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"Growth-with-Value"
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KALMAR "GROWTH-WITH-VALUE" SMALL CAP FUND
PROSPECTUS DATED APRIL 30, 1999
This prospectus offers shares of the Kalmar "Growth-with-Value" Small Cap Fund.
The Fund seeks long-term capital appreciation by investing in small
capitalization companies. Using the adviser's purposefully integrated
"Growth-with-Value" investment philosophy, the Fund invests in companies which
the adviser believes have the potential for significant business growth and
capital appreciation, yet whose stocks, at the time of purchase, are trading at
undervalued prices in the public trading markets. The adviser believes that its
"Growth-with-Value" investment philosophy of purchasing promising, growing
companies that may also be undervalued can result in both lower risk and higher
return when compared to many other small company investment strategies.
Please read this prospectus before investing, and keep it on file for future
reference. It gives important information about this mutual fund, including
information on investment policies, risks and fees.
Like all mutual funds, these securities have not been approved or disapproved by
the Securities and Exchange Commission ("SEC"), nor has the SEC determined
whether this prospectus is accurate or complete. It is a criminal offense to
suggest otherwise.
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TABLE OF CONTENTS
Page
Investment and Performance Summary .............. 3
Financial Highlights ............................ 6
Fund Performance ................................ 6
Adviser's Performance Record .................... 7
Additional Investment and Risk Information ...... 8
Fund Management ................................. 10
Pricing of Fund Shares .......................... 12
How to Purchase Shares .......................... 13
How to Redeem Shares ............................ 14
Dividends & Distributions ....................... 16
Tax Consequences ................................ 16
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INVESTMENT AND PERFORMANCE SUMMARY
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KALMAR "GROWTH-WITH-VALUE" SMALL CAP FUND
INVESTMENT OBJECTIVE:
Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY:
The Fund normally invests in a broad range of common stocks of small
capitalization companies. Small capitalization ("small cap") companies are small
sized companies, typically those with total market values and company revenues
of less than $1 billion at the time of investment. Using its "Growth-with-Value"
investment philosophy, the Fund's adviser, Kalmar Investment Advisers
("Kalmar"), seeks to invest in companies which it believes have the potential
for significant future business growth and capital appreciation, yet whose
stocks, at the time of purchase, are also trading at prices that are undervalued
in the public trading markets.
Kalmar's "Growth-with-Value" investment philosophy INTEGRATES what it believes
to be the best elements of creative growth company investing, with
discriminating value-seeking investment discipline, all with a view toward
longer-term ownership of the "good growth businesses" underlying their stocks.
In effect, Kalmar seeks to purchase dynamic companies, capable of strong present
and future growth, by offering solutions to real problems or innovative products
and services to growing markets of substance. Yet importantly at the same time,
Kalmar carefully seeks to buy such companies' stocks at inexpensive or
undervalued prices. Kalmar does not speculate on "futuristic" developments that
may not prove out, nor does it buy every other growth manager's favorite
highly-valued "momentum stocks" that will live or die on each penny of the next
quarter's earnings per share. Kalmar instead seeks to own dynamic, forward
looking growth companies, BUT with a lower risk stock market approach to doing
so.
This investment philosophy is a primarily fundamentals-driven approach, with the
goal of fewer, better investment decisions, for longer holding periods and
larger gains. Kalmar views its "Growth-with-Value" philosophy as a relatively
conservative approach to small company investing. Kalmar also believes that this
approach can result in both lower risk AND higher rewards over the longer term
when compared to the small company equity markets generally, or to the typical
high-turnover "aggressive growth" or "emerging growth" investment styles of most
other small cap investment managers. By investing with a longer-term focus, and
thereby limiting trading and portfolio turnover, the Fund seeks to generate
higher long-term returns, to limit transaction costs and to increase tax
efficiency for its shareholders.
The Fund's research/portfolio management team uses an independent, hands-on,
in-house-research-driven approach to their investment management
decision-making. To identify solid, well managed, rapidly growing small cap
companies that are worthy of investment, the Fund's portfolio managers perform
traditional fundamental security analysis, screening and research, which is
based on a given company's publicly available financial information, its and its
industry's revenue and earnings track record and prospects. Complementing this,
however, the team also employs in-depth business analysis to specifically
evaluate the company's management and controls, profit model, technology,
research and development pipeline, competitive positioning, growth strategy and
dynamics. As essential aspects of this, they engage in extensive and on-going
management contact, inspect company facilities, and cross check with customers,
suppliers, competitors, etc., as well as with industry trade groups, consultants
and such other "experts" as they deem appropriate. The portfolio management
team, of course, also attempts to utilize the best information provided by Wall
Street analysts and strategists to complement its in-house research and
investment management decision making.
As a central ingredient in its investment philosophy and investment selection
process, the Fund seeks to invest in promising smaller companies which meet its
objectives for above average future
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business value growth, BUT which at the time of investment have not yet been
fully recognized and exploited by other institutional small company investors.
Such companies may be followed by relatively few securities analysts, and,
therefore, may be available for purchase at undervalued prices. By investing in
such companies over the longer-term, the Fund's investors can benefit both from
their vigorous potential earnings and business value growth and also from the
potential re-valuation upward of their securities as their business success
attracts larger numbers of additional investors and greater "Wall Street"
sponsorship over time.
PRINCIPAL RISKS AND SPECIAL CONSIDERATIONS:
(BULLET) The Fund invests in common stocks which are subject to market, economic
and business risks that will cause their prices to fluctuate over time.
While common stocks have historically been a leading choice of
long-term investors, stock prices may decline over short or even more
extended periods. Therefore, the value of your investment in the Fund
may go up and down, sometimes rapidly and unpredictably, and you could
lose money.
(BULLET) A preponderant portion of the Fund's investments will be in small cap
stocks. Investments in small cap stocks involve greater risks than
investments in larger, more established companies, are more volatile,
and may suffer significant losses as well as realize substantial gains.
Further, the market for small cap stocks is generally less liquid than
the markets for larger stocks, which can contribute to increased price
volatility of such stocks.
(BULLET) The Fund may be appropriate for you if you want to focus on small cap
stocks and are willing to ride out stock market fluctuations in pursuit
of potentially high long-term returns.
PERFORMANCE SUMMARY:
The bar chart below shows the Fund's annual total return for the Fund's first
full calendar year of operations. As with all mutual funds, past performance is
not necessarily an indicator of how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
"1998" -7.66
FOR THE FUND'S FIRST FULL CALENDAR YEAR:
Best Quarter: Quarter Ended 12/31/98 14.27%
Worst Quarter: Quarter Ended 9/30/98 (20.59)%
For more information about performance since inception please see "Fund
Performance" on pages 6 and 7.
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The table below shows how the Fund's average annual total returns for the past
calendar year and since inception (April 11, 1997) compare to those of the
Russell 2000 Index (a widely recognized unmanaged index of small stocks) for the
same periods. This performance information provides some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual returns for 1 year and the
life of the Fund compare with those of a broad measure of market performance.
This table assumes reinvestments of dividends and distributions. Past
performance is not necessarily an indicator of future results.
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
1 YEAR SINCE INCEPTION
------- ---------------
Kalmar "Growth-with-Value" Small Cap Fund .. (7.66)% 19.06%
Russell 2000 Index ......................... (2.55)% 13.59%
FEES AND EXPENSES OF THE FUND:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) on Purchases ....................... None
Maximum Deferred Sales Charge .................................. None
Maximum Sales Charge on Reinvested Dividends ................... None
Redemption Fee ................................................. None
Exchange Fee ................................................... None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fee ................................................. 1.00%
Distribution and Service (12b-1) Fees .......................... None
Other Expenses ................................................. 0.24%
- ---------------- ------
Total Annual Fund Operating Expenses ........................... 1.24%
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same over the time periods. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- --------- ---------
$126 $393 $681 $1,500
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FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the periods presented. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that you would have earned (or lost) on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, is included in the Fund's annual report,
which is available upon request.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 11, 1997(DAGGER)
FISCAL YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- ----------------------
<S> <C> <C>
Net asset value at beginning of period ...................... $ 13.70 $ 10.00
=============================
INVESTMENT OPERATIONS
Net investment loss ......................................... (0.07) (0.04)
Net realized and unrealized gain (loss) on investments ...... (0.98) 4.66
-----------------------------
Total from investment operations ...................... (1.05) 4.62
=============================
DISTRIBUTIONS
From net realized gain on investments ....................... -- (0.57)
In excess of net realized gain on investments ............... -- (0.35)
-----------------------------
Total distributions ................................... -- (0.92)
-----------------------------
Net asset value at end of period ............................ $ 12.65 $ 13.70
=============================
Total return .......................................... (7.66)% 46.35%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses(DOUBLE DAGGER) .................................. 1.24% 1.25%*
Net investment loss ...................................... (0.52)% (0.51)%*
PORTFOLIO TURNOVER RATE ..................................... 27.41% 34.39%
Net assets at end of period (000 omitted) ................... $237,540 $226,706
<FN>
* Annualized.
(DAGGER) Commencement of Operations.
(DOUBLEDAGGER) Rodney Square Management Corporation, the Fund's prior
administrator and accounting agent, waived a portion of
its administration and accounting fees for the period
ended December 31, 1997. If these expenses had been
incurred by the Fund, the annualized ratio of expenses
to average daily net assets for the period ended
December 31, 1997 would have been 1.32%.
</FN>
</TABLE>
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FUND PERFORMANCE
The following table and line graph show the Fund's performance for the period
April 11, 1997 through December 31, 1998 versus The Russell 2000 Index and The
Lipper Small Cap Fund Index. The Russell 2000 is an unmanaged stock market index
without any associated expenses, and its returns assume the reinvestment of all
dividends. The Lipper Small Cap Fund Index is an unweighted index of mutual fund
performance which consists of the average return of the 30 largest small cap
funds. The Fund's past performance does not predict future results.
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COMPARATIVE PERFORMANCE
-----------------------
INCEPTION TO DATE
CUMULATIVE TOTAL RETURN 4/11/97 TO 12/31/98
- ----------------------- -------------------
Kalmar Small Cap Fund +35.13%
Russell 2000 Index +24.60%
Lipper Small Cap Index +24.94%
KALMAR "GROWTH-WITH-VALUE" SMALL CAP FUND
GROWTH OF $10,000 VS. THE RUSSELL 2000 INDEX
AND THE LIPPER SMALL CAP FUND INDEX
SINCE
AVERAGE ANNUAL RETURN 1 YEAR INCEPTION
- -------------------- ------ ---------
Kalmar Small Cap Fund (7.66)% 19.06%
Russell 2000 (2.55)% 13.59%
Lipper Small Cap (0.85)% 13.77%
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Kalmar Russell Lipper
4/11/97 $10,000 $10,000 $10,000
12/31/97 $14,635 $12,786 $12,602
12/31/98 $13,514 $12,460 $12,495
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ADVISER'S
PERFORMANCE
RECORD
Shown below is performance information for a composite of separate accounts
managed by the Fund's portfolio management team. The performance data for the
separate accounts is net of all fees and expenses. Use of the additional
expenses of the Fund would have very modestly lowered the following separate
account performance results. These accounts are managed with the same investment
objective and "Growth-with-Value" investment philosophy, and are subject to
substantially identical investment policies and techniques as those used by the
Fund. This performance record reflects the activities of the Fund's portfolio
managers for accounts which they manage at Kalmar Investments Inc. ("Kalmar
Investments"), a registered advisory firm that is the sister company of the
adviser. The results presented are not intended to predict or suggest the return
to be experienced by the Fund or the return that an individual investor might
achieve by investing in the Fund. The Fund's results may be different from the
composite of separate accounts because the average market capitalization of the
companies included in the separate account portfolios has been approximately
$350 million, and the Fund's portfolio may have a higher average market
capitalization. The Fund's results may also be different because of, among other
things, differences in fees and expenses, and because private accounts are not
subject to certain investment limitations, diversification requirements, and
other restrictions imposed by the Investment Company Act of 1940, as amended
(the "Investment Company Act") and the Internal Revenue Code, as amended, which,
if applicable, may have adversely affected the performance of such accounts. For
performance data relating to the Fund, see "Performance Summary" on page 4. Past
performance results of similarly managed accounts are not indicative of the
Fund's future performance.
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YEAR KALMAR SEPARATE ACCOUNT RUSSELL 2000 S & P 500
ENDING NET RETURN* TOTAL RETURN TOTAL RETURN
-------- ----------------------- ------------ ------------
12/31/84 1.46 (7.30) 6.26
12/31/85 33.98 31.05 31.76
12/31/86 28.14 5.68 18.70
12/31/87 (1.90) (8.77) 5.22
12/31/88 23.58 24.89 16.57
12/31/89 38.42 16.24 31.65
12/31/90 (7.58) (19.51) (3.14)
12/31/91 65.52 46.05 30.45
12/31/92 8.87 18.41 7.62
12/31/93 27.11 19.91 10.06
12/31/94 3.08 (1.82) 1.30
12/31/95 25.38 26.21 37.54
12/31/96 7.06 14.76 22.99
12/31/97 36.30 22.24 33.34
12/31/98 (6.52) (2.55) 28.57
CUMULATIVE
RETURN KALMAR* RUSSELL 2000 S & P 500
---------- ------- ------------ ---------
15 Years*
1984-1998 989.98 293.51 1,150.51
AVERAGE ANNUAL
RETURN
--------------
15 Years*
1984-1998 17.26 9.56 18.34
* The above returns were calculated using the performance measurement standards
of the Association for Investment Management and Research ("AIMR"). Results
may have been different if the SEC method of calculating total return had
been used instead of the AIMR method.
The results shown above (1) represent a composite of discretionary, fee
paying, separate accounts under management for at least six months, (2)
reflect the reinvestment of any dividends or capital gains, and (3) are shown
after deduction of advisory, brokerage or other expenses (excluding fees such
as custody fees which are paid separately by the investor). Certain
individual accounts that are subject to investment restrictions, tax, income
or other special considerations that constrain the investment process are
excluded from the composite figures shown above.
- -----------------
ADDITIONAL
INVESTMENT AND
RISK INFORMATION
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment objective is long-term capital appreciation. This
investment objective may not be changed without shareholder approval.
Under normal market conditions, the Fund will preponderantly invest in small cap
companies, ones whose stock market capitalizations (total market value of
outstanding shares) range from $50 million to $1 billion at the time of
investment. At a minimum, 65% of its total assets will be invested in small cap
companies. Small cap growth companies often pay no dividends and, therefore,
current income is not a factor in the selection of stocks. Capital appreciation
is likely to be the main component of the Fund's return.
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In addition, the Fund may invest in preferred stocks, securities convertible
into common stocks, and certain debt securities, consistent with its long-term
capital appreciation objective.
The Fund will purchase primarily common stocks, which represent an ownership
interest in the issuer, entitle the holder to participate in any income and/or
capital gains of the issuer and generally have voting rights. The Fund may also
purchase investment grade securities with an equity component such as
convertible preferred stock, debt securities convertible into or exchangeable
for common stock and securities such as warrants or rights that are convertible
into common stock. A convertible security is a security that may be converted
either at a stated price or rate within a specified period of time into a
specified number of shares of common or preferred stock. By investing in
convertible securities, the Fund seeks to participate in the capital
appreciation of the common stock into which the securities are convertible
through the conversion feature. A warrant is a security that gives the holder
the right, but not the obligation, to subscribe for newly created securities of
the issuer or a related company at a fixed price either at a certain date or
during a set period. Rights represent a preemptive right to purchase additional
shares of stock at the time of new issuance, before stock is offered to the
general public, so that the stockholder can retain the same percentage after the
new stock offering.
The Fund may, consistent with its objective, invest a portion of its total
assets in equity securities of larger capitalization companies if Kalmar
believes that suitable small company opportunities are not available or if such
larger stocks have strong growth potential and meet Kalmar's "Growth-with-Value"
criteria and investment discipline.
TEMPORARY DEFENSIVE POSITIONS
When adverse economic or market conditions occur, the Fund temporarily may
invest up to 100% of its net assets in short-term, cash equivalent investments.
The Fund may be unable to achieve its investment objective when taking a
temporary defensive position. While reserving the right to make such strategic
moves, Kalmar has never taken so extreme a position in their 17 years experience
and generally believes in remaining fully invested.
RISK FACTORS
Investing in the Fund involves the following risks:
(BULLET) SMALL COMPANY RISK. Investments in common stocks in general are subject
to market, economic and business risks that will cause their price to
fluctuate over time. Therefore, an investment in the Fund may be more
suitable for long-term investors who can bear the risk of these
fluctuations. Furthermore, while securities of small cap companies may
offer greater opportunity for capital appreciation than larger
companies, investment in such companies presents greater risks than
investment in larger, more established companies. Indeed, historically,
small cap stocks have been more volatile in price than larger
capitalization stocks. Among the reasons for the greater price
volatility of these securities are the lower degree of liquidity in the
markets for such stocks, and the potentially greater sensitivity of
such small companies to changes in or failure of management, and in
many other changes in competitive, business, industry and economic
conditions, including risks associated with limited product lines,
markets, management depth, or financial resources. Besides exhibiting
greater volatility, small cap stocks may, to a degree, fluctuate
independently of larger company stocks. Small cap stocks may decline in
price as large company stocks rise, or rise in price as large company
stocks decline. Investors should therefore expect that the price of the
Fund's shares will be more volatile than the shares of a fund that
invests in larger capitalization stocks. Additionally, while the
markets in securities of small companies have grown rapidly in recent
years, such securities may trade less frequently and in smaller volume
than more widely held securities. The values of these securities may
fluctuate more sharply than those of other securities, and the Fund may
experience some difficulty in establishing or closing out positions in
these securities at prevailing market prices. There may be less
publicly available
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information about the issuers of these securities or less market interest in
such securities than in the case of larger companies, and it may take a longer
period of time for the prices of such securities to reflect the full value of
their issuers' underlying earnings potential or assets. The Fund should not be
considered suitable for investors who are unable or unwilling to assume the
risks of loss inherent in such a program, nor should investment in the Fund be
considered a balanced or complete investment program.
(BULLET) MANAGEMENT RISK. As with all mutual funds, the Fund is subject to the
risk that an investment strategy used by Kalmar may fail to produce the
intended result.
(BULLET) OPPORTUNITY RISK. As with all mutual funds, the Fund is subject to the
risk of missing out on an opportunity because the assets necessary to
take advantage of it are tied up in less advantageous investments.
(BULLET) YEAR 2000 RISK. The services provided to the Fund and its shareholders
by Kalmar, the Distributor, Administrator, Transfer Agent and Custodian
depend on the smooth functioning of their computer systems and those of
their outside service providers. Many computer software systems in use
today cannot distinguish the year 2000 from the year 1900 because of
the way dates are encoded and calculated. Such an event could have a
negative impact on handling securities trades, payments of interest and
dividends, pricing and account services. Although at this time, there
can be no assurance that there will be no adverse impact on the Fund,
the Adviser, Distributor, Administrator, Transfer Agent and Custodian
have advised the Fund that they have been actively working on necessary
changes to their computer systems to prepare for the year 2000 and
expect that their systems, and those of their outside service
providers, will be adapted in time for that event. Additionally, if a
company in which the Fund is invested is adversely affected by year
2000 problems, it is likely that the price of that company's securities
will also be adversely affected. A decrease in one or more of the
Fund's holdings may have a similar impact on the price of the Fund's
shares. The adviser will rely on public filings and other statements
made by companies about their year 2000 readiness.
- ----------
FUND
MANAGEMENT
INVESTMENT ADVISER
Kalmar Investment Advisers, located at 3701 Kennett Pike, Wilmington, Delaware
19807, serves as the investment adviser for the Fund. Kalmar manages the
investments of the Fund according to the Fund's stated investment objective,
philosophy and policies and subject to its limitations or restrictions. Subject
to the supervision of the Board of Trustees, Kalmar makes the Fund's day-to-day
investment decisions, selects brokers and dealers to execute portfolio
transactions and generally manages the Fund's investments.
As of December 31, 1998, Kalmar (and its affiliates) managed approximately $825
million primarily in micro capitalization and small capitalization stocks in
separately managed accounts including the Fund itself. Kalmar's clients include
high net worth individuals and family trusts, corporations, pensions and
profit-sharing plans and institutions such as endowments, foundations, hospitals
and charitable institutions. Kalmar (and its affiliates) invests assets of its
own profit-sharing plan in shares of the Fund, as do members of its investment
team and other employees.
As compensation for its services, for the fiscal year ended December 31, 1998,
the Fund paid Kalmar a monthly advisory fee at the annual rate of 1.00% of the
Fund's average daily net assets.
PORTFOLIO MANAGEMENT TEAM
Kalmar's founder, Ford B. Draper, Jr., owns a majority interest in Kalmar.
Kalmar utilizes a team approach in managing the Fund's portfolio with Mr.
Draper, as chief investment officer, leading and supervising the
research/portfolio management team. The list below describes the business
experience of the Fund's officers and portfolio managers.
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[GRAPHIC OMITTED]
FORD B. DRAPER, JR.
CHAIRMAN, PRESIDENT AND CHIEF INVESTMENT OFFICER
A graduate of Yale University, Mr. Draper also received an M.B.A. from Columbia
University Graduate School of Business, and has over thirty years experience in
investment research and management. Mr. Draper began his career in 1967 in the
investment research and capital management departments of Smith, Barney & Co. In
1970, he joined Baker, Fentress & Company, a publicly owned closed-end mutual
fund, where he performed original investment research on a broad spectrum of
companies and industries. In 1972, he became Vice President with
responsibilities that included trading, investment research, investment
strategy, and management of the fund's portfolio. For the following ten years at
Baker, Fentress, Mr. Draper developed positive investment performance for this
then $250 million fund. Mr. Draper founded Kalmar Investments in 1982, which
provides investment management services to separately managed accounts.
[GRAPHIC OMITTED]
FORD B. DRAPER, III
MANAGER, TRADING DEPARTMENT
After earning a BA in International Relations from Lynchburg College, plus
additional travel and business education, Mr. Draper joined Kalmar Investments
in 1991. There he built the firm's professional trading operations team and
specialized information systems focusing on small cap equities, which he
continues to manage. He has eight years small cap equities experience.
[GRAPHIC OMITTED]
GREGORY A. HARTLEY, C.F.A.
PORTFOLIO MANAGER/RESEARCH ANALYST
Mr. Hartley graduated from Indiana University's School of Business, held an
accounting position, and later earned an M.B.A. from Indiana University's
Graduate School of Business. Mr. Hartley joined Kalmar Investments in 1993 after
nine years of prior small cap investment experience. From 1984-1993, he worked
for Ashford Capital Management, Inc., a then $100 million investment management
and consulting firm. As a senior analyst and member of the investment committee
doing original research on small growth companies, from health care to specialty
manufacturing and financial services to technology, at Ashford he was
responsible for new idea stock selection and management of over $50 million in
portfolio holdings. He has 15 years small cap research and equity investing
experience.
[GRAPHIC OMITTED]
LINN M. MORROW
DIRECTOR OF CLIENT SERVICES
Mr. Morrow, with over twenty years experience in investment-related client
services, holds a BS in Economics from the University of Pennsylvania's Wharton
School. He began his career with Salomon Brothers in 1968, and subsequently
worked in the corporate trust departments of Chemical Bank, NY and Mellon Bank,
NA. In 1985 he joined Delaware Investment Advisers as Vice President of Client
Services. For ten years at Delaware, his responsibilities were acting as liaison
between clients and the investment team, client reviews, client communications
and new business. Mr. Morrow joined Kalmar Investments in 1996 to direct its
client services.
[GRAPHIC OMITTED]
RAYMOND F. REED, C.F.A.
PORTFOLIO MANAGER/RESEARCH ANALYST
Mr. Reed is a graduate of the University of Pennsylvania and received an M.B.A.
in Finance from New York University. He began his investment career with Martin
Simpson & Company in 1981. As Vice President and Principal, he conducted
investment research on emerging and established technology companies. After six
years, he joined Mabon, Nugent & Company as a Senior Analyst responsible for
research coverage of computer industry stocks. In March 1990, Mr. Reed joined
Janney Montgomery Scott as a Senior Vice President of Research following
regional special situations and technology companies. Mr. Reed was recognized in
the Wall Street Journal's All-Star
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Analysts Survey in 1993 and 1995. Mr. Reed joined Legg Mason Wood Walker in
1995. As a Managing Director of Research, he was responsible for creation,
operation and supervision of the Business and Information Services Group within
the firm's capital markets strategy. Mr. Reed joined Kalmar Investments in 1999
as a Portfolio Manager/Research Analyst. He has eighteen years small cap
research and equity investment experience.
[GRAPHIC OMITTED]
DANA F. WALKER, C.F.A.
PORTFOLIO MANAGER/RESEARCH ANALYST
After graduating from the University of Virginia's McIntire School of Commerce,
Mr. Walker worked from 1982-1986 for Delfi Management, Inc., investment adviser
to the Sigma Funds, a then $350 million mutual fund group. As a senior analyst
doing original research in consumer-related industries, health care, retailing,
and distribution, he was responsible for investment selections from these areas
for the Sigma funds and for portfolios of DP Asset Management, an affiliated
$100 million investment advisory firm. Mr. Walker joined Kalmar Investments in
1986. He has seventeen years small cap research and equity investing experience.
- -----------
PRICING OF
FUND SHARES
SHAREHOLDER INFORMATION
The Fund's share price is based upon its net asset value per share. The Fund's
administrator, PFPC Inc. ("PFPC"), determines the net asset value per share as
of the close of regular trading on each day that the New York Stock Exchange
("NYSE") is open for unrestricted trading from Monday through Friday (generally
4:00 p.m.) and on which there is a purchase or redemption of the Fund's shares.
The net asset value is determined by dividing the value of the Fund's
securities, plus any cash and other assets, less all liabilities, by the number
of shares outstanding. Expenses and fees of the Fund, including management fees,
are accrued daily and taken into account for the purpose of determining the net
asset value.
Fund securities listed or traded on a securities exchange for which
representative market quotations are available will be valued at the last quoted
sales price on the security's principal exchange on that day. Listed securities
not traded on an exchange that day will be valued at the mean between the last
bid and asked price on that day, if any. Unlisted securities which are quoted on
the National Association of Securities Dealers National Market System for which
there are sales of such securities on such day, shall be valued at the last sale
price reported on such system the day the security is valued. If there are no
such sales, the value shall be the mean between the closing asked price and
closing bid price. Securities for which market quotations are not readily
available and all other assets will be valued at their respective fair value as
determined in good faith by, or under procedures established by, the Board of
Trustees. In determining fair value, the Fund or its service providers may
employ an independent pricing service.
The Fund will value money market securities with less than sixty days remaining
to maturity when acquired by the Fund on an amortized cost basis, 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 from cost versus par value at maturity. If
the Fund acquires a money market security 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 Trustees determine during such 60-day period that
this amortized cost value does not represent fair market value.
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- ----------------------
HOW TO PURCHASE SHARES
Shares of the Fund are offered without the imposition of any sales or
distribution fees. However, certain broker-dealers or service agents may charge
you transaction or other account fees for effecting transactions in Fund shares.
The Fund's shares are offered at the net asset value per share next determined
after the receipt of a purchase request in good order and payment in proper form
by the Fund. Information on how to invest in the Fund is presented below, and
any requests for applications, additional information or questions may be
directed to PFPC at (800) 282-2319.
MINIMUM INVESTMENT. The minimum initial investment in the Fund is $10,000, and
subsequent investments must total at least $1,000. The minimum initial
investment requirement for qualified retirement accounts is $1,000 and there is
no minimum for subsequent investments.
PURCHASE PRICE. Purchase orders for shares of the Fund which are received in
proper form by the Fund prior to the close of regular trading hours on the NYSE
(currently 4:00 p.m. Eastern time) on any day that the Fund is open are priced
according to the net asset value determined on that day. Purchase orders
received in proper form by the Fund after the close of the NYSE on a particular
day are priced as of the time the net asset value per share is next determined.
IN-KIND PURCHASES. At the discretion of the Fund, you may be permitted to
purchase Fund shares by transferring securities to the Fund that: (1) meet the
Fund's investment objective and policies; (2) are acquired by the Fund for
investment and not for resale purposes; and (3) are liquid securities which are
not restricted as to transfer either by law or liquidity of market. At the
discretion of the Fund, the value of any such security (except U.S. Government
Securities) being exchanged together with other securities of the same issuer
owned by the Fund may not exceed 5% of the net assets of the Fund immediately
after the transactions.
Securities transferred to the Fund will be valued in accordance with the same
procedures used to determine the Fund's net asset value. All dividends,
interests, subscription, or other rights pertaining to such securities shall
become the property of the Fund and must be delivered to the Fund by you upon
receipt from the issuer.
Purchases may be made in one of the following ways:
(BULLET) PURCHASES BY MAIL. You may purchase shares by sending a check drawn on
a U.S. bank payable to the Kalmar "Growth-with-Value" Small Cap Fund,
along with a completed shareholder application, to Kalmar
"Growth-with-Value" Fund, c/o PFPC Inc., P.O. Box 8965, Wilmington, DE
19899-9752. A shareholder application sent by overnight mail should be
sent to Kalmar "Growth-with-Value" Fund, c/o PFPC Inc., 400 Bellevue
Parkway, Wilmington, DE 19809. If a subsequent investment is being
made, you should use the purchase stub and return envelope from the
most recent account statement and the check should also indicate your
Fund account number.
(BULLET) PURCHASES BY WIRE. To purchase shares by wiring federal funds, you must
first notify PFPC by calling (800) 282-2319 to request an account
number and furnish the Fund with a tax identification number. Following
notification to PFPC, federal funds and registration instructions
should be wired through the Federal Reserve System to:
PFPC INC.
C/O PNC BANK, N.A.
PHILADELPHIA, PA
DDA #86-0179-1174
ABA #031-0000-53
ATTENTION: KALMAR "GROWTH-WITH-VALUE" SMALL CAP FUND
FURTHER CREDIT [SHAREHOLDER NAME AND ACCOUNT NUMBER]
For initial purchases by wire, a completed application with signature(s) of
investor(s) must promptly be filed with PFPC at one of the addresses stated
above under "Purchases By Mail." You should be aware that some banks might
charge you a wire service fee.
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KALMAR
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INVESTMENT
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- ----------
(BULLET) AUTOMATIC INVESTMENT PLAN. You may purchase Fund shares through an
Automatic Investment Plan. The Plan provides a convenient method by
which you may have monies deducted directly from your checking, savings
or bank money market accounts for investment in the Fund. Under the
Plan, PFPC, at regular intervals, will automatically debit your bank
checking account in an amount of $100 or more (subsequent to the
$10,000 minimum initial investment), as specified by you. You may elect
to invest the specified amount monthly, bimonthly, quarterly,
semi-annually or annually. The purchase of Fund shares will be effected
at the net asset value at the close of regular trading on the NYSE
(currently 4:00 p.m. Eastern time) on or about the 20th day of the
month. To obtain an Application for the Automatic Investment Plan,
check the appropriate box of the Application accompanying this
Prospectus or call PFPC at (800) 282-2319.
RETIREMENT PLANS. Shares of the Fund are available for use in all types of
tax-deferred retirement plans such as IRAs, employer-sponsored defined
contribution plans (including 401(k) plans) and tax-sheltered custodial accounts
described in Section 403(b)(7) of the Internal Revenue Code. Qualified investors
benefit from the tax-free compounding of income dividends and capital gains
distributions. For more information, see "Retirement Plans" in the Fund's
Statement of Additional Information. Application forms and brochures describing
investments in the Fund for retirement plans can be obtained from PFPC by
calling (800) 282-2319.
- -------------
HOW TO
REDEEM SHARES
You may redeem all or a portion of your shares without charge on any day that
the Fund calculates its net asset value. See "Pricing of Fund Shares." Except as
noted below, redemption requests received in good order by PFPC prior to the
close of regular trading hours on the NYSE on any business day that the Fund
calculates its per share net asset value are effective at the net asset value
per share determined that day. Redemption requests received in good order by
PFPC after the close of the NYSE are effective as of the time the net asset
value per share is next determined. Redemption proceeds are normally sent on the
next business day following the Fund's receipt of the redemption request but, in
any event, redemption proceeds are sent within seven business days of receipt of
the request, or earlier if required under applicable law. Redemption requests
should be accompanied by the Fund's name and the shareholder's account number.
Corporations, other organizations, trusts, fiduciaries and other institutional
investors may be required to furnish certain additional documentation to
authorize redemption.
Delivery of the proceeds of a redemption of shares purchased and paid for by
check shortly before the receipt of the request may be delayed until the Fund
determines that the Custodian has completed collection of the purchase check
which may take up to 10 days. Also, redemption requests for accounts for which
purchases were made by wire may be delayed until the Fund receives a completed
application for the account. The Board of Trustees may suspend the right of
redemption or postpone the date of payment during any period when (a) trading on
the NYSE is restricted, (b) the NYSE is closed, (c) when an emergency exists and
the Fund cannot sell its shares or accurately determine the value of its assets,
or (d) if the SEC orders the Fund to suspend redemptions.
Shares may be redeemed in one of the following ways:
(BULLET) REDEMPTION BY MAIL. Your written redemption request must (i) identify
your account number, (ii) state the number of shares or dollar amount
to be redeemed, and (iii) be signed by each registered owner exactly as
the shares are registered. A redemption request for an amount in excess
of $25,000, or for any amount if for payment other than to the
shareholder of record, or if the proceeds are to be sent elsewhere than
the address of record, must be accompanied by a signature guarantee by
a guarantor institution that is acceptable to the Fund's transfer
agent, such as a domestic bank or trust company, broker, dealer,
clearing agency or savings association, participating in a signature
guarantee program recognized by the Securities Transfer Association.
The three recognized signature guarantee programs are Securities
Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature
Program (MSP). Signature guarantees that are not part of these programs
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KALMAR
POOLED
INVESTMENT
TRUST
- ----------
will not be accepted. A signature and a signature guarantee are
required for each person in whose name the account is registered. PFPC
may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees and guardians. You
should submit written redemption instructions to Kalmar
"Growth-with-Value" Small Cap Fund, c/o PFPC Inc., P.O. Box 8965,
Wilmington, DE 19899-9752. A redemption order sent by overnight mail
should be sent to Kalmar "Growth-with-Value" Small Cap Fund, c/o PFPC
Inc., 400 Bellevue Parkway, Wilmington, DE 19809. A redemption request
will not be deemed to be properly received until PFPC receives all
required documents in proper form. Questions regarding the proper form
for redemption requests should be directed to PFPC at (800) 282-2319.
(BULLET) REDEMPTION BY TELEPHONE.You may redeem shares by telephone by
completing the telephone redemption section of the shareholder
application which describes the telephone redemption procedures in more
detail and requires certain information that will be used to identify
the shareholder when a telephone redemption request is made. You may
redeem by telephone amounts up to $50,000 by instructing PFPC at (800)
282-2319. In order to arrange for redemption by wire or telephone after
an account has been opened, or to change the bank or account designated
to receive redemption proceeds, you should send a written request to
PFPC at the address listed above. A signature guarantee is required of
all shareholders in order to change telephone redemption privileges.
Neither the Fund nor any of its service contractors will be liable for
any loss or expense in acting upon any telephone instructions that are
reasonably believed to be genuine. In attempting to confirm that
telephone instructions are genuine, the Fund will use such procedures
as are considered reasonable, including requesting a shareholder to
correctly state his or her Fund account number, the name in which his
or her account is registered, the number of shares to be redeemed and
certain other information necessary to identify the shareholder.
During times of drastic economic or market changes, the telephone
redemption privilege may be difficult to implement. In the event that
you are unable to reach PFPC by telephone, you may make a redemption
request by mail. The Fund or PFPC reserves the right to refuse a wire
or telephone redemption if it is believed advisable to do so.
Procedures for redeeming Fund shares by wire or telephone may be
modified or terminated at any time by the Fund.
(BULLET) REDEMPTIONS BY WIRE. The Fund will wire redemption proceeds to a
predesignated bank account at any commercial bank in the United States
if the amount is $1,000 or more. The receiving bank may charge you a
fee for this service. Amounts redeemed by wire are normally wired on
the next business day after receipt of redemption instructions in
proper form (if received before the close of regular trading on the
NYSE), but in no event later than five days following such receipt.
IN-KIND REDEMPTION. The Fund will satisfy redemption requests in cash to the
fullest extent feasible, so long as such payments would not, in the opinion of
Kalmar or the Board of Trustees, result in the necessity of the Fund selling
assets under adverse conditions and to the detriment of the Fund's remaining
shareholders. Payment for shares redeemed may be made either in cash or in-kind,
or partly in cash and partly in-kind. Any portfolio securities paid or
distributed in-kind would be valued as described under "Pricing of Fund Shares."
In the event that the Fund makes an in-kind distribution, you may incur
additional expenses, such as the payment of brokerage commissions, on the sale
or other disposition of the securities received from the Fund. In-kind payments
need not constitute a cross-section of the Fund's portfolio. Where a shareholder
has requested redemption of all or a part of the shareholder's investment, and
if the Fund completes such redemption in-kind, the Fund will not recognize gain
or loss for federal tax purposes on the securities used to complete the
redemption but the shareholder will recognize gain or loss equal to the
difference between the fair market value of the securities received and the
shareholder's basis in the Fund shares redeemed.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem your account if it
is inactive and worth less than the minimum initial investment when the account
was established, currently $10,000. The Fund will advise you of its intention to
redeem your account in writing at least sixty (60) days prior to effecting such
redemption, during which time you may purchase additional shares in any amount
necessary to bring the account back to the appropriate minimum amount. The Fund
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KALMAR
POOLED
INVESTMENT
TRUST
- ----------
will not redeem your account if it is worth less than the appropriate minimum
amount solely because of a market decline.
SYSTEMATIC WITHDRAWAL PLAN.If you own shares with a value of $10,000 or more,
you may participate in the Systematic Withdrawal Plan. Under this Plan, you may
automatically redeem a portion of your Fund shares monthly, bimonthly,
quarterly, semiannually or annually. The minimum withdrawal available is $100.
The redemption of Fund shares will be effected at their net asset value at the
close of the NYSE on or about the 25th day of the month at the frequency
selected by you. If you expect to purchase additional Fund shares, it may not be
to your advantage to participate in the Systematic Withdrawal Plan because
contemporary purchases and redemption may result in adverse tax consequences.
For further details about this service, see the Application or call PFPC at
(800) 282-2319.
- -------------
DIVIDENDS AND
DISTRIBUTIONS
The Fund intends to declare and pay annual dividends to its shareholders of
substantially all of its net investment income, if any, earned during the year
from its investments. The Fund will distribute net realized capital gains, if
any, once each year. Reinvestments of dividends and distributions in additional
shares of the Fund will be made at the net asset value determined on the ex date
of the dividend or distribution unless you have elected in writing to receive
dividends or distributions in cash. You may change an election by notifying PFPC
in writing thirty days prior to the record date. You may call PFPC for more
information. Expenses of the Fund, including the advisory fee, are accrued each
day. All shares of the Fund will share proportionately in the Fund's investment
income and expenses.
- ------------
TAX
CONSEQUENCES
As with any investment, you should consider how your Fund investment will be
taxed. The tax information in this prospectus is provided as general information
only and should not be considered as tax advice or relied on by an investor. You
should consult your own tax professional concerning the various tax consequences
of an investment in the Fund. Additional information on tax matters relating to
the Fund and to its shareholders is included in the Statement of Additional
Information.
The Fund intends to qualify annually to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"). As
such, the Fund will not be subject to federal income or excise taxes on the
earnings it distributes to shareholders provided the Fund satisfies certain
requirements and restrictions in the Code.
Unless your investment in the Fund is through a tax-deferred retirement account,
such as a 401(k) plan or IRA, you need to be aware of the possible tax
consequences when:
- -- The Fund makes distributions; and
- -- You sell Fund shares, including an exchange to another fund.
When you open your Fund account, you should provide your social security or
taxpayer identification number on your account registration form. By providing
this information, you will avoid being subject to a federal backup withholding
tax of 31% on taxable distributions and redemption proceeds.
TAXES ON DISTRIBUTIONS. The Fund anticipates that its distributions to
shareholders will consist principally of capital gains rather than dividend or
interest income. Distributions from the Fund to you are normally subject to
federal, state, and local income tax when they are paid as ordinary income,
whether you take them in cash or reinvest them in Fund shares. Any long-term
capital gains distributions are taxable to you as long-term capital gains, no
matter how long you have owned shares in the Fund. The Fund does not seek to
realize any particular amount of capital gains during a year; rather, realized
gains are a byproduct of management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, if
you purchase shares in the Fund shortly before the record date for a capital
gains distribution or a dividend, you will pay the full price for the shares and
will receive some portion of the price back as a taxable distribution.
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KALMAR
POOLED
INVESTMENT
TRUST
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Corporations may be entitled to take a dividends received deduction for a
portion of certain dividends they receive from the Fund subject to limitation
and restrictions provided in the Code. Dividends that are declared in October,
November or December, but not paid until the following January, will be treated
for tax purposes as having been paid in December of the year of declaration.
Every January, you will be sent a statement (IRS Form 1099-DIV) showing the
taxable distributions paid to you in the previous year. The statement provides
full information on your dividends for tax purposes.
TAXES ON SALES. A sale or redemption of your Fund shares normally is subject to
federal, state, and local income tax, and may result in a taxable gain or loss
to you. Your exchange of Fund shares for shares of another fund is treated for
tax purposes like a sale of your original shares and a purchase of your new
shares. Thus, the exchange may, like a sale, result in a taxable gain or loss to
you. Any loss incurred on a sale or exchange of the Fund's shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gain dividends with respect to such shares.
17
<PAGE>
FOR MORE INFORMATION
FOR INVESTORS WHO WANT MORE INFORMATION ABOUT THE FUND, THE FOLLOWING DOCUMENTS
ARE AVAILABLE FREE UPON REQUEST:
ANNUAL/SEMI-ANNUAL REPORTS: Contain performance data and information on
portfolio holdings and operating results for the Fund's most recently completed
fiscal year or half-year. In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): Provides a more detailed description
of the Fund's policies, investment restrictions, risks, and business structure.
This prospectus incorporates the SAI by reference (legally the SAI is part of
the prospectus).
Copies of these documents and answers to questions about the Fund may be
obtained without charge by contacting:
Kalmar "Growth-with-Value" Small Cap Fund
c/o PFPC Inc.
400 Bellevue Parkway
P.O. Box 8965
Wilmington, Delaware 19899
(800) 282-2319
9:00 a.m. to 5:00 p.m. Eastern time
Information about the Fund (including the SAI) can be reviewed and copied at the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. Copies of this information may be obtained, upon payment of a duplicating
fee, by writing the Public Reference Room of the SEC, Washington, DC,
20549-6009. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-(800)-SEC-0330. Reports and other information
about the Fund may be viewed on-screen or downloaded from the SEC's Internet
site at http://www.sec.gov. The investment company registration number for the
Kalmar "Growth-with-Value" Small Cap Fund is 811-07853.
FOR MORE INFORMATION ON OPENING A NEW ACCOUNT, MAKING
CHANGES TO EXISTING ACCOUNTS, PURCHASING, EXCHANGING
OR REDEEMING SHARES, OR OTHER INVESTOR SERVICES,
PLEASE CALL 1-(800)-282-2319.
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KALMAR POOLED INVESTMENT TRUST
BARLEY MILL HOUSE
3701 KENNETT PIKE
GREENVILLE, DE 19807
(PHONE) 302-658-7575
(FAX) 302-658-7513
www.kalmarinvestments.com
KL01-4/30/99
<PAGE>
KALMAR "GROWTH-WITH-VALUE" MICRO CAP FUND
PROSPECTUS DATED APRIL 30, 1999
Kalmar "Growth-with-Value" Micro Cap Fund seeks long-term capital appreciation
by investing in micro cap stocks. The Fund's shares are not currently offered to
investors. Using the adviser's purposefully integrated "Growth-with-Value"
investment philosophy, the Fund invests in companies which the adviser believes
have the potential for significant business growth and capital appreciation, yet
whose stocks, at the time of purchase, are trading at undervalued prices in the
public trading markets. The adviser believes that its "Growth-with-Value"
investment philosophy of purchasing promising, growing companies that may also
be undervalued can result in both lower risk and higher return when compared to
many other micro cap investment strategies.
Please read this prospectus before investing, and keep it on file for future
reference. It gives important information about this mutual fund, including
information on investment policies, risks and fees.
Like all mutual funds, these securities have not been approved or disapproved by
the Securities and Exchange Commission ("SEC"), nor has the SEC determined
whether this prospectus is accurate or complete. it is a criminal offense to
suggest otherwise.
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TABLE OF CONTENTS Page
----
Investment and Performance Summary.............................................3
Financial Highlights .................................................6
Adviser's Performance Record .................................................7
Additional Investment and Risk Information.....................................8
Fund Management .................................................9
Pricing of Fund Shares ................................................10
How to Purchase Shares ................................................11
How to Redeem Shares ................................................12
Dividends & Distributions ................................................14
Tax Consequences ................................................14
2
<PAGE>
KALMAR "GROWTH-WITH-VALUE" MICRO CAP FUND
INVESTMENT AND EXPENSE SUMMARY
------------------------------
INVESTMENT OBJECTIVE:
Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY:
The Fund normally invests in a broad range of common stocks of very small,
development stage or emerging growth companies (so-called "micro cap" stocks)
with capitalizations under $350 million at the time of investment. Using its
"Growth-with-Value" investment philosophy, the Fund's adviser, Kalmar Investment
Advisers ("Kalmar"), seeks to invest in companies which it believes have the
potential for significant future business growth and capital appreciation, yet
whose stocks, at the time of future purchase, are also trading at prices that
are undervalued in the public trading markets.
Kalmar's "Growth-with-Value" investment philosophy INTEGRATES what it believes
to be the best elements of creative growth company investing, with
discriminating value-seeking investment discipline, all with a view toward
longer-term ownership of the "good growth businesses" underlying their stocks.
In effect, Kalmar seeks to own dynamic companies, capable of strong present and
future growth by offering solutions to real problems or innovative products and
services to growing markets of substance. Yet importantly at the same time,
Kalmar carefully seeks to buy such companies' stocks at inexpensive or
undervalued prices. Kalmar does not speculate on "futuristic" developments that
may not prove out, nor does it buy every other growth manager's favorite
highly-valued "momentum stocks" that will live or die on each penny of the next
quarter's earnings per share. Kalmar instead seeks to own dynamic, forward
looking growth companies, BUT with a lower risk stock market approach to doing
so.
This investment philosophy is a primarily fundamentals-driven approach, with the
goal of fewer, better investment decisions, for longer holding periods and
larger gains. Kalmar views its "Growth-with-Value" philosophy as a relatively
conservative approach to micro cap investing. Kalmar also believes that this
approach can result in both lower risk and higher rewards over the longer term
when compared to the micro cap equity markets generally, or to the typical
high-turnover "aggressive growth" or "emerging growth" investment styles of most
other micro cap investment managers. By investing with a longer-term focus, and
thereby limiting trading and portfolio turnover, the Fund seeks to generate
higher long-term returns, to limit transaction costs and to increase tax
efficiency for its shareholders.
The Fund's research/portfolio management team uses an independent, hands-on,
in-house-research-driven approach to their investment management
decision-making. To identify solid, well managed, rapidly growing micro cap
companies, and qualify such companies for investment, the Fund's portfolio
managers perform traditional fundamental security analysis, screening and
research, which is based on a given company's publicly available financial
information, its and its industry's revenue and earnings track record and
prospects. Complementing this, howerver, the team also employs in-depth business
analysis to specifically evaluate the company's managment and controls, profit
model, technology, research and development pipeline, competitive positioning,
growth strategy and dynamics. As essential aspects of this, they engage in
extensive and on-going management contact, inspect company facilities, and cross
check with customers, suppliers, competitors, etc., as well as with industry
trade groups, consultants and such other "experts" as they deem appropriate. The
portfolio management team, of course, also attempts to utilize the best
information provided by Wall Street analysts and strategists to complement its
in-house research and investment management decision making.
As a central ingredient in its investment philosophy and investment selection
process, the Fund seeks to invest in promising companies which meet its
objectives for above average future business value growth, BUT which at the time
of investment have not yet been fully recognized and exploited by other
institutional micro cap investors. Such companies may be followed by relatively
few securities analysts, and, therefore, may be available for purchase at
undervalued prices. By investing in such companies over the longer-term, the
Fund's investors can benefit both from their vigorous potential earnings and
business value growth and also from the potential re-valuation upward of their
securities as their business success attracts larger numbers of additional
investors and greater "Wall Street" sponsorship over time.
PRINCIPAL RISKS AND SPECIAL CONSIDERATIONS:
(BULLET) The Fund invests in common stocks which are subject to market, economic
and business risks that will cause their prices to fluctuate over time.
While common stocks have historically been a leading choice of
long-term investors, stock prices may decline over short or even more
extended periods. Therefore, the value of your investment in the Fund
may go up and down, sometimes rapidly and unpredictably, and you could
lose money.
3
<PAGE>
(BULLET) The Fund invests mainly in micro cap stocks. Such investments involve
greater risks than investments in larger, more established companies,
are more volatile, and may suffer significant losses as well as realize
substantial gains. Further, the market for micro cap stocks is
generally less liquid than the markets for larger stocks, which can
contribute to increased price volatility of such stocks.
(BULLET) The Fund may be appropriate for you if you want to focus on micro cap
stocks and are willing to ride out stock market fluctuations in pursuit
of potentially high long-term returns.
4
<PAGE>
FEES AND EXPENSES OF THE FUND:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) on Purchases None
Maximum Deferred Sales Charge None
Maximum Sales Charge on Reinvested Dividends None
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Managment Fee 1.00%
Distribution and Service (12b-1) Fees None
OTHER EXPENSES (ESTIMATED)* ___%
Total Annual Fund Operating Expenses ___%
* "Other Expenses" are based on estimated amounts for the current fiscal year.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same over the time periods. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS
$___ $___
FINANCIAL HIGHLIGHTS
The Fund has not commenced investment operations at this time, therefore no
financial highlights information is available.
5
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ADVISER'S PERFORMANCE RECORD
----------------------------
Shown below is performance information for a composite of separate
accounts managed by the Fund's portfolio management team. The
performance data for the separate accounts is net of all fees and
expenses. Use of the additional expenses of the Fund would have very
modestly lowered the following seperate account performance results.
These accounts are managed with the same investment objective and
"Growth-with-Value" investment philosophy, and are subject to
substantially identical investment policies and techniques as those
used by the Fund. This performance record reflects the activities of
the Fund's portfolio managers for accounts which they manage at Kalmar
Investments Inc. ("Kalmar Investments"), a registered advisory firm
that is the sister company of the adviser. The results presented are
not intended to predict or suggest the return to be experienced by the
Fund or the return that an individual investor might achieve by
investing in the Fund. The Fund's results may be different from the
composite of separate accounts because the average market
capitalization of the companies included in the separate account
portfolios has been approximately $350 million, and the Fund's
portfolio generally will have a lower average market capitalization.
The Fund's results may also be different because of, among other
things, differences in fees and expenses, and because private accounts
are not subject to certain investment limitations, diversification
requirements, and other restrictions imposed by the Investment Company
Act of 1940, as amended (the "Investment Company Act") and the Internal
Revenue Code, as amended, which, if applicable, may have adversely
affected the performance of such accounts. Past performance results of
similarly managed accounts are not indicitave of the Fund's future
performance.
YEAR KALMAR SEPARATE ACCOUNT RUSSELL 2000 S & P 500
ENDING NET RETURN* TOTAL RETURN TOTAL RETURN
------ ---------- ------------ ------------
12/31/84 1.46 (7.30) 6.26
12/31/85 33.98 31.05 31.76
12/31/86 28.14 5.68 18.70
12/31/87 (1.90) (8.77) 5.22
12/31/88 23.58 24.89 16.57
12/31/89 38.42 16.24 31.65
12/31/90 (7.58) (19.51) (3.14)
12/31/91 65.52 46.05 30.45
12/31/92 8.87 18.41 7.62
12/31/93 27.11 19.91 10.06
12/31/94 3.08 (1.82) 1.30
12/31/95 25.35 26.21 37.54
12/31/96 7.06 14.76 22.99
12/31/97 36.30 22.24 33.34
12/31/98 (5.62) (2.55) 28.57
CUMULATIVE
RETURN KALMAR* RUSSELL 2000 S & P 500
------ ------ ------------ ---------
15 Years*
1984-1998 989.98 293.51 1150.51
AVERAGE ANNUAL
RETURN
------
15 Years*
1984-1998 17.26 9.56 18.34
(BULLET) The above returns were calculated using the performance measurment
standards of the Association for Investment Managment Research
("AIMR"). Results may have been different if the SEC method of
calculating total return had been used instead of the AIMR method. The
results shown above (1) represent a composite of discretionary, fee
paying, separate accounts under management for at least six months, (2)
reflect the reinvestment of any dividends or capital gains, and (3) are
shown after deduction of advisory, brokerage or other expenses
(excluding fees such as custody fees which are paid separately by the
investor). Certain individual accounts that are subject to investment
restrictions, tax, income or other special considerations that
constrain the investment process are excluded from the composite
figures shown above.
- --------------------------------------------------------------------------------
6
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ADDITIONAL INVESTMENT AND RISK INFORMATION
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment objective is long-term capital appreciation. This
investment objective may not be changed without shareholder approval.
Under normal market conditions, the Fund will preponderantly invest in micro cap
companies whose stock market capitalizations (total market value of outstanding
shares) are less than $350 million at the time of investment. At a minimum, 65%
of its total assets will be invested in micro cap companies. Micro cap growth
companies often pay no dividends and, therefore, current income is not a factor
in the selection of stocks. Capital appreciation is likely to be the main
component of the Fund's return.
In addition, the Fund may invest in preferred stocks, securities convertible
into common stocks, and certain debt securities, consistent with its long-term
capital appreciation objective.
The Fund will purchase primarily common stocks, which represent an ownership
interest in the issuer, entitle the holder to participate in any income and/or
capital gains of the issuer and generally have voting rights. The Fund may also
purchase investment grade securities with an equity component such as
convertible preferred stock, debt securities convertible into or exchangeable
for common stock and securities such as warrants or rights that are convertible
into common stock. A convertible security is a security that may be converted
either at a stated price or rate within a specified period of time into a
specified number of shares of common or preferred stock. By investing in
convertible securities, the Fund seeks to participate in the capital
appreciation of the common stock into which the securities are convertible
through the conversion feature. A warrant is a security that gives the holder
the right, but not the obligation, to subscribe for newly created securities of
the issuer or a related company at a fixed price either at a certain date or
during a set period. Rights represent a preemptive right to purchase additional
shares of stock at the time of new issuance, before stock is offered to the
general public, so that the stockholder can retain the same percentage after the
new stock offering.
The Fund may, consistent with its objective, invest a portion of its total
assets in equity securities of larger capitalization companies if Kalmar
believes that suitable small company opportunities are not available or if such
larger stocks have strong growth potential and meet Kalmar's "Growth-with-Value"
criteria and investment discipline.
TEMPORARY DEFENSIVE POSITIONS
When adverse economic or market conditions occur, the Fund temporarily may
invest up to 100% of its net assets in short-term, cash equivalent investments.
The Fund may be unable to achieve its investment objective when taking a
temporary defensive position. While reserving the right to make such strategic
moves, Kalmar has never taken so extreme a position in their 17 years experience
and generally believes in remaining fully invested.
RISK FACTORS
Investing in the Fund involves the following risks:
(BULLET) MICRO CAP COMPANY RISK. Investments in common stocks in general are
subject to market, economic and business risks that will cause their
price to fluctuate over time. Therefore, an investment in the Fund may
be more suitable for long-term investors who can bear the risk of these
fluctuations. Furthermore, the Fund will invest in small, new or
unseasoned companies which may be in their early stages of development,
or small companies positioned in new and emerging industries where the
opportunity for rapid growth is expected to be above average.
Securities of such companies may offer greater opportunity for capital
appreciation than larger companies, but investments in such companies
presents greater risks than investment in larger, more established
companies. The companies in which the Fund generally will invest may
have relatively small revenues, limited or very focused product lines,
and may have a small share of the market for their products or services
or a very large share of an emerging market. Small or development stage
companies may lack depth of management, they may be unable to
internally generate funds necessary for growth or potential development
or to generate such funds through external financing on favorable
terms, or they may be developing or marketing new products or services
for which markets are not yet established and may never become well
established. Due to these and other factors, such companies may suffer
significant losses as well as realize substantial growth and
profitability,
7
<PAGE>
and investments in such companies will be volatile and are therefore
speculative. Historically, micro cap stocks have been more volatile in
price than larger capitalization stocks. Among the reasons for the
greater price volatility of these securities are the lower degree of
liquidity in the markets for such stocks, and the potentially greater
sensitivity of such small companies to changes in or failure of
management and in many other changes in competitive, business, industry
and economic conditions, including risks associated with limited
product lines, markets, management depth, or financial resources.
Besides exhibiting greater volatility, micro and small company stocks
may, to a degree, fluctuate independently of larger company stocks.
Micro and small company stocks may decline in price as large company
stocks rise, or rise in price as large company stocks decline.
Investors should therefore expect that the value of the Fund's shares
will be more volatile than the shares of a fund that invests in larger
capitalization stocks. Additionally, while the markets in securities of
small companies have grown rapidly in recent years, such securities may
trade less frequently and in smaller volume than more widely held
securities. The values of these securities may fluctuate more sharply
than those of other securities, and the Fund may experience some
difficulty in establishing or closing out positions in theses
securities at prevailing market prices. There may be less publicly
available information about the issuers of these securities or less
market interest in such securities than in the case of larger
companies, and it may take a longer period of time for the prices of
such securities to reflect the full value of their issuers' underlying
earnings potential or assets. The Fund should not be considered
suitable for investors who are unable or unwilling to assume the risks
of loss inherent in such a program, nor should investment in the Fund
be considered a balanced or complete investment program.
(BULLET) MANAGEMENT RISK. As with all mutual funds, the Fund is subject to the
risk that an investment strategy used by Kalmar may fail to produce the
intended result.
(BULLET) OPPORTUNITY RISK. As with all mutual funds, the Fund is subject to the
risk of missing out on an opportunity because the assets necessary to
take advantage of it are tied up in less advantageous investments.
(BULLET) YEAR 2000 RISK. The services provided to the Fund and its shareholders
by Kalmar and the Fund's Distributor, Administrator, Transfer Agent and
Custodian depend on the smooth functioning of their computer systems
and those of their outside service providers. Many computer software
systems in use today cannot distinguish the year 2000 from the year
1900 because of the way dates are encoded and calculated. Such an event
could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although at this
time, there can be no assurance that there will be no adverse impact on
the Fund, the Adviser, Distributor, Administrator, Transfer Agent and
Custodian have advised the Fund that they have been actively working on
necessary changes to their computer systems to prepare for the year
2000 and expect that their systems, and those of their outside service
providers, will be adapted in time for that event. Additionally, if a
company in which the Fund is invested is adversely affected by year
2000 problems, it is likely that the price of the company's securities
will also be adversely affected. A decrease in one or more of the
Fund's holdings may have a similar impact on the price of the Fund's
shares. The adviser will rely on public filings and other statements
made by companies about their year 2000 readiness.
FUND MANAGEMENT
---------------
INVESTMENT ADVISER
Kalmar Investment Advisers, located at 3701 Kennett Pike, Wilmington, Delaware
19807, serves as the investment adviser for the Fund. Kalmar manages the
investments of the Fund according to the Fund's stated investment objective,
philosophy and policies and subject to its limitations or restrictions. Subject
to the supervision of the Board of Trustees, Kalmar makes the Fund's day-to-day
investment decisions, selects brokers and dealers to execute portfolio
transactions and generally manages the Fund's investments.
As of December 31, 1998, Kalmar (and its affiliates) managed approximately $825
million primarily in micro capitalization and small capitalization stocks in
separately managed accounts including the Fund itself. Kalmar's clients include
high net worth individuals and family trusts, corporations, pensions and
profit-sharing plans and institutions such as endowments, foundations, hospitals
and charitable institutions. Kalmar (and its affiliates) invests assets of its
own profit-sharing plan in shares of the Fund, as do members of its investment
team and other employees.
As compensation for its services, the Fund will pay Kalmar a monthly advisory
fee at the annual rate of 1.00% of the Fund's average daily net assets.
PORTFOLIO MANAGEMENT TEAM
Kalmar's founder, Ford B. Draper, Jr. owns a majority interest in Kalmar. Kalmar
utilizes a team approach in managing the Fund's portfolio with Mr. Draper, as
chief investment officer, leading and supervising the research/portfolio
management
8
<PAGE>
team. The list below describes the business experience of the Fund's officers
and portfolio managers.
FORD B. DRAPER, JR.
CHAIRMAN, PRESIDENT AND CHIEF INVESTMENT OFFICER
A graduate of Yale University, Mr. Draper also received an M.B.A. from Columbia
University Graduate School of Business, and has over thirty years experience in
investment research and management. Mr. Draper began his career in 1967 in the
investment research and capital management departments of Smith, Barney & Co. In
1970, he joined Baker, Fentress & Company, a publicly owned closed-end mutual
fund, where he performed original investment research on a broad spectrum of
companies and industries. In 1972, he became Vice President with
responsibilities that included trading, investment research, investment
strategy, and management of the fund's portfolio. For the following ten years at
Baker, Fentress, Mr. Draper developed positive investment performance for this
then $250 million fund. Mr. Draper founded Kalmar Investments in 1982, which
provides investment management services to separately managed accounts.
FORD B. DRAPER, III
MANAGER, TRADING DEPARTMENT
After earning a BA in International Relations from Lynchburg College, plus
additional travel and business education, Mr. Draper joined Kalmar Investments
in 1991. There he built the firm's professional trading operations team and
specialized information systems focusing on small cap equities, which he
continues to manage. He has eight years small cap equities experience.
GREGORY A. HARTLEY, C.F.A.
PORTFOLIO MANAGER/RESEARCH ANALYST
Mr. Hartley graduated from Indiana University's School of Business, held an
accounting position, and later earned an M.B.A. from Indiana University's
Graduate School of Business. Mr. Hartley joined Kalmar Investments in 1993 after
nine years of prior investment experience. From 1984-1993, he worked for Ashford
Capital Management, Inc., a then $100 million investment management and
consulting firm. As a senior analyst and member of the investment committee
doing original research on small growth companies, from health care to specialty
manufacturing and financial services to technology, at Ashford he was
responsible for new idea stock selection and management of over $50 million in
portfolio holdings. He has 15 years small cap research and equity investing
experience.
LINN M. MORROW
DIRECTOR OF CLIENT SERVICES
Mr. Morrow, with over twenty years experience in investment-related client
services, holds a BS in Economics from the University of Pennsylvania's Wharton
School. He began his career with Salomon Brothers in 1968, and subsequently
worked in the corporate trust departments of Chemical Bank, NY and Mellon Bank,
NA. In 1985 he joined Delaware Investment Advisers as Vice President of Client
Services. For ten years at Delaware, his responsibilities were acting as liaison
between clients and the investment team, client reviews, client communications
and new business. Mr. Morrow joined Kalmar Investments in 1996 to direct its
client services.
RAYMOND F. REED, C.F.A.
PORTFOLIO MANAGER/RESEARCH ANALYST
Mr. Reed is a graduate of the University of Pennsylvania and recieved an M.B.A.
in Finance from New York University. He began his investment career with Martin
Simpson and Company in 1981. As Vice President and Pricipal, he conducted
investment research on emerging and established technology companies. After six
years, he joined Mabon, Nugent & Company as a Senior Analyst responsible for
research coverage of computer industry stocks. In March 1990, Mr. Reed joined
Janney Montomery Scott as a Senior Vice President of Research following regional
special situations and technology companies. Mr. Reed was recognized in the Wall
Street Journal's All-Star Analysts Survey in 1993 and 1995. Mr. Reed joined Legg
Mason Wood Walker in 1995. As a Managing Director of Research, he was
responsible for creation, operation and supervision of the Business and
information Services Group as a part of the firm's capital market strategy. Mr.
Reed joined kalmar Investments in 1999 as a Portfolio Manager/Research Analyst.
DANA F. WALKER, C.F.A.
PORTFOLIO MANAGER/RESEARCH ANALYST
After graduating from the University of Virginia's McIntire School of Commerce,
Mr. Walker worked from 1982-1986 for Delfi Management, Inc., investment adviser
to the Sigma Funds, a then $350 million mutual fund group. As a senior analyst
doing original research in consumer-related industries, health care, retailing,
and distribution, he was responsible for investment selections from these areas
for the Sigma funds and for portfolios of DP Asset Management, an affiliated
$100 million investment advisory firm. Mr. Walker joined Kalmar Investments in
1986. He has seventeen years small cap research and equity investing experience.
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
----------------------
9
<PAGE>
The Fund's share price is based upon its net asset value per share. The Fund's
administrator, PFPC Inc. ("PFPC"), determines the net asset value per share as
of the close of regular trading on each day that the New York Stock Exchange
("NYSE") is open for unrestricted trading from Monday through Friday (generally
4:00 p.m.) and on which there is a purchase or redemption of the Fund's shares.
The net asset value is determined by dividing the value of the Fund's
securities, plus any cash and other assets, less all liabilities, by the number
of shares outstanding. Expenses and fees of the Fund, including management fees,
are accrued daily and taken into account for the purpose of determining the net
asset value.
Fund securities listed or traded on a securities exchange for which
representative market quotations are available will be valued at the last quoted
sales price on the security's principal exchange on that day. Listed securities
not traded on an exchange that day will be valued at the mean between the last
bid and asked price on that day, if any. Unlisted securities which are quoted on
the National Association of Securities Dealers National Market System for which
there are sales of such securities on such day, shall be valued at the last sale
price reported on such system the day the security is valued. If there are no
such sales, the value shall be the mean between the closing asked price and
closing bid price. Securities for which market quotations are not readily
available and all other assets will be valued at their respective fair value as
determined in good faith by, or under procedures established by, the Board of
Trustees. In determining fair value, the Fund or its service providers may
employ an independent pricing service.
The Fund will value money market securities with less than sixty days remaining
to maturity when acquired by the Fund on an amortized cost basis, 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 from cost versus par value at maturity. If
the Fund acquires a money market security 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 Trustees determine during such 60-day period that
this amortized cost value does not represent fair market value.
HOW TO PURCHASE SHARES
----------------------
Shares of the Fund are offered without the imposition of any sales or
distribution fees. However, certain broker-dealers or service agents may charge
you transaction or other account fees for effecting transactions in Fund shares.
The Fund's shares are offered at the net asset value per share next determined
after the receipt of a purchase request in good order and payment in proper form
by the Fund. Information on how to invest in the Fund is presented below, and
any requests for applications, additional information or questions may be
directed to PFPC at (800) 282-2319.
MINIMUM INVESTMENT. The minimum initial investment in the Fund is $10,000, and
subsequent investments must total at least $1,000. The minimum initial
investment requirement for qualified retirement accounts is $1,000 and there is
no minimum for subsequent investments.
PURCHASE PRICE. Purchase orders for shares of the Fund which are received in
proper form by the Fund prior to the close of regular trading hours on the NYSE
(currently 4:00 p.m. Eastern time) on any day that the Fund is open are priced
according to the net asset value determined on that day. Purchase orders
received in proper form by the Fund after the close of the NYSE on a particular
day are priced as of the time the net asset value per share is next determined.
IN-KIND PURCHASES. At the discretion of the Fund, you may be permitted to
purchase Fund shares by transferring securities to the Fund that: (1) meet the
Fund's investment objective and policies; (2) are acquired by the Fund for
investment and not for resale purposes; and (3) are liquid securities which are
not restricted as to transfer either by law or liquidity of market. At the
discretion of the Fund, the value of any such security (except U.S. Government
Securities) being exchanged together with other securities of the same issuer
owned by the Fund may not exceed 5% of the net assets of the Fund immediately
after the transactions.
Securities transferred to the Fund will be valued in accordance with the same
procedures used to determine the Fund's net asset value. All dividends,
interests, subscription, or other rights pertaining to such securities shall
become the property of the Fund and must be delivered to the Fund by you upon
receipt from the issuer.
Purchases may be made in one of the following ways:
(BULLET) PURCHASES BY MAIL. You may purchase shares by sending a check drawn on
a U.S. bank payable to the Kalmar
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<PAGE>
"Growth-with-Value" Micro Cap Fund, along with a completed shareholder
application, to Kalmar "Growth-with-Value" Fund, c/o PFPC Inc., P.O.
Box 8965, Wilmington, DE 19899-9752. A shareholder application sent by
overnight mail should be sent to Kalmar "Growth-with-Value" Fund, c/o
PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809. If a subsequent
investment is being made, you should use the purchase stub and return
envelope from the most recent account statement and the check should
also indicate your Fund account number.
(BULLET) PURCHASES BY WIRE. To purchase shares by wiring federal funds, you must
first notify PFPC by calling (800) 282-2319 to request an account
number and furnish the Fund with a tax identification number. Following
notification to PFPC, federal funds and registration instructions
should be wired through the Federal Reserve System to:
PFPC INC.
C/O PNC BANK, N.A.
PHILADELPHIA, PA
DDA #86-0179-1174
ABA #031-0000-53
ATTENTION: KALMAR "GROWTH-WITH-VALUE" MICRO CAP FUND
FURTHER CREDIT [SHAREHOLDER NAME AND ACCOUNT NUMBER]
For initial purchases by wire, a completed application with
signature(s) of investor(s) must promptly be filed with PFPC at one of
the addresses stated above under "Purchases By Mail." You should be
aware that some banks might charge you a wire service fee.
(BULLET) AUTOMATIC INVESTMENT PLAN. You may purchase Fund shares through an
Automatic Investment Plan. The Plan provides a convenient method by
which you may have monies deducted directly from your checking, savings
or bank money market accounts for investment in the Fund. Under the
Plan, PFPC, at regular intervals, will automatically debit your bank
checking account in an amount of $100 or more (subsequent to the
$10,000 minimum initial investment), as specified by you. You may elect
to invest the specified amount monthly, bimonthly, quarterly,
semi-annually or annually. The purchase of Fund shares will be effected
at the net asset value at the close of regular trading on the NYSE
(currently 4:00 p.m. Eastern time) on or about the 20th day of the
month. To obtain an Application for the Automatic Investment Plan,
check the appropriate box of the Application accompanying this
Prospectus or call PFPC at (800) 282-2319.
RETIREMENT PLANS. Shares of the Fund are available for use in all types of
tax-deferred retirement plans such as IRAs, employer-sponsored defined
contribution plans (including 401(k) plans) and tax-sheltered custodial accounts
described in Section 403(b)(7) of the Internal Revenue Code. Qualified investors
benefit from the tax-free compounding of income dividends and capital gains
distributions. For more information, see "Retirement Plans" in the Fund's
Statement of Additional Information. Application forms and brochures describing
investments in the Fund for retirement plans can be obtained from PFPC by
calling (800) 282-2319.
HOW TO REDEEM SHARES
--------------------
ou may redeem all or a portion of your shares without charge on any day that
the Fund calculates its net asset value. See "Pricing of Fund Shares." Except as
noted below, redemption requests received in good order by PFPC prior to the
close of regular trading hours on the NYSE on any business day that the Fund
calculates its per share net asset value are effective at the net asset value
per share determined that day. Redemption requests received in good order by
PFPC after the close of the NYSE are effective as of the time the net asset
value per share is next determined. Redemption proceeds are normally sent on the
next business day following the Fund's receipt of the redemption request but, in
any event, redemption proceeds are sent within seven business days of receipt of
the request, or earlier if required under applicable law. Redemption requests
should be accompanied by the Fund's name and the shareholder's account number.
Corporations, other organizations, trusts, fiduciaries and other institutional
investors may be required to furnish certain additional documentation to
authorize redemption.
Delivery of the proceeds of a redemption of shares purchased and paid for by
check shortly before the receipt of the request may be delayed until the Fund
determines that the Custodian has completed collection of the purchase check
which may take up to 10 days. Also, redemption requests for accounts for which
purchases were made by wire may
11
<PAGE>
be delayed until the Fund receives a completed application for the account. The
Board of Trustees may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the NYSE is restricted, (b) the
NYSE is closed, (c) when an emergency exists and the Fund cannot sell its shares
or accurately determine the value of its assets, or (d) if the SEC orders the
Fund to suspend redemptions.
Shares may be redeemed in one of the following ways:
(BULLET) REDEMPTION BY MAIL. Your written redemption request must (i) identify
your account number, (ii) state the number of shares or dollar amount
to be redeemed, and (iii) be signed by each registered owner exactly as
the shares are registered. A redemption request for an amount in excess
of $25,000, or for any amount if for payment other than to the
shareholder of record, or if the proceeds are to be sent elsewhere than
the address of record, must be accompanied by a signature guarantee by
a guarantor institution that is acceptable to the Fund's transfer
agent, such as a domestic bank or trust company, broker, dealer,
clearing agency or savings association, participating in a signature
guarantee program recognized by the Securities Transfer Association.
The three recognized signature guarantee programs are Securities
Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature
Program (MSP). Signature guarantees that are not part of these programs
will not be accepted. A signature and a signature guarantee are
required for each person in whose name the account is registered. PFPC
may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees and guardians.
You should submit written redemption instructions to Kalmar
"Growth-with-Value" Micro Cap Fund, c/o PFPC Inc., P.O. Box 8965,
Wilmington, DE 19899-9752. A redemption order sent by overnight mail
should be sent to Kalmar "Growth-with-Value" Micro Cap Fund, c/o PFPC
Inc., 400 Bellevue Parkway, Wilmington, DE 19809. A redemption request
will not be deemed to be properly received until PFPC receives all
required documents in proper form. Questions regarding the proper form
for redemption requests should be directed to PFPC at (800) 282-2319.
(BULLET) REDEMPTION BY TELEPHONE. You may redeem shares by telephone by
completing the telephone redemption section of the shareholder
application which describes the telephone redemption procedures in more
detail and requires certain information that will be used to identify
the shareholder when a telephone redemption request is made. You may
redeem by telephone amounts up to $50,000 by instructing PFPC at (800)
282-2319. In order to arrange for redemption by wire or telephone after
an account has been opened, or to change the bank or account designated
to receive redemption proceeds, you should send a written request to
PFPC at the address listed above. A signature guarantee is required of
all shareholders in order to change telephone redemption privileges.
Neither the Fund nor any of its service contractors will be liable for
any loss or expense in acting upon any telephone instructions that are
reasonably believed to be genuine. In attempting to confirm that
telephone instructions are genuine, the Fund will use such procedures
as are considered reasonable, including requesting a shareholder to
correctly state his or her Fund account number, the name in which his
or her account is registered, the number of shares to be redeemed and
certain other information necessary to identify the shareholder.
During times of drastic economic or market changes, the telephone
redemption privilege may be difficult to implement. In the event that
you are unable to reach PFPC by telephone, you may make a redemption
request by mail. The Fund or PFPC reserves the right to refuse a wire
or telephone redemption if it is believed advisable to do so.
Procedures for redeeming Fund shares by wire or telephone may be
modified or terminated at any time by the Fund.
(BULLET) REDEMPTIONS BY WIRE. The Fund will wire redemption proceeds to a
predesignated bank account at any commercial bank in the United States
if the amount is $1,000 or more. The receiving bank may charge you a
fee for this service. Amounts redeemed by wire are normally wired on
the next business day after receipt of redemption instructions in
proper form (if received before the close of regular trading on the
NYSE), but in no event later than five days following such receipt.
IN-KIND REDEMPTION. The Fund will satisfy redemption requests in cash to the
fullest extent feasible, so long as such payments would not, in the opinion of
Kalmar or the Board of Trustees, result in the necessity of the Fund selling
assets under adverse conditions and to the detriment of the Fund's remaining
shareholders. Payment for
12
<PAGE>
shares redeemed may be made either in cash or in-kind, or partly in cash and
partly in-kind. Any portfolio securities paid or distributed in-kind would be
valued as described under "Pricing of Fund Shares." In the event that the Fund
makes an in-kind distribution, you may incur additional expenses, such as the
payment of brokerage commissions, on the sale or other disposition of the
securities received from the Fund. In-kind payments need not constitute a
cross-section of the Fund's portfolio. Where a shareholder has requested
redemption of all or a part of the shareholder's investment, and if the Fund
completes such redemption in-kind, the Fund will not recognize gain or loss for
federal tax purposes on the securities used to complete the redemption but the
shareholder will recognize gain or loss equal to the difference between the fair
market value of the securities received and the shareholder's basis in the Fund
shares redeemed.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem your account if it
is inactive and worth less than the minimum initial investment when the account
was established, currently $10,000. The Fund will advise you of its intention to
redeem your account in writing at least sixty (60) days prior to effecting such
redemption, during which time you may purchase additional shares in any amount
necessary to bring the account back to the appropriate minimum amount. The Fund
will not redeem your account if it is worth less than the appropriate minimum
amount solely because of a market decline.
SYSTEMATIC WITHDRAWAL PLAN. If you own shares with a value of $10,000 or more,
you may participate in the Systematic Withdrawal Plan. Under this Plan, you may
automatically redeem a portion of your Fund shares monthly, bimonthly,
quarterly, semiannually or annually. The minimum withdrawal available is $100.
The redemption of Fund shares will be effected at their net asset value at the
close of the NYSE on or about the 25th day of the month at the frequency
selected by you. If you expect to purchase additional Fund shares, it may not be
to your advantage to participate in the Systematic Withdrawal Plan because
contemporary purchases and redemption may result in adverse tax consequences.
For further details about this service, see the Application or call PFPC at
(800) 282-2319.
DIVIDENDS AND DISTRIBUTIONS
---------------------------
The Fund intends to declare and pay annual dividends to its shareholders of
substantially all of its net investment income, if any, earned during the year
from its investments. The Fund will distribute net realized capital gains, if
any, once each year. Reinvestments of dividends and distributions in additional
shares of the Fund will be made at the net asset value determined on the ex date
of the dividend or distribution unless you have elected in writing to receive
dividends or distributions in cash. You may change an election by notifying PFPC
in writing thirty days prior to the record date. You may call PFPC for more
information. Expenses of the Fund, including the advisory fee, are accrued each
day. All shares of the Fund will share proportionately in the Fund's investment
income and expenses.
TAX CONSEQUENCES
-----------------
As with any investment, you should consider how your Fund investment will be
taxed. The tax information in this prospectus is provided as general information
only and should not be considered as tax advice or relied on by an investor. You
should consult your own tax professional concerning the various tax consequences
of an investment in the Fund. Additional information on tax matters relating to
the Fund and to its shareholders is included in the Statement of Additional
Information.
The Fund intends to qualify annually to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"). As
such, the Fund will not be subject to federal income or excise taxes on the
earnings it distributes to shareholders provided the Fund satisfies certain
requirements and restrictions in the Code.
Unless your investment in the Fund is through a tax-deferred retirement account,
such as a 401(k) plan or IRA, you need to be aware of the possible tax
consequences when:
- The Fund makes distributions; and
- You sell Fund shares, including an exchange to another fund.
When you open your Fund account, you should provide your social security or
taxpayer identification number on your account registration form. By providing
this information, you will avoid being subject to a federal backup withholding
tax of 31% on taxable distributions and redemption proceeds.
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TAXES ON DISTRIBUTIONS. The Fund anticipates that its distributions to
shareholders will consist principally of capital gains rather than dividend or
interest income. Distributions from the Fund to you are normally subject to
federal, state, and local income tax when they are paid as ordinary income,
whether you take them in cash or reinvest them in Fund shares. Any long-term
capital gains distributions are taxable to you as long-term capital gains, no
matter how long you have owned shares in the Fund. The Fund does not seek to
realize any particular amount of capital gains during a year; rather, realized
gains are a byproduct of management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, if
you purchase shares in the Fund shortly before the record date for a capital
gains distribution or a dividend, you will pay the full price for the shares and
will receive some portion of the price back as a taxable distribution.
Corporations may be entitled to take a dividends received deduction for a
portion of certain dividends they receive from the Fund subject to limitation
and restrictions provided in the Code. Dividends that are declared in October,
November or December, but not paid until the following January, will be treated
for tax purposes as having been paid in December of the year of declaration.
Every January, you will be sent a statement (IRS Form 1099-DIV) showing the
taxable distributions paid to you in the previous year. The statement provides
full information on your dividends for tax purposes.
TAXES ON SALES. A sale or redemption of your Fund shares normally is subject to
federal, state, and local income tax, and may result in a taxable gain or loss
to you. Your exchange of Fund shares for shares of another fund is treated for
tax purposes like a sale of your original shares and a purchase of your new
shares. Thus, the exchange may, like a sale, result in a taxable gain or loss to
you. Any loss incurred on a sale or exchange of the Fund's shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gain dividends with respect to such shares.
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<PAGE>
FOR MORE INFORMATION
FOR INVESTORS WHO WANT MORE INFORMATION ABOUT THE FUND, THE FOLLOWING DOCUMENTS
ARE AVAILABLE FREE UPON REQUEST:
ANNUAL/SEMI-ANNUAL REPORTS: Contain performance data and information on
portfolio holdings and operating results for the Fund's most recently completed
fiscal year or half-year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): Provides a more detailed description
of the Fund's policies, investment restrictions, risks, and business structure.
This prospectus incorporates the SAI by reference (legally the SAI is part of
the prospectus).
Copies of these documents and answers to questions about the Fund may be
obtained without charge by contacting:
Kalmar "Growth-with-Value" Micro Cap Fund
c/o PFPC Inc.
400 Bellevue Parkway
P.O. Box 8965
Wilmington, Delaware 19899
(800) 282-2319
9:00 a.m. to 5:00 p.m. Eastern time
Information about the Fund (including the SAI) can be reviewed and copied at the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. Copies of this information may be obtained, upon payment of a duplicating
fee, by writing the Public Reference Room of the SEC, Washington, DC,
20549-6009. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-(800)-SEC-0330. Reports and other information
about the Fund may be viewed on-screen or downloaded from the SEC's Internet
site at http://www.sec.gov. The investment company registration number for the
Kalmar "Growth-with-Value" Micro Cap Fund is 811-07853.
For more information on opening a new account, making
changes to existing accounts, purchasing, exchanging
or redeeming shares, or other investor services,
please call 1-(800)-282-2319.
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<PAGE>
KALMAR "GROWTH-WITH-VALUE" SMALL CAP FUND
KALMAR "GROWTH-WITH-VALUE" MICRO CAP FUND
EACH A SERIES OF
KALMAR POOLED INVESTMENT TRUST
Barley Mill House, 3701 Kennett Pike, Greenville, Delaware 19807
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 1999
Kalmar Pooled Investment Trust has established two separate series of shares,
each with its own investment objective and policies. Information concerning the
Kalmar "Growth-with-Value" Small Cap Fund and the Kalmar "Growth-with-Value"
Micro Cap Fund is included in separate prospectuses, each dated April 30, 1999.
The Micro Cap Fund's shares are not currently offered to investors. This
Statement of Additional Information ("SAI") is not a prospectus and should be
read in conjunction with the current prospectus of the particular fund. A copy
of each prospectus may be obtained without charge at the addresses and telephone
numbers listed below.
INVESTMENT ADVISER: UNDERWRITER:
KALMAR INVESTMENT ADVISERS PROVIDENT DISTRIBUTORS, INC.
Barley Mill House Four Falls Corporate Center, 6th Floor
3701 Kennett Pike West Conshohocken, PA 19148-2961
Greenville, DE 19807 (610) 260-6533
(302) 658-7575
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TABLE OF CONTENTS
PAGE
Kalmar Pooled Investment Trust............................................... 3
Investment Strategies........................................................ 3
Investment Restrictions...................................................... 11
Portfolio Brokerage and Turnover............................................. 13
Management................................................................... 14
Purchases.................................................................... 18
Retirement Plans............................................................. 18
Redemptions................................................................. 20
Taxation.................................................................... 20
General Information......................................................... 24
Performance.................................................................. 26
Financial Statements......................................................... 28
Appendix.....................................................................A-1
2
<PAGE>
KALMAR POOLED INVESTMENT TRUST
FUND HISTORY AND CLASSIFICATION
Kalmar Pooled Investment Trust (the "Trust"), Barley Mill House, 3701 Kennett
Pike, Greenville, Delaware 19807, is an open-end, diversified, management
investment company organized as a Delaware business trust on September 30, 1996.
The Trust offers shares of two series representing separate portfolios of
investments, the Kalmar "Growth-with-Value" Small Cap Fund (the "Small Cap
Fund") and the Kalmar "Growth-with-Value" Micro Cap Fund (the "Micro Cap Fund")
(each individually, a "Fund" and collectively, the "Funds"). Shares of both
Funds are offered and sold on a no-load basis, without the imposition of sales
or distribution charges.
INVESTMENT STRATEGIES
Each Fund seeks to achieve its objective by following the philosophy outlined in
its prospectus and by making investments selected in accordance with its
investment policies and restrictions. The Funds will vary their investment
strategies as described in each Fund's prospectus to achieve their objectives.
This SAI contains further information concerning the techniques and strategies
employed by the Funds' investment adviser, Kalmar Investment Advisers (the
"Adviser") in managing each Fund, the types of securities in which the Funds
will invest, the policies they will follow and the risks associated with the
Funds' investment activities.
CASH OR CASH EQUIVALENTS
Although the Funds intend to remain substantially fully invested, each Fund may
invest its assets in cash or cash equivalents, during periods when excess cash
is generated through purchases and sales of its shares, or when a Fund desires
to hold cash to maintain liquidity for redemptions or pending investment in
suitable securities. There also may be times when economic or market conditions
are such that the Adviser deems a temporary defensive position to be
appropriate, during which a Fund may invest up to 100% of its net assets in the
types of short-term, cash equivalent investments described below.
The Funds may invest in short-term debt securities, including time deposits,
certificates of deposit or bankers' acceptances issued by commercial banks or
savings and loan associations meeting certain qualifications. The Funds also may
purchase commercial paper rated A-1 or A-2 by Standard & Poor's Ratings Service
("S&P") or Prime-1 or Prime-2 by Moody's Investors Service, Inc. ("Moody's"),
or, if not rated, issued by a corporation having an outstanding unsecured debt
issue rated high-grade (A or better by S&P or by Moody's); and may invest in
short term corporate obligations rated high-grade (A or better by S&P or
Moody's).
The Funds may purchase U.S. Government obligations including bills, notes, bonds
and other debt securities issued by the U.S. Treasury; and may invest in U.S.
Government agency securities issued or also guaranteed by U.S. Government
sponsored instrumentalities and federal agencies. The Funds may also invest in
repurchase
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agreements collateralized by the cash equivalent securities listed above.
CONVERTIBLE SECURITIES
Traditional convertible securities include corporate bonds, notes and preferred
stocks that may be converted into or exchanged for common stock, and other
securities that also provide an opportunity for equity participation. These
securities are generally convertible either at a stated price or a stated rate
(that is, for a specific number of shares of common stock or other security). As
with other fixed income securities, the price of a convertible security
generally rises when interest rates decline, and vice versa. While providing a
fixed-income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a non-convertible debt security), a
convertible security also affords the investor an opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the price of a convertible security tends to rise as a reflection of
the value of the underlying common stock. To obtain such a higher yield, the
Funds may be required to pay for a convertible security an amount in excess of
the value of the underlying common stock. Common stock acquired by the Funds
upon conversion of a convertible security will generally be held for so long as
the Adviser anticipates such stock will provide the Funds with opportunities
which are consistent with the Funds' investment objectives and policies.
WHEN ISSUED, DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
The Funds may enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis in excess
of customary settlement periods for the type of security involved. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring, i.e., a when, as and if issued security.
When such transactions are negotiated, the price is fixed at the time of the
commitment, with payment and delivery taking place in the future, generally a
month or more after the date of the commitment. While the Funds will only enter
into a forward commitment with the intention of actually acquiring the security,
the Funds may sell the security before the settlement date if it is deemed
advisable.
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Funds prior to the
settlement date. The Funds will maintain in segregated accounts with its
custodian cash or liquid securities in an aggregate amount at least equal to the
amount of its outstanding forward commitments.
FOREIGN SECURITIES AND ADRs
Each Fund may invest up to 15% of its assets in foreign securities, including
sponsored or unsponsored American Depository Receipts ("ADRs"). However, the
Adviser anticipates that the majority of each Fund's assets ordinarily will be
invested in U.S. based companies.
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<PAGE>
The Fund generally limits its foreign investing to ADRs and securities of
Canadian companies traded on Canadian or U.S. Exchanges or markets.
ADRs are receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation. The
Funds may purchase ADRs whether they are "sponsored" or "unsponsored."
"Sponsored" ADRs are issued jointly by the issuer of the underlying security and
a depository, whereas "unsponsored" ADRs are issued without participation of the
issuer of the deposited security. Holders of unsponsored ADRs generally bear all
the costs of such facilities and the depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
Therefore, there may not be a correlation between information concerning the
issuer of the security and the market value of an unsponsored ADR. ADRs may
result in a withholding tax by the foreign country of source which will have the
effect of reducing the income distributable to shareholders.
Investments in foreign securities may involve risks not ordinarily associated
with investments in domestic securities. These risks may include legal,
political or economic developments such as fluctuations in currency rates,
imposition of withholding taxes or exchange controls or other governmental
restrictions or political or policy changes. In addition, with respect to
certain countries, there is the possibility of expropriation of assets,
confiscatory taxation, or political or social unrest that could adversely affect
the value of foreign securities. There may be less publicly available
information about foreign companies than about U.S. companies, and foreign
companies may not be subject to accounting, auditing and financial reporting
standards that are as uniform as those applicable to U.S. companies. The Fund
will attempt to limit risks associated with foreign investing by investing
primarily in securities of stable, developed countries such as Canada.
SHORT SALES
Each Fund is authorized to engage in short sales of stocks which the Adviser
believes are substantially overvalued. If a Fund 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 Funds may
realize a profit or loss depending upon whether the market price of the security
decreases or increases between the date of the short sale and the date on which
the Funds must replace the borrowed security. Whenever a Fund effects a short
sale, it will maintain in segregated accounts cash or liquid securities equal to
the difference between (a) the market value of the securities sold short and (b)
any cash or securities required to be deposited as collateral with the broker in
connection with the short sale (but not including the proceeds of the short
sale). Until the Fund replaces the security it borrowed to make the short sale,
it must maintain daily the segregated account at such a level that (a) the
amount deposited in it plus the amount deposited with the broker as collateral
will equal the current market value of the securities sold short. No more than
10% of the value of the Fund's total net assets will be, when added together,
(a) deposited as collateral for the obligation to replace securities borrowed to
effect short sales, and (b) allocated to segregated
5
<PAGE>
accounts in connection with short sales. The value of any one issuer in which
the Fund is short may not exceed the lesser of 2% of the Fund's net assets or 2%
of the securities of any class of the issuers' securities. The Funds' policy
regarding short sales may not be changed without shareholder approval.
BORROWING
As a matter of fundamental policy, each Fund may borrow up to one third of its
total assets, taken at market value as a temporary measure for extraordinary or
emergency purposes to meet redemptions or to settle securities transactions. Any
borrowing will be done from a bank with the required asset coverage of at least
300%. In the event that such asset coverage shall at any time fall below 300%,
the Fund shall, within three days thereafter (not including Sunday or holidays)
or such longer period as the SEC may prescribe by rules and regulations, reduce
the amount of its borrowings to such an extent that the asset coverage of such
borrowings shall be at least 300%. Each Fund will not pledge more than 10% of
its net assets, or issue senior securities as defined in the Investment Company
Act, except for notes to banks.
DEBT SECURITIES
The Funds are also authorized to invest in debt securities, which may include
bonds, debentures, or notes (and cash equivalent debt securities as described
below). The Funds may invest their assets in debt securities pending investment
in suitable equity securities or if the Adviser believes such securities have
the potential for capital appreciation as a result of improvement in the
creditworthiness of the issuer. The receipt of income from such debt securities
is incidental to the Funds' investment objective of capital appreciation.
The Funds may invest up to 5% of their net assets, at the time of investment, in
lower rated, fixed-income securities and unrated securities of comparable
quality, commonly referred to as "junk bonds." The market value of lower-rated,
fixed-income securities tends to reflect individual developments affecting the
issuer to a greater extent than the market value of higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower rated securities also tend to be more sensitive to economic conditions
than higher rated securities. These lower rated fixed-income securities are
considered by the rating agencies, on balance, to be predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation and will generally involve more
credit risk than securities in the higher rating categories. Even bonds rated
BBB by S&P or Baa by Moody's ratings which are considered investment grade,
possess some speculative characteristics.
Issuers of high yielding, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them. Therefore,
the risk associated with acquiring the securities of such issuers is generally
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yielding securities may experience financial stress.
During these periods, such issuers may not have sufficient cash flow to meet
their interest
6
<PAGE>
payment obligations. The issuer's ability to service its debt obligations may
also be adversely affected by specific developments affecting the issuer, the
issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss due to default by the
issuer may be significantly greater for the holders of high yielding securities
because such securities are generally unsecured and are often subordinated to
other creditors of the issuer. The Fund may retain an issue that has defaulted
because such issue may present an opportunity for subsequent price recovery.
High yielding, fixed-income securities frequently have call or buy-back features
which permit an issuer to call or repurchase the securities from the Fund.
Although such securities are typically not callable for a period from three to
five years after their issuance, if a call were exercised by the issuer during
periods of declining interest rates, the Fund would likely have to replace such
called securities with lower yielding securities, thus decreasing the net
investment income to the Fund and dividends to shareholders. The premature
disposition of a high yielding security due to a call or buy-back feature, the
deterioration of the issuer's creditworthiness, or a default may also make it
more difficult for the Fund to manage the timing of its receipt of income, which
may have tax implications.
The Fund may have difficulty disposing of certain high yielding securities
because there may be a thin trading market for a particular security at any
given time. The market for lower rated, fixed-income securities generally tends
to be concentrated among a smaller number of dealers than is the case for
securities which trade in a broader secondary retail market. Generally,
purchasers of these securities are predominantly dealers and other institutional
buyers, rather than individuals. To the extent the secondary trading market for
a particular high yielding, fixed-income security does exist, it is generally
not as liquid as the secondary market for higher rated securities. Reduced
liquidity in the secondary market may have an adverse impact on market price and
the Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. Current values for these high yield issues are obtained
from pricing services and/or a limited number of dealers and may be based upon
factors other than actual sales.
For a description of debt security ratings, please refer to the "Appendix" in
this SAI.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its investment securities to approved borrowers who need to
borrow securities in order to complete certain transactions, such as covering
short sales, avoiding failures to deliver securities or completing arbitrage
operations. Any gain or loss in the market price of the securities loaned that
might occur during the term of the loan would be for the account of the Fund.
Each Fund may lend its investment securities to qualified brokers, dealers,
domestic and foreign banks or other financial institutions, so long as the
terms, the structure and the aggregate amount of such loans are consistent with
the
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Investment Company Act of 1940, as amended, (the "Investment Company Act") or
the rules, regulations or interpretations of the Securities and Exchange
Commission (the "SEC") thereunder, which currently require that: (a) the
borrower pledge and maintain with a Fund collateral consisting of cash, an
irrevocable letter of credit issued by a bank or securities issued or guaranteed
by the United States Government having a value at all times not less than 100%
of the value of the securities loaned; (b) the borrower add to such collateral
whenever the price of the securities loaned rises (i.e., the borrower "marks to
the market" on a daily basis); (c) the loan be made subject to termination by a
Fund at any time; and (d) the Fund receives reasonable interest on the loan
(which may include the Fund investing any cash collateral in interest bearing
short-term investments). All relevant facts and circumstances, including the
creditworthiness of the broker, dealer or institution, will be considered in
making decisions with respect to the lending of securities, subject to review by
the Board of Trustees.
The Funds engage in security loan arrangements with the primary objective of
increasing the Funds' income either through investing the cash collateral in
money market mutual funds and short-term interest bearing obligations or by
receiving a loan premium from the borrower. Under the securities loan agreement,
each Fund continues to be entitled to all dividends or interest on any loaned
securities. Voting rights may pass with the loaned securities, but if a material
event occurs affecting an investment on a loan, the loan must be called and the
securities voted. As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower of the
security fail financially. The Funds' policy regarding lending of portfolio
securities may not be changed without shareholder approval.
During the period of such a loan, the Fund receives the income on both the
loaned securities and the collateral and thereby increases its yield. In the
event that the borrower defaults on its obligation to return borrowed securities
because of insolvency or otherwise, the Fund could experience delays and costs
in gaining access to the collateral and could suffer a loss to the extent the
value of the collateral falls below the market value of the borrowed securities.
At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities so
long as such fees are set forth in a written contract and approved by the
investment company's Board of Trustees.
OPTIONS
The Funds may purchase or sell options on individual securities as well as on
indices of securities as a means of achieving additional return or of hedging
the value of each Fund's portfolio, although at no time will more than 5% of
each Fund's assets be allocated to premiums or margins required to establish
options positions for non-hedging purposes, and no more than 10% of each Fund's
assets will be subject to obligations underlying such options.
A call option is a contract that gives the holder of the option the right, in
return for a
8
<PAGE>
premium paid, to buy from the seller the security underlying the option at a
specified exercise price at any time during the term of the option or, in some
cases, only at the end of the term of the option. The seller of the call option
has the obligation upon exercise of the option to deliver the underlying
security upon payment of the exercise price. A put option is a contract that
gives the holder of the option the right, in return for a premium paid, to sell
to the seller the underlying security at a specified price. The seller of the
put option, on the other hand, has the obligation to buy the underlying security
upon exercise at the exercise price.
If a Fund has sold an option, it may terminate its obligation by effecting a
closing purchase transaction. This is accomplished by purchasing an option of
the same series as the option previously sold. There can be no assurance that a
closing purchase transaction can be effected when the Fund so desires.
The purchaser of an option risks a total loss of the premium paid for the option
if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option, on the other hand,
will recognize the premium as income if the option expires unrecognized but
forgoes any capital appreciation in excess of the exercise price in the case of
a call option and may be required to pay a price in excess of current market
value in the case of a put option. Options purchased and sold other than on an
exchange in private transactions also impose on the Funds the credit risk that
the counterparty will fail to honor its obligations. The Funds will not purchase
options if, as a result, its aggregate obligations relating to outstanding
options exceeds 10% of each Fund's assets.
WRITING COVERED CALL OPTIONS
The general reason for writing call options is to attempt to realize income. By
writing covered call options, each Fund gives up the opportunity, while the
option is in effect, to profit from any price increase in the underlying
security above the option exercise price. In addition, each Fund's ability to
sell the underlying security will be limited while the option is in effect
unless the Fund effects a closing purchase transaction. A closing purchase
transaction cancels out the Fund's position as the writer of an option by means
of offsetting purchase of an identical option prior to the expiration of the
option it has written. Covered call options serve as a partial hedge against the
price of the underlying security declining. Each Fund writes only covered
options, which means that so long as a Fund is obligated as the writer of the
option it will, through its custodian, have deposited the underlying security of
the option or, if there is a commitment to purchase the security, a segregated
reserve of cash or liquid securities with a securities depository with a value
equal to or greater than the exercise price of the underlying securities. By
writing a put, a Fund will be obligated to purchase the underlying security at a
price that may be higher than the market value of that security at the time of
exercise for as long as the option is outstanding. Each Fund may engage in
closing transactions in order to terminate put options that it has written.
PURCHASING OPTIONS
A put option may be purchased to partially limit the risks of the value of an
underlying security or the value of a commitment to purchase that security for
forward delivery. The
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amount of any appreciation in the value of the underlying security will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction and profit or loss from a sale will depend on whether
the amount received is more or less than the premium paid for the put option
plus the related transaction costs. A closing sale transaction cancels out a
Fund's position as purchaser of an option by means of an offsetting sale of an
identical option prior to the expiration of the option it has purchased. In
certain circumstances, a Fund may purchase call options on securities held in
its investment portfolio on which it has written call options or on securities
which it intends to purchase.
REPURCHASE AGREEMENTS
For purposes of cash management only, the Funds may enter into repurchase
agreements with qualified brokers, dealers, banks and other financial
institutions deemed creditworthy by the Adviser under standards adopted by the
Board of Trustees. Under repurchase agreements, each Fund may purchase any of
the cash equivalent securities described above and simultaneously commit to
resell such securities at a future date to the seller at an agreed upon price
plus interest. The seller will be required to collateralize the agreement by
transferring securities to the Fund with an initial market value, including
accrued interest, that equals or exceeds the repurchase price, and the seller
will be required to transfer additional securities to the Fund on a daily basis
to ensure that the value of the collateral does not decrease below the
repurchase price. No more than 15% of each Fund's net assets will be invested in
illiquid securities, including repurchase agreements which have a maturity of
longer than seven days. For purposes of the diversification test for
qualification as a regulated investment company under the Internal Revenue Code,
repurchase agreements are not counted as cash, cash items or receivables, but
rather as securities issued by the counter-party to the repurchase agreements.
If the seller of the underlying security under the repurchase agreement should
default on its obligation to repurchase the underlying security, the Fund may
experience delay or difficulty in recovering its cash. To the extent that in the
meantime, the value of the security purchased had decreased, the Fund could
experience a loss. While management of the Funds acknowledges these risks, it is
expected that they can be controlled through stringent security selection and
careful monitoring procedures.
INVESTMENTS IN MUTUAL FUNDS
The Funds may invest in shares of other open and closed-end investment companies
which principally invest in securities of the type in which the Funds invest.
This approach will most likely be used for cash management purposes. The Funds
may only invest in other investment companies within limits set by the
Investment Company Act, which currently allows each Fund to invest up to 10% of
its total assets in other investment companies. No more than 5% of each Fund's
total assets may be invested in securities of any one investment company, nor
may the Fund acquire more than 3% of the voting securities of any investment
company. Investments in other investment companies will generally involve
duplication of advisory fees and other expenses. The Funds may also acquire
securities of other investment companies beyond such limits pursuant to a
merger,
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<PAGE>
consolidation or reorganization.
ILLIQUID AND RESTRICTED SECURITIES
Each Fund may invest up to 15% of its net assets in securities which may be
considered illiquid, by virtue of the absence of a readily available market,
legal or contractual restrictions on resale, longer maturities, or other factors
limiting the marketability of the security. Generally, an illiquid security is
any security that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
security. This policy does not limit the acquisition of (i) restricted
securities eligible for resale to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933 or (ii) commercial paper issued
pursuant to Section 4(2) of the Securities Act of 1933, that are determined to
be liquid in accordance with guidelines established by the Board of Trustees of
the Trust. While maintaining oversight, the Board of Trustees has delegated the
day-to-day function of determining liquidity to the Adviser.
The Board of Trustees has instructed the Adviser to consider the following
factors in determining the liquidity of a security purchased under Rule 144A or
commercial paper issued pursuant to section 4(2); (i) the frequency of trades
and trading volume for the security; (ii) whether at least three dealers are
willing to purchase or sell the security and the number of potential purchasers;
(iii) whether at least two dealers are making a market in the security; and (iv)
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 transfer). If the Adviser determines that a security which was
previously determined to be liquid, is no longer liquid and, as a result, the
Fund's holdings of illiquid securities exceed the Fund's 15% limit on investment
in such securities, the Adviser will determine what action shall be taken to
ensure that the Fund continues to adhere to such limitation including disposing
of illiquid assets.
INVESTMENT RESTRICTIONS
The Funds have adopted the investment restrictions set forth below, some of
which (as indicated), are fundamental policies of each Fund and cannot be
changed without the approval of a majority of the Fund's outstanding voting
securities. As provided in the Investment Company Act, a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of:
(i) more than 50% of the outstanding shares; or (ii) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy. As a matter of fundamental policy, each
Fund may not:
1. As to 75% of its total assets, invest more than 5% of the total
assets of such Fund in the securities of any one issuer, other
than cash or cash items, or obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, or other
investment companies.
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<PAGE>
2. As to 75% of its total assets, purchase more than 10% of the
voting securities, or any class of securities, of any single
issuer. For purposes of this restriction, all outstanding fixed
income securities of an issuer are considered as one class.
3. Invest more than 25% of its total assets (taken at market value
at the time of each investment) in the securities of issuers in
any particular industry. This limitation shall not apply to
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; investments in certificates of
deposit and bankers' acceptances will not be considered
investments in the banking industry; utility companies will be
divided according to their services; financial service companies
will be classified according to the end users of their services;
and asset-backed securities will be classified according to the
underlying assets securing such securities.
4. Invest in real estate or interests in real estate, however, this
will not prevent a Fund from investing in securities secured by
real estate or interests therein, or in publicly-held real
estate investment trusts or marketable securities of companies
which may represent indirect interests in real estate.
5. Purchase or sell commodities or commodity contracts, except that
the Funds may purchase or sell stock index options, stock index
futures, financial futures and related options on such futures.
6. Issue senior securities, except that a Fund may borrow money in
accordance with investment limitation 9, purchase securities on
a when-issued, delayed settlement or forward delivery basis,
sell securities short and enter into reverse repurchase
agreements.
7. Purchase any securities on margin, except that the Fund may
obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. The
payment by the Fund of initial or variation margin in connection
with options transactions, if applicable, shall not be
considered the purchase of a security on margin.
8. Make loans of money or property, except through: (i) the
purchase of debt instruments consistent with its investment
objective and policies; (ii) investment in repurchase
agreements; or (iii) loans of portfolio securities in a manner
consistent with a Fund's investment objective and policies and
the provisions of the Investment Company Act and regulations and
SEC positions thereunder.
9. Borrow amounts in excess of 33 1/3% of its total assets, taken
at market value, and then only from banks (i) as a temporary
measure for extraordinary or emergency purposes such as the
redemption of Fund shares or (ii) in connection with reverse
repurchase agreements. Utilization of borrowings may exaggerate
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<PAGE>
increases or decreases in an investment company's net asset
value. However, the Fund will not purchase securities while
borrowings exceed 5% of its total assets, except to honor prior
commitments and to exercise subscription rights when outstanding
borrowings have been obtained exclusively for settlements of
other securities transactions.
10. Mortgage, pledge, hypothecate or otherwise encumber its assets,
except in amounts up to 33 1/3% of its total assets, but only to
secure borrowings authorized in the preceding restriction or to
collateralize securities trading practices described in the
prospectuses and Statement of Additional Information for the
Funds.
11. Underwrite securities of other issuers except insofar as the
Fund may be deemed an underwriter under the Securities Act of
1933, as amended, in selling portfolio securities.
The policies set forth below are non-fundamental policies of each Fund and may
be amended without the approval of the shareholders of the respective Funds.
Each Fund will not:
1. Purchase securities of other investment companies, except to the
extent permitted under the Investment Company Act or in
connection with a merger, consolidation, acquisition or
reorganization, or in accordance with any exemptive order
granted by the SEC.
2. Make investments in securities for the purpose of exercising
control over or management of the issuer.
3. Invest more than 5% of its total assets in securities of issuers
having a record, together with predecessors, of less than three
years of continuous operation, except for certain real estate
investment trusts.
4. Purchase or sell interests in oil, gas or other mineral
exploration or development programs or leases, rights or royalty
contracts or exploration or development programs, except that
the Fund may invest in securities of companies which invest in
or sponsor such programs.
5. Invest in warrants if, at the time of acquisition, its
investment in warrants, valued at the lower of cost or market
value, would exceed 5% of the Fund's net assets; included within
such limitation, but not to exceed 2% of the Fund's net assets,
are warrants which are not listed on the New York or American
Stock Exchanges. For purposes of this policy, warrants acquired
by the Fund in units or attached to securities may be deemed to
be without value.
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<PAGE>
PORTFOLIO BROKERAGE AND TURNOVER
The Adviser, when effecting the purchases and sales of portfolio securities for
the account of a Fund, will seek execution of trades either: (i) at the most
favorable and competitive rate of commission charged by any broker, dealer or
member of an exchange; or (ii) at a higher rate of commission charges if
reasonable in relation to brokerage and research services provided to the Funds
or the Adviser by such member, broker, or dealer when viewed in terms of either
a particular transaction or the Adviser's overall responsibilities to the Trust.
Such services may include, but are not limited to, any one or more of the
following: information as to the availability of securities for purchase or
sale, statistical or factual information, or opinions pertaining to investments.
The Adviser may use research and services provided to it by brokers and dealers
in servicing all its clients, and not all such services will be used by the
Adviser in connection with the Funds. For the period from April 11, 1997
(commencement of operations) through December 31, 1997, the Small Cap Fund paid
$98,814 in brokerage commissions. For the fiscal year ended December 31, 1998,
the Small Cap Fund paid the following brokerage fees:
Total $ brokerage commissions: $ 205,186
Total $ amount of transactions executed by brokers
providing research services. $21,731,807
Total $ amount of commissions paid to brokers
providing research services $ 108,526
PORTFOLIO TURNOVER
Because of its longer-term investment philosophy, the Fund does not intend to
engage in frequent trading tactics which could result in high turnover, less
favorable tax consequences (i.e., a high proportion of short-term capital gains
relative to long term capital gains) or increased trading and brokerage expenses
paid by the Fund. The Fund anticipates that its annual portfolio turnover rate
should not exceed 50% under normal conditions, although it is impossible to
predict portfolio turnover rates.
MANAGEMENT
INVESTMENT ADVISORY AGREEMENT
The Trust has entered into separate investment advisory agreements on behalf of
each Fund with the Adviser (the "Advisory Agreements"), for the provision of
investment advisory services to the Funds. The Advisor selects investments and
supervises the assets of the Fund in accordance with the investment objective,
policies and restrictions of the Fund, subject to the supervision and direction
of the officers and Board of Trustees of the Trust. Pursuant to the Advisory
Agreements, each Fund is obligated to pay the Adviser a monthly fee equal to an
annual rate of 1.00% of the respective Fund's average daily net assets. For the
period from April 11, 1997 (commencement of operations) through December 31,
1997, the Small Cap Fund paid Advisory fees of $1,175,911. For the fiscal year
ended December 31, 1998, the Small Cap Fund paid Advisory fees of $2,394,274.
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<PAGE>
General expenses of the Trust (such as costs of maintaining corporate existence,
legal fees, insurances, etc.) will be allocated between the Funds in proportion
to their relative net assets. Expenses which relate exclusively to a particular
Fund, such as certain registration or notice filing fees, brokerage commissions
and other portfolio expenses, will be borne directly by that Fund.
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<PAGE>
TRUSTEES AND OFFICERS
Under Delaware law, the Trust's Board of Trustees is responsible for
establishing each Fund's policies and for overseeing the management of the
Funds. The Board also elects the Trust's officers who conduct the daily business
of the Funds. The Trustees and officers of the Trust, their ages and principal
occupations for the past five years are listed below. Trustees deemed to be
"interested persons" of the Trust for purposes of the Investment Company Act are
indicated by an asterisk.
POSITION AND OFFICE PRINCIPAL OCCUPATION
NAME AND ADDRESS AGE WITH THE TRUST DURING THE PAST FIVE YEARS
- ---------------- --- -------------------- --------------------------
Ford B. Draper, Jr.* 55 Trustee, Chairman, Founder, President, Director, and
Barley Mill House President, Chief Chief Investment Officer of Kalmar
3701 Kennett Pike Financial Officer, Investments since 1982; President,
Greenville, DE 19807 and Principal Kalmar Investment Advisers since
Accounting Officer inception.
Wendell Fenton* 58 Trustee President of the law firm of
One Rodney Square Richards,Layton & Finger (joined
Wilmington, DE 19801 1971).
John J. Quindlen 65 Trustee Trustee of each investment company
1250 W. Southwinds of the Rodney Square Funds; Senior
Boulevard (# 313) Vice President and Chief Financial
Vero Beach, FL 32963 Officer of E.I. Dupont de Nemours
& Co. from 1954 through 1993
(retired).
David D. Wakefield 67 Trustee Retired Private Investor,Executive
P.O. Box 601 Secretary, Longwood Foundation and
Mendenhall, PA 19357 Welfare Foundation, from 1992 to
1997; Chairman and President,
J.P. Morgan Delaware from 1989 to
1992.
David M. Reese, Jr.* 62 Trustee Semi-retired; previously,portfolio
Barley Mill House manager, research analyst for
3701 Kennett Pike Kalmar Investments from 1982
Greenville, DE 19807 through March, 1996.
Linn M. Morrow Vice President Director of Client Services,
Barley Mill House Kalmar Investments since 1996;
3701 Kennett Pike Vice President of Client Services,
Greenville, DE 19807 Delaware investments, 1985-1996
<PAGE>
Verna Knowles Treasurer
Barley Mill House
3701 Kennett Pike
Greenville, DE 19807
Marjorie L. McMenamin 49 Secretary; Administration Director, Kalmar
Barley Mill House Compliance Investments since 1992 and Kalmar
3701 Kennett Pike Officer Investment Advisers since
Greenville, DE 19807 inception.
Compensation to officers and Trustees of the Trust who are affiliated with the
Adviser is paid by the Adviser, and not by the Trust.
Information relating to the compensation to be paid to the Trustees of the Trust
is set forth below:
<TABLE>
<CAPTION>
ESTIMATED PENSION OR TOTAL
AGGREGATE RETIREMENT COMPENSATION
COMPENSATION BENEFITS ESTIMATED FROM TRUST AND
FROM TRUST ACCRUED AS PART ANNUAL BENEFITS FUND
NAME AND (CURRENT FISCAL OF TRUST UPON COMPLEX PAID
POSITION YEAR)1 EXPENSES RETIREMENT TO TRUSTEES
<S> <C> <C> <C> <C>
Ford B. Draper, Jr. $ 0 N/A N/A $ 0
Wendell Fenton $5,000 N/A N/A $5,000
John J. Quindlen $5,250 N/A N/A $5,250
David M. Reese, Jr. $ 0 N/A N/A $ 0
David D. Wakefield $5,250 N/A N/A $5,250
<FN>
1 THE TRUSTEES WHO ARE BOTH "INTERESTED PERSONS" OF THE TRUST AS DEFINED IN THE
INVESTMENT COMPANY ACT AND AFFILIATES OF THE ADVISER RECEIVE NO COMPENSATION
FROM THE TRUST. FOR THEIR SERVICE AS TRUSTEES, THE OTHER TRUSTEES RECEIVE
$3,000 IN ANNUAL FEES PLUS $500 PER TRUST MEETING ATTENDED, IN ADDITION TO
REIMBURSEMENT FOR OUT-OF-POCKET EXPENSES IN CONNECTION WITH TRAVEL AND
ATTENDANCE AT BOARD MEETINGS. MEMBERS OF THE AUDIT COMMITTEE ARE PAID $250
PER AUDIT COMMITTEE MEETING ATTENDED. IT IS EXPECTED THAT THE TRUST WILL HOLD
FOUR TRUSTEE MEETINGS PER YEAR. THE TRUST HAS NOT ADOPTED A PENSION PLAN OR
ANY OTHER PLAN THAT WOULD AFFORD BENEFITS TO ITS TRUSTEES.
</FN>
</TABLE>
On February 10, 1999, the Trustees and officers of the Trust, as a group, owned
beneficially, or may be deemed to have owned beneficially, less than 1% of the
outstanding shares of the Small Cap Fund.
The Trust has an Audit Committee which has the responsibility, among other
things, to (1) recommend the selection of the Trust's independent auditors; (2)
review and approve the
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<PAGE>
scope of the independent auditors' audit activity; (3) review the financial
statements which are the subject of the independent public auditors'
certifications; and (4) review with such independent public auditors the
adequacy of the Funds' basic accounting system and the effectiveness of the
Funds' internal accounting controls.
ADMINISTRATOR, TRANSFER AGENT AND FUND ACCOUNTING AGENT.
PFPC Inc. ("PFPC"), located at 400 Bellevue Avenue, Wilmington, DE 19809,
provides certain administrative services to the Trust pursuant to an
Administration Agreement. Under the Administration Agreement, the Administrator:
(1) coordinates with the Custodian and Transfer Agent and monitors the services
they provide to the Funds; (2) coordinates and monitors any other third parties
furnishing services to the Funds; (3) provides the Funds with necessary office
space, telephones and other communications facilities and personnel competent to
perform administrative and clerical functions; (4) supervises the maintenance by
third parties of such books and records of the Funds as may be required by
applicable federal or state law; (5) prepares and, after approval by the Funds,
arranges for the filing of such registration statements and other documents with
the Securities and Exchange Commission and other federal and state regulatory
authorities as may be required by applicable law; (8) reviews and submits to the
officers of the Trust, for their approval, invoices or other requests for
payment of the Funds' expenses and instructs the Custodian to issue checks in
payment thereof; and (9) takes such other action with respect to the Trust or
the Funds as may be necessary in the opinion of PFPC to perform its duties under
the Agreement.
PFPC is the Funds' transfer agent and dividend-paying agent..
The Administration Agreement became effective as of January 31, 1997 between the
Trust and Rodney Square Management Corporation ("Rodney Square"). The
Administration Agreement was assigned, with the approval of the Trust, from
Rodney Square to PFPC effective January 19, 1998. The Administration Agreement
is also terminable without payment of any penalty with respect to either Fund:
(i) by the Trust on sixty (60) days' written notice to PFPC; or (ii) by PFPC on
six (6) months' written notice to the Trust. The Administration Agreement may
also be terminable by the Trust or PFPC for cause.
As compensation for services performed under the Administration Agreement, PFPC
receives a fee payable monthly at an annual rate (as described in each Fund's
Prospectus) multiplied by the average daily net assets of the Trust. The
administration fee earned by Rodney Square for the period ended December 31,
1997 amounted to $135,814, of which $54,651 was waived. The administration fee
earned by Rodney Square for the period January 1, 1998 through January 4, 1998,
amounted to $2,677 and the administration fee earned by PFPC for the period
January 5, 1998, through December 31, 1998 amounted to $261,751.
CUSTODIAN
The Trust employs PFPC Trust Company, 200 Stevens Drive, Lester, PA 19113 as
custodian of its assets. The custodian: (i) maintains a separate account or
accounts in the name of the respective Funds; (ii) holds and disburses portfolio
securities; (iii) makes receipts and
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<PAGE>
disbursements of money; (iv) collects and receives income and other payments and
distributions on account of portfolio securities; (v) responds to correspondence
from security brokers and others relating to their respective duties; and (vi)
makes periodic reports concerning their duties.
INDEPENDENT PUBLIC ACCOUNTANT
PricewaterhouseCoopers LLP has been selected as independent accountants to each
Fund for the fiscal year ending December 31, 1999.
DISTRIBUTOR
Provident Distributors, Inc. ("PDI") serves as the principal underwriter and
distributor of each Fund's shares pursuant to a Distribution Agreement with the
Trust. Under the terms of the Distribution Agreement, PDI agrees to use all
reasonable efforts as agent to secure purchasers for the various series of the
Trust. PDI also assists the Trust in the production and distribution of
advertising, marketing and sales literature materials, and review such materials
for compliance with applicable regulations.
The Distribution Agreement provides that PDI, in the absence of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the
agreement, will not be liable to the Trust or its shareholders for losses
arising in connection with the sale of Fund shares.
Each Fund shall continue to bear the expense of all notice filing fees incurred
in connection with the qualification of its shares under state securities laws.
PURCHASES
Under normal circumstances, you may purchase your shares at any time without a
fee. A description of the manner in which the Funds' shares are offered to
investors is set forth in each Fund's prospectus.
RETIREMENT PLANS
The following is a description of the types of retirement plans for which the
Funds' shares may be used for investment:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAs").
Individual taxpayers and married couples with adjusted gross incomes not in
excess of certain specified limits, who are not active participants (and, when a
joint return is filed, who do not have a spouse who is an active participant) in
an employer maintained retirement plan are eligible to make deductible
contributions to an IRA account (subject to certain dollar limitations). All
individuals who have earned income may make nondeductible IRA contributions to
the extent that they are not eligible for a deductible contribution. Income
earned by an IRA account will not be currently taxed, but will be taxed upon
distribution. A special IRA program is available for employers under which the
employers may establish IRA accounts for their employees in lieu of establishing
tax
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<PAGE>
qualified retirement plans. Known as SEP-IRA's (Simplified Employee
Pension-IRA), they free the employer of many of the recordkeeping requirements
of establishing and maintaining a tax qualified retirement plan trust. (Note,
however that no new SEP-IRAs may be established after December 31, 1996.)
If you are entitled to receive a distribution from a qualified retirement plan,
you may rollover all or part of that distribution into your Fund IRA. Your
rollover contribution is not subject to the limits on annual IRA contributions.
You can continue to defer Federal income taxes on your rollover contribution and
on any income that is earned on that contribution.
Another option available to investors is a Roth IRA, which is available to
individuals within specified income limits. A Roth IRA is treated as a
traditional IRA with a few exceptions. The total yearly contributions to a Roth
IRA and a traditional IRA cannot exceed $2,000 per individual . Unlike a
traditional IRA, the contributions to a Roth IRA are nondeductible. Instead, the
advantages of a Roth IRA are backloaded. The buildup within the account (e.g.
interest and dividends), and the distribution of such buildup, is tax-free
subject to certain limitations. Amounts in a traditional IRA may be rolled over
into a Roth IRA subject to income and holding period limitations.
PFPC Trust Company makes available its services as an IRA Custodian for each
shareholder account that is established as an IRA. For these services, PFPC
Trust Company receives an annual fee of $10.00 per account, which fee is paid
directly to it by the IRA shareholder. If the fee is not paid by the date due,
shares of the Fund owned in the IRA account will be redeemed automatically for
purposes of making the payment.
401(K) PLANS AND OTHER DEFINED CONTRIBUTION PLANS
Profit sharing plans and money purchase plans (the "Defined Contribution Plans")
are for use by both self-employed individuals (sole proprietorships and
partnerships) and corporations who wish to use shares of the Funds as a funding
medium for a retirement plan qualified under the Internal Revenue Code.
Annual deductible contributions to the Defined Contribution Plans generally may
be made on behalf of each participant in a total amount of up to the lesser of
20% of a self-employed participant's pre-contribution earned income (after
reducing the earned income by the self-employed's deduction for 1/2 of his or
her self-employment tax) (25% of a non-self-employed participant's wages) or
$30,000. Unless the employer chooses to take Social Security contributions into
account, the same percentage of earned income (or wages) must be contributed on
behalf of each participant in the Defined Contribution Plans.
403(B)(7) RETIREMENT PLANS
The Fund's shares may be used by schools, hospitals, and certain other
tax-exempt organizations or associations who wish to use shares of the Funds as
a funding medium for a retirement plan for their employees. Contributions are
made to the 403(b)(7) Plan as a reduction to the employee's regular
compensation. Such contributions, to the extent they do not exceed applicable
limitations (including a generally applicable limitation of $9,500 per year),
are excludable from the gross income of the employee for Federal Income tax
purposes. Assets withdrawn from the 403(b)(7) Plan are subject to Federal Income
tax.
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<PAGE>
In all these Plans, distributions of net investment income and capital gains
will be automatically reinvested.
REDEMPTIONS
Under normal circumstances, you may redeem your shares at any time without a
fee. The redemption price will be based upon the net asset value per share next
determined after receipt of the redemption request, provided it has been
submitted in the manner described in the Prospectus of each Fund. See "How to
Redeem Shares" in the Prospectus. The redemption price may be more or less than
your cost, depending upon the net asset value per share at the time of
redemption.
TAXATION
Each Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
In order to so qualify, each Fund must, among other things (i) derive at least
90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or foreign
currencies, or 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; (ii) distribute at least 90% of its
dividends, interest and certain other taxable income each year; and (iii) at the
end of each fiscal quarter maintain at least 50% of the value of its total
assets in cash, government securities, securities of other regulated investment
companies, and other securities of issuers which represent, with respect to each
issuer, no more than 5% of the value of a fund's total assets and 10% of the
outstanding voting securities of such issuer, and with no more than 25% of its
assets invested in the securities (other than those of the government or other
regulated investment companies) of any one issuer or of two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades and businesses.
To the extent either or both of the Funds qualify for treatment as a regulated
investment company, such Fund will not be subject to federal income tax on
income and net capital gains paid to shareholders in the form of dividends or
capital gains distributions. The Funds have elected to be treated as regulated
investment companies under Subchapter M of the Code and each intends to qualify
as such for each future fiscal year. The Trustees reserve the right not to
maintain the qualification of the Funds as a regulated investment company if
they determine such course of action to be beneficial to you. In such case, the
Funds will be subject to federal, and possibly state, corporate taxes on its
taxable income and gains, and distributions to you will be taxable as ordinary
dividend income to the extent of a Fund's available earnings and profits.
Shareholders will be advised annually as to the Federal income tax consequences
of distributions made during the year.
21
<PAGE>
Under the Code, amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To avoid the tax, each Fund must distribute during each calendar year, at
least the sum of (1) 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) 98% of its capital gains in
excess of its capital losses for the twelve-month period ending on October 31 of
the calendar year or, upon election, during the calendar year and (3) all
ordinary income and net capital gains for previous years that were not
previously distributed. A distribution will be treated as paid during the
calendar year if it is paid during the calendar year or declared by the Fund in
October, November or December of the year, payable to shareholders of record as
of a specified date in such a month and actually paid by the Fund during January
of the following year. Any such distributions paid during January of the
following year will be deemed to be paid and received on December 31 of the year
the distributions are declared.
If a Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends shall be included
in the Fund's gross income as of the later of (a) the date such stock became
ex-dividend with respect to such dividends (i.e., the date on which a buyer of
the stock would not be entitled to receive the declared, but unpaid, dividends)
or (b) the date the Fund acquired such stock. Accordingly, in order to satisfy
the income distribution requirements, the Funds may be required to pay dividends
based on anticipated earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
The Funds' short sales against the box and transactions in futures contracts and
options will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Funds
(i.e., may affect whether gains or losses are ordinary or capital), may
accelerate recognition of income to the Funds and may defer the Funds' losses.
These rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (a) will require the Funds
to mark-to-market certain types of the positions in its portfolio (i.e., treat
them as if they were closed out), and (b) may cause the Funds to recognize
income without receiving cash with which to make distributions in amounts
necessary to satisfy the 90% and 98% distribution requirements for avoiding
income and excise taxes described above. Each Fund will monitor transactions,
will make the appropriate tax elections and will make the appropriate entries in
its books and records when engaged in short sales against the box or acquiring
any futures contracts, options or hedged investments in order to mitigate the
effect of these rules and prevent disqualification of the Fund as a regulated
investment company.
FOREIGN WITHHOLDING TAXES
Income received by the Funds from investments in foreign securities may be
subject to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the rate of foreign tax in
advance since the amount of the Funds' assets to be invested in various
countries is not known.
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<PAGE>
PASSIVE FOREIGN INVESTMENT COMPANIES
If a Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies" (a "PFIC"), it may be subject to United
States federal income tax on a portion of any "excess distribution" or gain from
the disposition of such shares even if such income is distributed as a taxable
dividend by the Fund to its shareholders. Additional charges in the nature of
interest may be imposed on the Fund in respect of deferred taxes arising from
such distributions or gains. If a Fund were to invest in a PFIC and elected to
treat the PFIC as a "qualified electing fund" under the Code, in lieu of the
foregoing requirements, the Fund might be required to include in income each
year a portion of the ordinary earnings and net capital gains of the qualified
electing fund, even if not distributed to the Fund, and such amounts would be
subject to the 90% and excise tax distribution requirements described above. In
order to make this election, the Fund would be required to obtain certain annual
information from the passive foreign investment companies in which it invests,
which may be difficult or not possible to obtain.
Alternatively, a Fund may make a mark-to-market election that will result in the
Fund being treated as if it had sold and repurchased all of the PFIC stock at
the end of each year. In this case, the Fund would report gains as ordinary
income and would deduct losses as ordinary losses to the extent of previously
recognized gains. The election, once made, would be effective for all subsequent
taxable years of the Fund, unless revoked with the consent of the IRS. By making
the election, the Fund could potentially ameliorate the adverse tax consequences
with respect to its ownership of shares in a PFIC, but in any particular year
may be required to recognize income in excess of the distributions received from
the PFICs owned and the proceeds from dispositions of PFIC company stock. The
Fund may have to distribute this "phantom" income and gain to satisfy its
distribution requirement and to avoid imposition of the 4% excise tax. The Funds
will make the appropriate tax elections, if possible, and take any additional
steps that are necessary to mitigate the effect of these rules.
DISTRIBUTIONS
Distributions of investment company taxable income (which includes interest and
the excess of net short-term capital gains over long-term capital losses, but
not the excess of net long-term capital gains over net short-term capital
losses) are taxable to a shareholder as ordinary income, whether paid in cash or
shares. Dividends paid by the Funds to corporate shareholders will generally
qualify for the 70% deduction available for dividends received by corporations
to the extent (1) the Fund's income consists of qualified dividends received
from U.S. corporations, and (2) certain income and other deductible limitations
imposed on the corporation. Distributions of net capital gains (which consists
of the excess of net long-term capital gains over net short-term capital
losses), if any, are taxable as long-term capital gains, whether paid in cash or
in shares, regardless of how long the shareholder has held each Fund's shares,
and are not eligible for the dividends received deduction. Shareholders
receiving distributions in the form of newly issued shares will have a basis in
such shares of each Fund equal to the fair market value of such shares on the
distribution date.
23
<PAGE>
Gains or losses on the sales of securities by each Fund will be long-term
capital gains or losses if the securities have been held by the Fund for more
than twelve months. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses.
The price of shares purchased just prior to a distribution by the Funds may
reflect the amount of the forthcoming distribution. Those purchasing at that
time will receive a distribution that represents a return of investment, but
that will nevertheless be taxable to them.
SALES OF SHARES
Upon a sale or exchange of his or her shares, a shareholder will realize a
taxable gain or loss depending upon his or her basis in the shares. The gain or
loss will be treated as a long-term capital gain or loss if the shares have been
held for more than one year. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced within a period of
61 days beginning 30 days before and ending 30 days after the shares are bought
or sold. In such case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized by a shareholder on the sale of
each Fund's shares held by the shareholder for six months or less will be
treated for tax purposes as a long-term capital loss to the extent of any
distributions of long-term capital gains received by the shareholder with
respect to such shares. However, capital losses are deductible only against
capital gains except for individuals, who may deduct up to $3,000 of ordinary
income.
BACKUP WITHHOLDING
The Funds may be required to withhold federal income tax at the rate of 31% with
respect to (1) taxable dividends and distributions and (2) proceeds of any
redemptions of each Fund's shares if a shareholder fails to provide the Funds
with his or her correct taxpayer identification number or to make required
certifications, or who has been notified by the Internal Revenue Service that he
or she is subject to backup withholding. Backup withholding is not an additional
tax. Consequently, any amounts withheld may be credited against a shareholder's
federal income tax liability.
Each Fund will provide an information return to shareholders describing the
federal tax status of the dividends paid by each Fund during the preceding year
within 60 days after the end of each year as required by present tax law.
Individual shareholders will receive Form 1099-DIV and Form 1099-B as required
by present tax law during January of each year. If either Fund makes a
distribution after the close of its fiscal year which is attributable to income
or gains earned in such earlier fiscal year, then such Fund shall send a notice
to its shareholders describing the amount and character of such distribution
within 60 days after the close of the year in which the distribution is made.
Shareholders should consult their tax advisers concerning the state or local
taxation of such dividends, and the federal, state and local taxation of capital
gains distributions.
24
<PAGE>
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury regulations currently in effect and is not to be relied
upon as tax advice. For the complete provisions, reference should be made to the
pertinent Code sections and regulations. The Code and regulations are subject to
change by legislative or administrative action at any time, and retroactively.
Shareholders are urged to consult their tax advisers regarding specific
questions about federal, state, local or foreign taxes.
Dividends and distributions also may be subject to state and local taxes which
are not discussed herein.
GENERAL INFORMATION
SHARES OF BENEFICIAL INTEREST AND VOTING RIGHTS
The Trust's Agreement and Declaration of Trust permits the Trustees to issue an
unlimited number of shares of beneficial interest in various series or classes
(subseries) with a par value of $0.01 per share. Each series, in effect,
represents a separate mutual fund with its own investment objective and
policies. The Board of Trustees has the power to designate additional series or
classes of shares of beneficial interest and to classify or reclassify any
unissued shares with respect to such series or classes.
The Trust's Agreement and Declaration of Trust gives shareholders the right to
vote: (i) for the election or removal of Trustees; (ii) with respect to
additional matters relating to the Trust as required by the Investment Company
Act; and (iii) on such other matters as the trustees consider necessary or
desirable. The shares of the Funds each have one vote and, when issued, will be
fully paid and non-assessable and within each series or class, have no
preference as to conversion, exchange, dividends, retirement or other features.
The shares of the Trust which the trustees may, from time to time, establish,
shall have no preemptive rights. The shares of the Trust have non-cumulative
voting rights, which means that the holders of more than 50% of the shares
voting for the election of trustees can elect 100% of the trustees if they
choose to do so. A shareholder is entitled to one vote for each full share held
(and a fractional vote for each fractional share held), then standing in their
name on the books of the Trust. On any matter submitted to a vote of
shareholders, all shares of the Trust then issued and outstanding and entitled
to vote on a matter shall vote without differentiation between separate series
on a one-vote-per share basis. If a matter to be voted on does not affect the
interests of all series of the Trust, then only the shareholders of the affected
series shall be entitled to vote on the matter.
SHAREHOLDER MEETINGS
Pursuant to the Trust's Agreement and Declaration of Trust, the Trust does not
intend to hold shareholder meetings except when required to elect Trustees, or
with respect to additional matters relating to the Trust as required under the
Investment Company Act.
25
<PAGE>
AUDITS AND REPORTS
The accounts of the Trust are audited each year by PricewaterhouseCoopers LLP,
independent certified public accountants. Shareholders receive semi-annual and
annual reports of the Trust including the annual audited financial statements
and a list of securities owned.
PRINCIPAL HOLDERS OF SECURITIES
As of February 9, 1999, the following persons or organizations held of record 5%
or more of the shares of the Fund:
The Trustees of Boston College 12.742%
Attn: Paul Haran
140 Commonwealth Avenue, More 310
Chestnut Hill, MA 02167
SK LLC 5.055%
380 E. Park Center Blvd.
Suite 100
Boise, ID 83707-0101
Wesleyan University 7.188%
c/o Robert Taylor
237 High Street
Middletown, CT 06459
PERFORMANCE
Current yield and total return may be quoted in advertisements, shareholder
reports or other communications to shareholders. Yield is the ratio of income
per share derived from a Fund's investments to a current maximum offering price
expressed in terms of percent. The yield is quoted on the basis of earnings
after expenses have been deducted. Total return is the total of all income and
capital gains paid to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original investment, expressed as
a percentage of the purchase price. Occasionally, a Fund may include its
distribution rate in advertisements. The distribution rate is the amount of
distributions per share made by a Fund over a 12-month period divided by the
current maximum offering price.
The SEC rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by a
Fund be accompanied by certain standardized performance information computed as
required by the SEC. Current yield and total return quotations used by a Fund
are based on the standardized methods of computing performance mandated by the
SEC. An explanation of those and other methods used by a Fund to compute or
express performance follows.
26
<PAGE>
CURRENT YIELD
As indicated below, current yield is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and analyzing the result. Expenses accrued
for the period include any fees charged to all shareholders during the 30-day
base period. According to the SEC formula:
Yield = 2 [(a-b +1)6 - 1]
---
cd
where
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
TOTAL RETURN
As the following formula indicates, the average annual total return is
determined by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
analyzing the result. The calculation assumes the maximum sales load is deducted
from the initial $1,000 purchase order and that all dividends and distributions
are reinvested at the public offering price on the reinvestment dates during the
period. The quotation assumes the account was completely redeemed at the end of
each one, five and ten-year period and assumes the deduction of all applicable
charges and fees. According to the SEC formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10-year periods,
determined at the end of the 1, 5 or 10-year periods (or
fractional portion thereof).
27
<PAGE>
The average annual total return of the Small Cap Fund for the fiscal year ended
December 31, 1998 was (7.66)% and for the period from the Fund's inception on
April 11, 1987 through December 31, 1998 was 19.06%.
Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.
COMPARISONS AND ADVERTISEMENTS
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective; advertisements, sales literature and other
shareholder communications regarding a Fund may discuss yield or total return
for such Fund as reported by various financial publications or information
services. Advertisements, sales literature and shareholder communications may
also compare yield or total return to yield or total return of other
investments, indices, and averages. The following publications, indices, and
averages may be used:
Barron's Personal Investor
Business Week Personal Investing News
CDA Investment Technologies, Inc. Russell Indices
Changing Times, The Kiplinger Magazine S&P 500 Composite
Consumer Digest Stock Price Index
Consumer Price Index S&P SmallCap 600 Index
Dow Jones Composite Average S&P MidCap 400 Index
Financial World S&P/Barra Growth & Value Indexes
Forbes Success
Fortune The New York Times
Investment Company Data, Inc. U.S. News and World Report
Investor's Daily USA Today
Lipper Mutual Fund Performance Analysis ValueLine Index
Lipper Mutual Fund Indices Wall Street Journal
Money Wiesenberger Investment Companies
Morningstar, Inc. Services
Mutual Fund Values Wilshire Indices
Nasdaq Indexes
No Load Fund Investor
New York Stock Exchange Composite
A Fund may also, from time to time, along with performance advertisements,
present its investments, as of a current date, in the form of the "Schedule of
Investments" included in the Semi-Annual and Annual Reports to the shareholders
of the Trust.
28
<PAGE>
In its reports, investor communications or advertisements, each Fund may also
include (1) descriptions and updates concerning its strategies and portfolio
investments; (2) its goals, risk factors and expenses compared with other mutual
funds; (3) the general biography or work experience of the portfolio managers of
the Fund; (4) portfolio manager commentary or market updates; (5) discussion of
macroeconomic factors affecting the Fund and its investments; and (6) other
information of interest to investors.
FINANCIAL STATEMENTS
The audited financial statements and the financial highlights for the Small Cap
Fund for the fiscal year ended December 31, 1998, as set forth in the Fund's
annual report to shareholders, and the report thereon of PricewaterhouseCoopers
LLP, the Fund's independent auditors, also appearing in the Fund's annual
report, are incorporated herein by reference.
29
<PAGE>
APPENDIX
Description of Corporate Bond Ratings
Moody's
Aaa - Bonds 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-edged." Interest payments are protected by large or 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 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, 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.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium grade obligations. 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 rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds 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.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range
A-1
<PAGE>
ranking; and modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
A-2
<PAGE>
INVESTMENT ADVISER
Kalmar Investment Advisers
Barley Mill House
3701 Kennett Pike
Greenville, DE 19807
DISTRIBUTOR
Provident Distributors, Inc.
Four Falls Corporate Center, 6th Floor
West Conshohocken, PA 19428-2961
SHAREHOLDER SERVICES
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
PFPC Trust Company
200 Stevens Drive
Lester, PA 19113
LEGAL COUNSEL
Pepper Hamilton LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103-2799
AUDITORS
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA 19103
KL05
<PAGE>
KALMAR "GROWTH-WITH-VALUE" SMALL CAP FUND
<TABLE>
<CAPTION>
====================================================================================================================================
<S> <C>
SHAREHOLDER APPLICATION
KALMAR Send Completed Application to:
POOLED KALMAR "GROWTH-WITH-VALUE" SMALL CAP FUND
INVESTMENT C/O PFPC INC.
TRUST P.O. BOX 8965
WILMINGTON, DE 19899
To access our online application:
www.kalmarinvestments.com
====================================================================================================================================
1. ACCOUNT REGISTRATION -- PLEASE PRINT
====================================================================================================================================
[ ] INDIVIDUAL OR JOINT ACCOUNT
-------------------------------------------------------------------------------------------------------------------------------
First name Middle initial Last name Social Security Number
-------------------------------------------------------------------------------------------------------------------------------
Joint owner(s) (Joint ownership means "joint tenants with rights of survivorship" unless otherwise specified.)
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] GIFT/TRANSFER TO A MINOR
________________________________________________________ As Custodian For __________________________________________________
Name of Custodian -- ONE ONLY Minor's Name
Under the ________________________________ Uniform Gift/Transfer to Minors Act. ______________________________________________
State Minor's Social Security Number
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] TRUST [ ] CORPORATION [ ]PARTNERSHIP [ ]OTHER ENTITY ________________________________________ (Check One)
-------------------------------------------------------------------------------------------------------------------------------
Name of Entity (Corporate Resolution/Partnership Agreement Required) Taxpayer Identification Number
-------------------------------------------------------------------------------------------------------------------------------
Name of each trustee (if any) Date of trust document (must be completed for trust
registration)
====================================================================================================================================
2. ADDRESS
====================================================================================================================================
ACCOUNT HOLDER
-------------------------------------------------------------------------------------------------------------------------------
Street Address (P.O. Box acceptable if street address is given) Daytime Phone (including Area Code)
-------------------------------------------------------------------------------------------------------------------------------
City State Zip code Evening Phone (including Area Code)
I am a citizen of: [ ]U.S. [ ] __________________________________________
INTERESTED PARTY, DUPLICATE ACCOUNT STATEMENT
-------------------------------------------------------------------------------------------------------------------------------
Number and Street Telephone No. (Include Area Code)
-------------------------------------------------------------------------------------------------------------------------------
Apartment, Floor or Room Number
-------------------------------------------------------------------------------------------------------------------------------
City State Zip Code
====================================================================================================================================
3. INITIAL INVESTMENT -- MINIMUM $10,000
====================================================================================================================================
Enclosed is a check payable to the Kalmar "Growth-with-Value" Small Cap Fund for $ ____________________________________________
[ ] By Federal Funds wire (please call (800) 282-2319 for instructions):
-------------------------------------------------------------------------------------------------------------------------------
Name of Bank Wire Amount ($) Wire Date
<PAGE>
====================================================================================================================================
4. DISTRIBUTIONS
====================================================================================================================================
All dividends and capital gains distributions will be automatically reinvested in additional shares at net asset value
unless otherwise indicated by checking the box(es) below:
[ ] Dividends in cash [ ] Capital Gains in cash [ ] Dividends and Capital Gains in cash
If dividends and capital gains distributions are distributed in cash, you have the option to receive such amounts either by
direct deposit into your bank account or by check. Please check one box below.
[ ] Direct Deposit [ ] Check
PLEASE ATTACH A VOIDED CHECK IF YOU CHOOSE DIRECT DEPOSIT.
====================================================================================================================================
5. SIGNATURE AND TAX CERTIFICATIONS
====================================================================================================================================
I have received and read the Prospectus for the Kalmar "Growth-with-Value" Small Cap Fund and agree to its terms; I am of
legal age. I understand that investment in these shares involves investment risks, including possible loss of principal. If a
corporate customer, I certify that appropriate corporate resolutions authorizing investment in the Kalmar "Growth-with-Value"
Small Cap Fund Fund have been duly adopted.
I certify under penalties of perjury that the Social Security number or taxpayer identification number shown above is correct.
Unless the box below is checked, I certify under penalties of perjury that I am not subject to backup withholding because the
Internal Revenue Service (a) has not notified me that I am as a result of failure to report all interest or dividends, or (b)
has notified me that I am no longer subject to backup withholding. The certifications in this paragraph are required from all
nonexempt persons to prevent backup withholding of 31% of all taxable distributions and gross redemption proceeds under the
federal income tax law.
[ ] Check here if you are subject to backup withholding.
-------------------------------------------------------------------------------------------------------------------------------
Signature Date
-------------------------------------------------------------------------------------------------------------------------------
Signature Date
-------------------------------------------------------------------------------------------------------------------------------
Check one: [ ] Owner [ ] Trustee [ ] Custodian [ ]Other _____________________________________________
====================================================================================================================================
6. OPTIONAL SHAREHOLDER PRIVILEGES
====================================================================================================================================
A. TELEPHONE REDEMPTION AUTHORIZATION
I/We hereby authorize the use of cash transfers to effect redemptions of shares from my/our account according to telephone
instructions from any one of the authorized signers listed in Section 7 B and to send the proceeds TO (CHECK ONE OR MORE OF
THE FOLLOWING):
[ ] My address of record as indicated in Section 2 (must be $50,000 or less and address must be established for a minimum of
60 days)
[ ] My bank as designated below
[ ] Wire proceeds to my bank via the Federal Funds Wire System (minimum $1,000) as designated below
[ ] All of the above
-------------------------------------------------------------------------------------------------------------------------------
Bank Name Bank Routing Transit #
-------------------------------------------------------------------------------------------------------------------------------
Bank Account # (Checking/Savings) Account Holder
-------------------------------------------------------------------------------------------------------------------------------
Bank Address: Street City State Zip
PLEASE ATTACH A VOIDED CHECK OF THE BANK ACCOUNT DESIGNATED ABOVE.
Telephone redemption by wire can be used only with financial institutions that are participants in the Federal Reserve Bank
Wire System. If the financial institution you designate is not a Federal Reserve participant, telephone redemption proceeds
will be mailed to the named financial institution. In either case, it may take a day or two, upon receipt for your financial
institution to credit your bank account with the proceeds, depending on its internal crediting procedures.
- ------------------------------------------------------------------------------------------------------------------------------------
B. AUTOMATIC INVESTMENT PLAN -- (SUBJECT TO THE $10,000 MINIMUM INITIAL PURCHASE)
I hereby request that PFPC, the Fund's Transfer Agent, draw an automatic clearing house ("ACH") debit electronically on the
bank checking account designated on a monthly basis and invest the amount collected in Kalmar "Growth-with-Value" Small Cap
Fund shares. The shares are purchased on the same day that the Transfer Agent draws the debit, and a confirmation is sent to
you.
Mark one of your personal checks "VOID" and attach the voided check to this application. As soon as your bank accepts your
authorization, debits will be generated and purchases of Kalmar "Growth-with-Value" Small Cap Fund shares will begin. Please
note that your bank must be able to accept ACH transactions and/or may be a member of an ACH Association. The Fund cannot
guarantee acceptance by your bank. Please allow one (1) month for processing of this automatic option before the first debit
occurs.
<PAGE>
Please begin Automatic Investing for me on ________________, 19__ and invest $_________________ (minimum of $100) in shares of
the Kalmar "Growth-with-Value" Small Cap Fund on the 20th of each month.
-------------------------------------------------------------------------------------------------------------------------------
Name of Bank:
-------------------------------------------------------------------------------------------------------------------------------
Bank Address: Bank Telephone #:
-------------------------------------------------------------------------------------------------------------------------------
Signature of Depositor/Date Signature of Joint Depositor (if any)/Date:
I understand that my ACH debit will be dated on or about the 20th of the month specified. I agree that if such debit is not
honored upon presentation, PFPC may discontinue this service without prior notice, and any purchase of Fund shares may be
reversed. PFPC is under no obligation to notify the undersigned as to the nonpayment of any debit. I further understand that
the net asset value of Kalmar "Growth-with-Value" Small Cap Fund shares at the time of reversal may be less than the net asset
value on the day of the original purchase. PFPC is authorized to redeem sufficient additional full and fractional shares from
my account to make up the deficiency. Automatic Investing may be discontinued by PFPC by written notice to the shareholder at
least thirty (30) days prior to any payment date or by the investor by written notice to PFPC provided that the notice is
received not later than ten (10) business days prior to the specified investment date.
- ------------------------------------------------------------------------------------------------------------------------------------
C. SYSTEMATIC WITHDRAWAL PLAN -- (ACCOUNT BALANCES MUST BE GREATER THAN $10,000)
Frequency of withdrawals (check one): [ ] monthly [ ] bi-monthly [ ] quarterly [ ] semi-annually [ ] annually
I/We authorize PFPC to make periodic redemptions of Kalmar "Growth-with-Value" Small Cap Fund shares as necessary to provide
the payments indicated below.
Method of Payment: (check one): [ ] Check [ ] Automatic Clearing House ("ACH") electronic credit (SEE INSTRUCTIONS BELOW)
If you have chosen ACH credit option to your bank account, please mark one of your personal checks "VOID" and attach the voided
check to this application. Please note that your bank must be able to accept ACH transactions and/or may be a member of an ACH
Association. The Fund cannot guarantee acceptance by your bank.
The first withdrawal is to be made about the 25th day of _________, 19___ Amount of each withdrawal (minimum $100): $_________
-------------------------------------------------------------------------------------------------------------------------------
Name of Bank: Bank Address:
-------------------------------------------------------------------------------------------------------------------------------
Signature of Depositor/Date Signature of Joint Depositor (if any)/Date
THIS APPLICATION MUST BE RECEIVED BY THE 10TH OF THE MONTH INDICATED TO BECOME EFFECTIVE FOR THAT MONTH.
</TABLE>
