Dear Shareholder:
S.I.S. Mercator Fund, Inc. completed its first official six months of operation
at the end of April 1996. The exact timing does not allow for a complete six
months of activity since the Fund only became fully operational on November 10,
1995.
Over the period from November 10 to April 30, The Equity Portfolio increased
in value by 11.43% while the Income Portfolio was up 0.94%. Comparisons with a
global index is only possible for the five complete months of operation. The
Equity Portfolio was up 10.59% over the period from end-November to end-April
while the Morgan Stanley Capital International World Index was up 9.59%. The
comparisons for the year-to-date are 8.86% and 6.50% respectively.
The Income Portfolio got off to a slow start as it more-or-less coincided with
the onset of a bear market for bonds. However, the Portfolio did relatively
better than the most relevant world index by underweighting Japanese bonds to
the extent of excluding them totally, while overweighting Canadian and French
bonds - the two best performing of the major markets. On a comparison with the
Salomon Brothers World Government Bond Index, the Income Portfolio performance
from end-November and year-to-date was 0.08% and -1.33% respectively, while the
total return on the SBWGBI was -1.24% and -2.27%.
Bonds continued to rally into the end of 1995 - in the United States the low
yield was recorded on the last day of the year - but then sold off. There has
been a short, sharp, correction in all bond markets over the first four months
of 1996, as commodity inflation flared up and the US economy proved to be more
resilient then were expectations at the start of the year.
The US equity market, lead by the Dow Jones Industrials, started the new year
as it ended the last, by rallying strongly to a new high. There was then a
period of consolidation that lasted into the end of this reporting period.
The smaller cap stocks and technology issues have done better in the latter
part of this period having lagged in the early part.
Overseas markets started slower, but have generally made steady progress
through the first four months of 1996. The rapid rise in the Japanese market
from the summer of 1995 slowed down this year amid increasing signs of
economic recovery. In Europe there has been more concern about the economy
which has not helped bonds but has allowed equity prices to move higher.
Europe has suffered from many structural and cyclical problems, but these are
already well known and reflected in market prices. Economic forecasts have been
marked down sharply this year, just when the outlook is improving. The prospect
of improving cyclical conditions should allow stock prices to move higher.
One feature of stock markets everywhere, but particularly in the United States,
has been the degree of rotation within each market. There have been some large-
scale corrections within sector and by sector, but these have not prevented the
overall markets moving ahead. The most notable correction has been in the high-
tech sector, where many high-flyers lost more than half their highly-
appreciated value in the latter part of 1995.
We increased the exposure of the Equity Portfolio to technology issues
following the sharp correction, while, at the same time, reducing the overall
weighting in the United States. This reflects our view that the revolution in
telecommunications, computers and technology generally has much further to run,
but that most stocks will have trouble going up through the summer.
The Japanese market has the potential to move higher in the near term, as
earnings recover strongly, but will face problems when interest rates move up.
The Equity portfolio started the period overweight in Japan and we intend to
reduce exposure on strength - a change that has already started.
For any global fund, what happens to the dollar when measured in terms of the
different foreign currencies will affect the total return to US$ based
investors. Over the summer the dollar is expected to appreciate further against
the European currencies but the yen is likely to stop falling and could gain
back some of the ground lost.
Sincerely,
/R.T. COGHLAN
Richard T. Coghlan
Chairman and President
Global Equity Portfolio
Portfolio of Investments (Unaudited)
April 30, 1996 S.I.S. Mercator Fund, Inc.
COMMON STOCKS (81.6%)
Shares U.S. $ Value
NORTH AMERICA (33.7%)
United States (27.5%)
Arkansas's Best Corp. 18,000 $139,500
Adobe Systems Inc. 8,800 378,400
Advanced Micro Devices Inc. (a) 8,600 160,175
AMR Corp. 5,650 504,263
Birmingham Steel Corp. 14,000 224,000
Citicorp 15,000 1,181,250
EMC Corp. (a) 16,250 333,125
Ford Motor Company 10,800 387,450
Gateway 2000 Inc. (a) 13,200 460,350
General Motors 6,400 347,200
Home Depot Inc. 7,600 360,050
International Business Machines Corp. 6,750 725,625
Intel Corp. 5,100 345,525
Johnson Controls Inc. 4,300 307,450
Motorola 5,050 309,944
Micron Technology Inc. 9,800 356,475
Newmont Mining Corp. 1,622 93,873
Quaker Oats Co. 9,700 333,438
Office Depot Inc. 15,000 335,625
Silicon Graphics Inc. 11,300 334,763
Tandem Computer Inc. (a) 24,800 316,200
Temple-Inland Inc. 4,500 218,250
USX-US Steel Group Inc. 800 26,400
8,179,331
Canada (5.3%)
Barrick Gold Corp. 25,000 765,625
BCE Inc. 10,900 429,188
Canadian Pacific ltd. 18,700 381,013
1,575,826
Global Equity Portfolio
Portfolio of Investments (Unaudited) - continued
April 30, 1996 S.I.S. Mercator Fund, Inc.
Shares U.S. $ Value
Mexico (0.9%)
Telefonos De Mexico, Class L-Adr 8,300 $282,200
EUROPE (18.8%)
Switzerland (4.1%)
Baer Holdings AG 420 468,916
Magazine Globus 425 238,956
Grands Magazines Jemoli-Bearer 320 182,490
Schweizer Union Bank 1,510 327,470
Schweiz Bankverien - warrants
(expiring 06/30/98) (a) 52 731
1,218,563
Germany (2.8%)
Deutsche Bank AG 5,000 239,302
Kaufhof Holdings AG 900 280,039
Volkswagon AG 940 324,064
843,405
Finland (1.2%)
Nokia Corp. - Sponsored ADR-A 9,400 341,925
France (6.0%)
Alcatel Alsthom 3,521 330,668
Club Mediter 3,780 357,913
CIE Generale Des Eaux 961 104,364
Lagardere Group 13,500 361,826
Rhone Poulenc 15,000 359,420
Union des Assurances de Paris 13,090 283,048
1,797,239
Italy (1.0%)
Fiat Spa 90,000 306,155
Netherlands (1.2%)
KLM Royal Dutch Airlines NV 10,417 351,574
Global Equity Portfolio
Portfolio of Investments (Unaudited) - continued
April 30, 1996 S.I.S. Mercator Fund, Inc.
Shares U.S. $ Value
United Kingdom (2.5%)
Caradon PC 670 $232,260
Harrisons & Crosfield PLC 1,100 247,030
Williams Holdings PLC 500 259,992
739,282
ASIA (28.6%)
Japan (24.1%)
Kajima Corp. 40,000 449,438
Bridgestone Corp. 40,000 738,907
Matsushita Electronic Industrial Co. 60,000 1,056,941
Fanuc 7,500 324,938
Kyocera 10,000 750,333
Mitsubishi Heavy Industries 58,000 515,826
Mitsubishi Motors Corp. (a) 118,000 1,060,674
Mazda Motor 78,000 376,557
Sega Enterprises 5,000 254,237
Bank of Tokyo-Mitsubishi Ltd. 14,700 338,735
Nomura Securities Co. Ltd. 25,000 542,754
Sumitomo Marine & Fire 40,000 379,356
Mitsu O.S.K Lines Ltd. (a) 111,000 401,634
7,190,330
South Korea (0.9%)
Korean Equity Fund 29,000 271,874
Australia (3.6%)
CSR Ltd. 84,600 305,370
Email Ltd. 159,246 447,075
Pacific Dunlap Ltd. 126,500 308,387
1,060,832
OTHER COUNTRIES (0.5%)
South Africa (0.5%)
ASA Ltd. 3,000 138,750
TOTAL COMMON STOCK (Cost: $18,969,514) 24,297,286
Global Equity Portfolio
Portfolio of Investments (Unaudited) - continued
April 30, 1996 S.I.S. Mercator Fund, Inc.
FIXED INCOME SECURITIES (3.2%)
Principal Amt. U.S. $ Value
Argentina (1.0%)
Argentina Gov. Bond 9.25% due 02/23/01 300,000 $288,617
Canada (2.2%)
British Columbia Prov. 7.875% due 11/30/23 450,000 303,183
Canada Gov. Bond 8% due 06/01/23 500,000 357,994
661,177
TOTAL DEBT SECURITIES (Cost: $953,218 ) 949,794
SHORT-TERM INVESTMENTS (7.4%)
Conagra Commercial Paper 5.30% due 05/15/96 800,000 797,326
Merrill Lynch Commercial Paper 5.47% due 05/21/96 900,000 897,218
Highmark Money Market Fund 518,061 518,061
TOTAL SHORT-TERM INVESTMENT (Cost $2,212,605) 2,212,605
TOTAL INVESTMENT IN SECURITIES (Cost: $22,135,337) (Notes 2A
and 3) (92.2%) 27,459,685
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES-NET (7.8%) 2,316,162
TOTAL NET ASSETS (100%) $29,775, 847
(a) non-income producing security
At April 30, 1996, the Fund had the following open forward currency contract:
Unrealized
Local Currency Proceeds Current Cost Appreciation
Foreign currencies sold forward
Japanese yen, to settle 07/15/96
75,000,000 $723,938 $721,970 $1,968
Global Income Portfolio
Portfolio of Investments (Unaudited)
April 30, 1996 S.I.S. Mercator Fund, Inc.
FIXED INCOME SECURITIES (85.8%)
Shares U.S.$ Value
NORTH AMERICA (57.2%)
United States (45.6%)
PDV America Inc. 7.25% due 08/01/98 100,000 $97,375
US Treasury Note 8.00% due 08/15/99 2,000,000 2,100,000
US Treasury Note 7.75% due 02/15/2001 400,000 421,625
US Treasury Note 8.0% due 05/15/2001 550,000 586,523
US Treasury Bond 5.625% due 02/15/06 500,000 463,047
US Treasury Bond 8.0% due 11/15/2021 500,000 552,813
US Treasury Bond 6.25% due 08/15/2023 500,000 450,313
US Treasury Bond 7.5% due 11/15/24 300,000 316,313
US Treasury Bond 7.625% due 02/15/25 300,000 321,422
US Treasury Bond 6.60% due 02/15/26 500,000 443,516
5,752,947
Canada (11.6%)
Canadian Gov. Bond 9.75% due 06/01/2001 300,000 245,500
Ontario Prov. 7.75% due 12/08/2003 625,000 462,154
Canadian Gov. Bond 8.0% due 06/01/23 500,000 357,995
British Colombia Prov. 7.875% due 11/30/2023 590,000 397,506
1,463,155
EUROPE (22.7%)
European CC (7.3%)
United Kingdom Bond 9.125% due 02/12/2001 400,000 553,883
Council of Europe Bond 6.75% due 05/11/2004 300,000 371,863
925,746
France (12.7%)
French Gov. Bond 8.125% due 05/25/99 3,000,000 633,443
Denmark Kingdom Notes 5.5% due 10/26/99 2,500,000 490,188
European Investment Bank Bond 6.125%
due 10/08/2004 2,500,000 480,224
1,603,855
Italy (2.7%)
General Electric Capital Bond 9.25%
due 05/18/2004 550,000,000 337,224
Global Income Portfolio
Portfolio of Investments (Unaudited) - continued
April 30, 1996 S.I.S. Mercator Fund, Inc.
Shares/ U.S.$ Value
Principal Amt.
OTHER COUNTRIES (5.9%)
Argentina (4.6%)
Republic Of Argentina Bond 9.25%
due 02/23/2001 600,000 $577,233
Australia (1.3%)
First Australia Prime Income Fund 20,000 171,250
TOTAL DEBT SECURITIES (Cost: $10,379,606) 10,831,410
COMMON STOCKS (2.8%)
PECO Energy Corp. 6,000 149,250
BCE Inc. 5,000 196,875
TOTAL COMMON STOCK (Cost: $341,360) 346,125
SHORT-TERM INVESTMENTS (3.8%)
Merrill Lynch Commercial Paper 5.30%
due 05/15/96 300,000 299,337
Highmark Money Market Fund 179,531 179,531
TOTAL SHORT-TERM INVESTMENTS (Cost: $478,868) 478,868
TOTAL INVESTMENT IN SECURITIES (Cost: $11,199,834) (Notes 2A
and 3) (92.4%) 11,656,403
CASH & OTHER ASSETS IN EXCESS OF LIABILITIES-net (7.6%) 964,422
TOTAL NET ASSETS (100%) $12,620,825
Statement of Assets and Liabilities (Unaudited)
April 30, 1996
S.I.S. Mercator Fund, Inc.
Global Equity Global Income
Portfolio Portfolio
ASSETS
Investment in securities, at value (identified
cost $22,135,337 and $11,199,834 respectively)
(Notes 1 and 2A) $27,459,685 $11,656,403
Cash (including foreign currencies) 2,220,667 650,369
Receivables:
Interest and dividends 81,918 313,585
Investment securities sold 37,992 -
Tax reclaims 3,953 -
Open forward currency contract 1,968 -
Prepaid expenses 1,226 1,226
Deferred organization expenses (Note 2G) 30,651 30,651
Total assets 29,838,060 12,652,234
LIABILITIES
Accrued expenses 62,213 31,409
Total liabilities 62,213 31,409
NET ASSETS (Note 4) $29,775,847 $12,620,825
Shares outstanding 2,689,251 1,286,018
Net asset value, offering and redemption
price per share $11.07 $9.81
At April 30, 1996, the components of net assets were as follows:
Paid-in capital $23,228,261 $11,536,924
Undistributed net investment income 21,064 195,042
Undistributed realized gains on investments and foreign
currency transactions 1,214,568 440,519
Unrealized appreciation of investments and translation
of foreign currency denominated assets and
liabilities 5,311,954 448,340
$29,775,847 $12,620,825
Statement of Changes in Net Assets (Unaudited)
For the period from November 8, 1995 (commencement of operations)
to April 30, 1996 S.I.S. Mercator Fund, Inc.
Global Equity Global Income
Portfolio Portfolio
OPERATIONS
Net investment income $39,640 $275,647
Net realized gain on investments and foreign
currency transactions 1,214,568 440,519
Net change in unrealized appreciation of investments
and foreign currency denominated assets and
liabilities 1,731,687 (590,041)
Net increase in net assets resulting from
operations 2,985,895 126,125
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income ($0.07
and $0.28 per share, respectively) (164,442) (356,833)
CAPITAL SHARE TRANSACTION
Net increase in net assets from capital share
transactions (a) 26,854,394 12,801,533
Net increase in net assets 29,675,847 12,570,825
Net assets at the beginning of the period 100,000 50,000
Net assets at the end of the period (including
undistributed net investment income of
$21,064 and $195,042, respectively) $29,775,847 $12,620,825
(a) A summary of capital share transactions is as follows:
Global Equity Portfolio Global Income Portfolio
Shares Value Shares Value
Shares sold 202,912 $2,129,367 30,672 $300,000
Shares issued in tax-free
reorganization (Note 1) 2,555,558 25,555,585 1,298,970 12,989,700
Shares issued in reinvestment of distributions
to shareholders 16,023 164,442 35,740 356,833
2,774,493 27,849,394 1,365,382 13,646,533
Shares redeemed (95,242) (995,000) (84,364) (845,000)
Net increase 2,679,251 $26,854,394 1,281,018 $12,801,533
Statement of Operations (Unaudited)
For the period from November 8, 1995 (commencement of operations)
to April 30, 1996 S.I.S. Mercator Fund, Inc.
Global Equity Global Income
Portfolio Portfolio
INVESTMENT INCOME
Income
Interest $102,234 $369,210
Dividends 166,464 18,204
Total income 268,698 387,414
EXPENSES
Investment management fees (Note 5) 114,047 54,250
Distribution expenses (Note 6) 314 43
Shareholder servicing fees (Note 6) 31,680 15,070
Administration (Note 5), accounting
and transfer agent 43,749 22,315
Professional fees 9,659 4,829
Registration and filing fees 7,589 4,261
Custody fees 11,105 5,553
Amortization of organization expenses 523 523
Directors' fees and expenses 3,139 1,546
Other operating expenses 7,253 3,377
Total expenses 229,058 111,767
Net investment income 39,640 275,647
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain from investments 1,250,747 456,614
Net realized loss from foreign
currency transactions (36,179) (16,095)
Net change in unrealized appreciation of
investments 1,742,728 (583,910)
Net change in unrealized depreciation
of foreign currency denominated
assets and liabilities (11,041) (6,131)
Net gain on investments and foreign
currency denominated asset and
liabilities 2,946,255 (149,522)
Net increase (decrease) in net assets
resulting from operations $2,985,895 $126,125
Financial Highlights (Unaudited)
For a share outstanding throughout the period from November 8, 1995
(commencement of operations) to April 30, 1996 S.I.S. Mercator Fund, Inc.
Global Equity Global Income
Portfolio Portfolio
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $10.00
Net income (loss) from investment operations
Net investment income 0.02 0.22
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 1.12 (0.13)
Total from investment operations 1.14 0.09
Less distributions
Distributions from net investment income (0.07) (0.28)
Net asset value, end of period $11.07 $9.81
TOTAL RETURN * 11.43% 0.94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $29,776 $12,621
Ratio to average net assets
Expenses ** 1.79% 1.83%
Net investment income** 0.31% 4.51%
Portfolio turnover rate 21% 20%
* Total return has not been annualized
** Annualized
Notes to Financial Statements (Unaudited)
April 30, 1996
S.I.S. Mercator Fund, Inc.
(1) Organization
S.I.S. Mercator Fund, Inc. (formerly Navigator Fund, Inc.) (the "Fund"), is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company and is authorized to
issue shares in separate series. The Fund currently offers shares in two
diversified series, the Global Equity Portfolio and the Global Income
Portfolio (the "Portfolios").
The Fund was incorporated on July 6, 1995, and between that date and November
8, 1995 the Fund had no operations other than those relating to organizational
matters and the registration of its shares under applicable securities laws.
On November 8, 1995 the Fund sold 10,000 shares of the Global Equity Portfolio
for $100,000 and 5,000 shares of the Global Income Portfolio for $50,000 to
an Officer and Director of the Fund and principal shareholder of East Coast
Consultants, Inc. ("East Coast"), the Fund's principal underwriter and a
general partner of Strategic Investment Services ("Strategic"), the Fund's
investment advisor.
On November 10, 1995, 2,555,558 shares of the Global Equity Portfolio, having a
value of $25,555,585, were issued to a partnership in an exchange which
qualified as a tax-free reorganization under the Internal Revenue Code.
The net assets of the partnership, consisting principally of marketable
securities, were $25,555,585, including unrealized appreciation of investments
and translation of assets and liabilities denominated in foreign currencies of
$3,580,267 and undistributed net investment income of $145,866.
On November 10, 1995, 1,298,970 shares of the Global Income Portfolio, having a
value of $12,989,700, were issued to a foundation in an exchange which
qualified as a tax-free reorganization under the Internal Revenue Code. The
net assets of the foundation, consisting principally of marketable securities,
0were $12,989,700, including unrealized appreciation of investments and
translation of assets and liabilities denominated in foreign currencies of
$1,038,381 and undistributed net investment income of $276,228.
(2) Significant Accounting Policies
The Global Equity Portfolio's investment objective is to achieve a high rate
of return, with emphasis on capital appreciation, by investing principally in
equity securities of companies located anywhere in the world, but predominately
in the developed countries. The Global Income Portfolio's investment objective
is to achieve a relatively stable rate of total return with emphasis on yield,
by investing principally in fixed income securities and,to a lesser extent, in
equity securities of high quality companies located predominately in the
developed countries with, at most, very limited exposure to less developed
countries. The price of each Portfolio's shares will fluctuate daily and there
can be no assurance that the Portfolios will be successful in achieving their
stated investment objectives.
The following is a summary of the significant accounting policies followed by
the Portfolios in the preparation of their financial statements. These policies
are in accordance with generally accepted accounting principles.
A. Security Valuation. The securities held by the Portfolios are valued as of
the close of the New York Stock Exchange (the "NYSE"). Listed securities are
valued at the last quoted sales price on the exchange were the security is
principally traded. Securities listed on foreign exchanges are valued the
latest quoted market price available prior to the close of the NYSE.
Debt securities may be valued on the basis of prices provided by a pricing
service using methods approved by the Fund's Board of Directors. Other assets
and securities for which no quotations are readily available are valued in
good faith by, or under the direction of, the Fund's Board of Directors.
B. Currency Translation. The market values of all assets and liabilities
denominated in foreign currencies are recorded in the financial statements
after translation to the U.S. dollar based upon the bid price of such
currencies against the U.S. dollar last quoted by a major bank or broker.
The cost basis of such assets and liabilities is determined based upon
historical exchange rates. Income and expenses are translated at average
exchange rates in effect as accrued or incurred.
The Portfolios do not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized between the trade and settlement dates on securities
transactions, the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Portfolios' books, and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets
and liabilities other than investments in securities at fiscal year end,
resulting from changes in the exchange rate.
C. Forward Currency Contracts. The Portfolios may enter into forward purchases
or sales of foreign currencies to hedge certain foreign currency denominated
assets and liabilities against declines in market value relative to the U.S.
dollar. Forward currency contracts are marked-to-market daily and the change
in market value is recorded by the Portfolios as an unrealized gain or loss.
When the forward currency contract is closed, the Portfolios record a realized
gain or loss equal to the difference between the value of the forward currency
contract at the time it was opened and the value at the time it was closed.
Investments in forward currency contracts may expose the Portfolios to risks
resulting from unanticipated movements in foreign currency exchange rates or
failure of the counterparty to the agreement to perform in accordance with the
terms of the contract.
D. Federal Income Taxes. The Portfolios intend to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute all of their taxable income to their shareholders. Therefore, no
federal income tax provision is required.
E. Security Transactions, Interest and Dividends. As is common in the industry,
security transactions are recorded on the trade date. Interest income is
accrued as earned. Discounts and premiums are amortized in accordance with
Federal income tax requirements. Dividends are recorded on the ex-dividend
date.
F. Distributions to Shareholders. Distributions to shareholders are recorded
on the ex-dividend date. The character of distributions paid to shareholders
is determined by reference to income as determined for income tax purposes,
after giving effect to temporary differences between the financial reporting
and tax basis of assets and liabilities, rather than income as determined for
financial reporting purposes.
G. Deferred Organization Expenses. All of the expenses incurred by the Fund
in connection with the organization on the registration of the Portfolios'
shares were borne equally by each Portfolio and are being amortized to
expense on a straight-line basis over a period of five years.
H. Use of Estimates. In preparing financial statements in accordance with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements, and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) Investments
For the period from November 8, 1995 (commencement of operations) to April 30,
1996, the cost of securities purchased and the proceeds from securities sold,
excluding short-term notes, was $5,120,024 and $5,583,765, respectively, for
the Global Equity Portfolio, and $2,447,925 and $2,254,271, respectively, for
the Global Income Portfolio.
At April 30, 1996 net unrealized appreciation of investment securities
consisted of gross unrealized appreciation and gross unrealized depreciation
of $6,259,685 and $(935,337), respectively, for the Global Equity Portfolio
and $645,945 and $(189,376) respectively, for the Global Income Portfolio.
(4) Capital Stock
At April 30, 1996, the authorized capital of the Fund consisted of one billion
shares of $.01 par value common stock with 100 million shares designated and
classified the Global Equity Portfolio and 100 million shares designated and
classified the Global Income Portfolio.
(5) Investment Management Fee and Administration Fee
Investment Advisory Agreement. Strategic provides investment management
services to each of the Portfolios under an Investment Advisory Agreement.
Strategic provides the Portfolios with continuous investment programs, a
trading department, and selects brokers and dealers to effect securities
transactions. As compensation for its services Strategic is paid a monthly
fee which is equal to the annual rate of 0.90% of each Portfolio's average
daily net assets.
Administration Agreement. Strategic also serves as the Administrator of the
Fund under an Administration Agreement. The services include the administration
of the Fund's business affairs, supervision of services provided by other
organizations providing services to the Fund, including the custodian,
dividend disbursing agent, legal counsel and independent accountants,
preparation of certain Fund records and documents, record keeping and
accounting services. As compensation for these services Strategic is paid a
monthly fee which is equal to the annual rate of 0.25% of each Portfolio's
average daily net assets.
(6) Distribution Plans
Distribution Plan. The Portfolios have adopted Distribution Plans pursuant
to rule 12b-1 under the '40 Act, whereby each Portfolio may make monthly
payments at the annual rate of 0.25% of each Portfolio's average net assets
to East Coast for providing certain distribution services. These services
can include: promotion of the sale of Portfolio shares, preparation of
advertising and promotional materials, payment of compensation to persons
who have been instrumental in the sale of Portfolio shares, and for other
services and materials, including the cost of printing Fund prospectuses,
reports and advertising material provided to investors, and to defray overhead
expenses of East Coast incurred in connection with the promotion and sale of
Fund shares.
Shareholder Services Plan. The Portfolios have also adopted Shareholder
Services Plans (the "Plans") which are designed to promote the retention of
shareholder accounts. Under these Plans, the Portfolios are authorized to pay
East Coast a monthly fee which, on an annual basis, may not exceed 0.25% of
the average net assets of each Portfolio. Payments under the Plans would be
used, among other things, to compensate persons and/or organizations that
provide services to shareholders that are designed to encourage them to
maintain their investments in the Portfolios.
(7) Other Transactions with Affiliates
Certain officers and directors of the Fund are also officers and/or
directors of Strategic and East Coast.
