the Trust Instrument) or employee of the
Trust, including any Covered Person or employee of the Trust who is or was
serving at the request of the Trust as a Trustee, officer or employee of a
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and claimed by him in any such capacity or
arising out of his status as such, whether or not the Trustees would have the
power to indemnify him against such liability.
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The Trust may not acquire or obtain a contract for insurance that
protects or purports to protect any Trustee or officer of the Trust against any
liability to the Trust or its Shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
ARTICLE IX
SEAL
The seal of the Trust shall be circular in form bearing the
inscription:
"LM CAPITAL INVESTMENTS TRUST, JANUARY 10, 1997
THE STATE OF DELAWARE"
ARTICLE X
AMENDMENTS
These Bylaws may be amended from time to time by action of the
Trustees, without requirement for the vote or approval of shareholders.
- 8 -
Kramer, Levin, Naftalis & Frankel
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
Arthur H. Aufses III Monica C. Lord Sherwin Kamin
Thomas D. Balliett Richard Marlin Arthur B. Kramer
Jay G. Baris Thomas E. Molner Maurice N. Nessen
Philip Bentley Thomas H. Moreland Founding Partners
Saul E. Burian Ellen R. Nadler Counsel
Barry Michael Cass Gary P. Naftalis _____
Thomas E. Constance Michael J. Nassau
Michael J. Dell Michael S. Nelson Martin Balsam
Kenneth H. Eckstein Jay A. Neveloff Joshua M. Berman
Charlotte M. Fischman Michael S. Oberman Jules Buchwald
David S. Frankel Paul S. Pearlman Rudolph de Winter
Marvin E. Frankel Susan J. Penry-Williams Meyer Eisenberg
Alan R. Friedman Bruce Rabb Arthur D. Emil
Carl Frischling Allan E. Reznick Maria T. Jones
Mark J. Headley Scott S. Rosenblum Maxwell M. Rabb
Robert M. Heller Michele D. Ross James Schreiber
Philip S. Kaufman Howard J. Rothman Counsel
Peter S. Kolevzon Max J. Schwartz _____
Kenneth P. Kopelman Mark B. Segall
Michael Paul Korotkin Judith Singer M. Frances Buchinsky
Shari K. Krouner Howard A. Sobel Abbe L. Dienstag
Kevin B. Leblang Jeffrey S. Trachtman Ronald S. Greenberg
David P. Levin Jonathan M. Wagner Debora K. Grobman
Ezra G. Levin Harold P. Weinberger Christian S. Herzeca
Larry M. Loeb E. Lisk Wyckoff, Jr. Jane Lee
Pinchas Mendelson
Lynn R. Saidenberg
Special Counsel
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FAX
(212) 715-8000
---
WRITER'S DIRECT NUMBER
(212)715-9100
-------------
December 24, 1997
LM Capital Investments, Inc.
312 Walnut Street
Cincinatti, Ohio 45202
Re: LM Capital Investments, Inc.
----------------------------
Gentlemen:
We hereby consent to the reference of our firm as counsel in this
Pre-Effective Amendment No. 3 to Registration Statement on Form N-1A.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel
-------------------------------------
