As filed with the Securities and Exchange Commission on September 17, 1997
File No. 33-________
811-________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. ____ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. ___ [ ]
THE WESTPORT FUNDS
(Exact Name of Registrant as Specified in Charter)
253 Riverside Avenue, Westport, Connecticut 06880
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (203) 227-3601
Edmund H. Nicklin Jr.
The Westport Funds
253 Riverside Avenue
Westport, Connecticut 06880
(Name and address of agent for service of process)
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this registration statement.
It is proposed that this filing will become effective (check appropriate box)
- immediately upon filing pursuant to paragraph (b) of Rule
485
- on (date) pursuant to paragraph (b) of Rule 485
- 60 days after filing pursuant to paragraph (a)(1) of Rule 485
- on (date) pursuant to paragraph (a)(1) of Rule 485
- 75 days after filing pursuant to paragraph (a)(2) of Rule 485
- on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
___ This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of
1940, Registrant declares that an indefinite number of its shares of common
stock are being registered under the Securities Act of 1933 by this registration
statement.
The Registrant hereby amends this Registration Statement under the Securities
Act of 1933 on such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in
accordance with the provisions of Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a), may determine.
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THE WESTPORT FUNDS
Cross Reference Sheet pursuant to Rule 404A(a)
Form Prospectus and Statement of Additional
N-1A ITEM Form Caption Information Caption
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<S> <C> <C>
1 Cover Page Cover Page
2 Synopsis Prospectus Summary; Expenses of Investing in a Westport Fund
3 Condensed Financial Information Not Included
4 General Description of Registrant Investment Objectives; Investment Strategy; Investment Risks;
Investment Policies; Hedging; Additional Investment Practices
5 Management of the Fund Management
6 Capital Stock and Other Securities Organization and Description of Shares of Beneficial Interest;
Dividends and Tax Matters
7 Purchase of Securities Being Offered Purchases and Redemptions of Shares
8 Redemption or Repurchase Purchases and Redemptions of Shares
9 Legal Proceedings Not Applicable
10 Cover Page Cover Page**
11 Table of Contents Table of Contents**
12 General Information and History Not Applicable
13 Investment Objectives and Policies Investment Objectives and Policies, Techniques and Strategies, and
Restrictions**
14 Management of the Registrant Management*; Management of the Fund**
15 Control Persons and Principal Not Applicable
Holders of Securities
16 Investment Advisory and Other Management*; Custodian and Transfer and Dividend Disbursing Agent*
17 Brokerage Allocation Portfolio Turnover**; Portfolio Transactions and Brokerage**
18 Capital Stock and Other Securities Organization and Description of Shares of Beneficial Interest*
19 Purchase, Redemption, and Pricing of Redemption of Shares**; Determination of Net Asset Value**
Securities Being Offered
20 Tax Status Taxation
21 Underwriters Management*
22 Calculation of Performance Data The Fund's Performance*; Calculation of Performance Data**
23 Financial Statements Not Included
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* Prospectus
** Statement of Additional Information
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PROSPECTUS
_________, 1997
THE WESTPORT FUNDS
WESTPORT FUND
WESTPORT SMALL CAP FUND
The Westport Funds (the "Trust") is a no-load, open-end, management investment
company with two different investment portfolios - Westport Fund and Westport
Small Cap Fund (each, a "Fund" and collectively, the "Funds"). Each Fund has a
distinct investment objective, but both Funds are managed with the same
value-oriented strategy. There can be no assurance that either Fund will achieve
its investment objective. This prospectus describes the following Funds:
Westport Fund
The Westport Fund seeks a return composed of capital
appreciation by investing in the securities of companies which
are undervalued relative to such company's assets or long-term
earnings potential. The Fund invests primarily in equity
securities and current income is a secondary consideration. The
median market capitalization of the companies the Fund invests in
is expected to be mid range - between $1 billion and $5 billion.
Westport Small Cap Fund
The Small Cap Fund seeks long-term capital appreciation by
investing in the securities of companies which are undervalued
relative to such company's assets or long-term earnings
potential. The Fund invests primarily in equity securities of
companies with market capitalizations less than or equal to $1
billion.
Shares of both Funds are offered to investors without any sales charge. Each
Fund offers two classes of shares to investors, with each class subject to
differing expenses and minimum investment amounts.
This Prospectus offers shares of the Funds and sets forth concisely the
information concerning the Trust and the Funds that a prospective investor ought
to consider before investing. Investors are advised to read this Prospectus and
retain it for future reference. The Trust has filed with the Securities and
Exchange Commission a Statement of Additional Information ("SAI"), dated
________, 1997, which contains more detailed information about the Trust and the
Funds and is incorporated into this Prospectus by reference. A copy of the SAI
may be obtained without charge by contacting The Westport Funds at (800)
xxx-xxxx.
Shares of the Trust are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and shares of the Trust are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PROSPECTUS SUMMARY
General Description of the Trust and the Funds
The Trust is a diversified, no-load, open-end, management investment company
organized as a Delaware business trust, composed of the following two separate
series: the Westport Fund and the Westport Small Cap Fund. Each of the Funds has
distinct investment objectives and strategies. There is, of course, no assurance
that a Fund will achieve its investment objectives.
Summary of the Funds
Investment Objective and Policies. The Funds seek long-term capital appreciation
by investing primarily in equity securities of mid and small capitalization
companies. Westport Advisers, LLC, the Funds' investment adviser (the
"Adviser"), employing a modified "value" approach to each Fund's investments,
seeks to identify companies that have experienced fundamental change, are
misunderstood by the investment community leading to undervaluation in the
marketplace, or are intrinsically undervalued relative to their assets or
long-term earnings potential. Companies with mid range ($1 billion to $5
billion) or smaller market capitalizations that are out of favor are often not
closely followed by analysts providing an opportunity for enhanced returns from
analytical and other research efforts. See "Investment Strategy."
Management. Westport Advisers, LLC, an affiliate of, and having the same
portfolio managers as, Westport Asset Management Inc. ("Westport"), is the
Funds' investment adviser and makes investment decisions for the Funds.
___________________ (the "Administrator" or the "Distributor") is the
administrator and distributor of the Funds. See "Management."
Purchases and Redemptions. Shares of either Fund may be purchased or redeemed,
without any sales charges, Monday through Friday except on days that the New
York Stock Exchange is closed (a "Fund Business Day"). Each Fund consists of two
classes of shares. The initial minimum investment for Class A shares of either
Fund is $5,000, or $2,000 for retirement accounts. The minimum for subsequent
investments in such Class of either Fund is $100. For Class B shares, the
minimum investment is $1 million for either Fund and the minimum for subsequent
investments is $10,000. See "Purchases and Redemptions of Shares."
Dividends. Dividends representing the net investment income of a Fund are
declared and paid at least annually. Net capital gains realized by a Fund, if
any, also will be distributed annually. Dividends and distributions are
reinvested in additional shares of the relevant Fund unless a shareholder elects
to have them paid in cash. See "Dividends and Tax Matters."
Risk Factors and Investment Considerations. The Funds do not invest primarily
for income, although the Westport Fund's investment objective is to achieve a
return composed of capital appreciation and secondarily current income. The
Funds do not by themselves provide a complete or balanced investment program,
although the Westport Fund may be viewed as a "core holding" in an investor's
portfolio due to its investment flexibility across the range of equity market
capitalizations. The Funds may be an appropriate investment for investors
willing to tolerate possibly significant fluctuations in net asset value while
seeking long-term returns that are
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potentially higher than market averages. The securities of small and mid
capitalization companies typically are more thinly traded and volatile than
those of larger companies. In the long-run, small capitalization companies
generally have greater growth potential than mid capitalization companies which
have greater growth potential than large capitalization companies. In the
shorter term, however, the prices of securities of small capitalization
companies, and mid capitalization companies to a lesser extent, may fluctuate
significantly in response to news about the company, the markets or the economy.
Other investments and investment techniques of the Funds, such as investments in
securities of foreign issuers, may entail additional risks or have speculative
characteristics. See "Investment Risks" and "Investment Policies."
Special Risks
There are certain risks associated with the investment policies of each of the
Funds. For instance, to the extent that a Fund invests in the securities of
small to mid range market capitalization companies, or financial instruments
related to such securities, the Fund may be exposed to a higher degree of risk
and price volatility because such investments may lack sufficient liquidity to
enable the Fund to effect sales at an advantageous time or without a substantial
drop in price. To the extent that a Fund invests in securities of non-U.S.
issuers or securities denominated or quoted in foreign currencies, the Fund may
face risks that are different from those associated with investments in domestic
U.S. dollar denominated or quoted securities, including the effects of changes
in currency exchange rates, political and economic developments, the possible
imposition of exchange controls, governmental confiscation or restrictions, less
availability of data on companies and a less well-developed securities industry
as well as less regulation of stock exchanges, brokers and issuers. For more
details on the risks associated with certain investment techniques, see
"Investment Risks." Also see "Additional Investment Practices - Portfolio
Transactions."
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EXPENSES OF INVESTING IN A WESTPORT FUND
The following table should help you understand the various costs and
expenses that you will bear if you invest in a Fund.
Shareholder Transaction Expenses for all Funds:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses: (as a percentage of average net assets)
Westport
Westport Small Cap
Class A Class B Class A Class B
Advisory Fees 0.90% 0.90% 1.00% 1.00%
12b-1 Fees None None None None
Other Expenses (1)
Shareholder Servicing Fees (2) 0.20% None 0.20% None
Miscellaneous Expenses (3) 0.40% 0.60% 0.30% 0.50%
Total Fund Operating Expenses (4) 1.50% 1.50% 1.50% 1.50%
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(1) The amount of the "Other Expenses" is an estimate for each Fund's first
full fiscal year of operation.
(2) The Trust does not anticipate paying or accruing any service fees at a
rate above 0.20% until December 31, 1998 or later. After such date,
service fees may be accrued at a rate of up to 0.25% of a Fund's
average net assets.
(3) After reimbursement of expenses. The Adviser has voluntarily agreed to
limit the total expenses of the Funds (excluding including interest,
taxes, brokerage, and extraordinary expenses) to an annual rate of
1.50% of each Fund's average net assets until December 31, 1998. As
long as this temporary expense limitation continues, it may lower the
Funds' expenses and increase its total return. After December 31, 1998,
the expense limitation may be terminated or revised at any time for
either Class of either Fund. Without the expense reimbursement, it is
estimated that the total operating expenses for the current fiscal year
would have amounted to 1.85% for the Class A shares and 1.60% for the
Class B shares of the Westport Fund and 1.95% for the Class A shares
and 1.70% for the Class B shares of the Westport Small Cap Fund.
(4) After the Trust's first fiscal year, it is anticipated that the total
operating expenses of the Class B shares of each Fund will be lower
than such expenses of the Class A shares of the Fund. For a further
description of the various costs and expenses incurred in a Fund's
operation, see "Management."
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Example
The following is a hypothetical example that indicates the dollar amount of
expenses that an investor in a Fund would pay assuming a $1,000 investment in
the Fund, a 5% annual return, and the reinvestment of all dividends and
distributions:
One Year Three Years
Westport
Class A $15 $48
Class B $15 $48
Westport Small Cap
Class A $15 $48
Class B $15 $48
The example is based on the expenses listed in the table. The five percent
annual return is not predictive of and does not represent the Fund's projected
returns; rather, it is required by government regulation. The example should not
be considered a representation of past or future expenses or return. Actual
expenses and return may be greater or less than indicated.
INVESTMENT OBJECTIVES
The Westport Fund's investment objective is to achieve a return composed of
capital appreciation and secondarily current income. The Fund seeks to achieve
this objective by investing in undervalued equity securities of attractive
companies. Based on the value the stock market assigns all of a company's
shares, a mid cap company has a market capitalization between $1 billion and $5
billion. The Fund will invest on an opportunistic basis in the securities of
attractive companies across the range of market capitalizations, but it is
expected that the majority will be mid or small capitalization companies with
the median market capitalization of the companies in the Fund in the mid range.
The Westport Small Cap Fund's investment objective is capital appreciation which
it seeks to achieve by investing at least 65% of its total assets in the equity
securities of small capitalization companies. A small capitalization company has
a market capitalization of $1 billion or less at the time of the Fund's
investment. Companies whose capitalization exceeds $1 billion after purchase
will continue to be considered small cap for purposes of this 65% limitation.
The Fund may also invest to a limited degree in companies that have larger
market capitalizations.
Both Funds will invest primarily in common stocks within the market
capitalization ranges indicated above. However, both Funds may invest in
securities convertible into or exchangeable for common stock and investments in
these securities will contribute to a Fund's return primarily through capital
appreciation. In addition, a Fund may invest in non-convertible preferred stocks
and debt securities with the expectation that a Fund's investments in these
securities will also produce capital appreciation, but the current income
component of return is a more significant
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factor in their selection. However, a Fund will invest in such non-convertible
preferred stock and debt securities only if the anticipated capital
appreciation, plus income, from such investments is equivalent to that
anticipated from investments in equity or equity-related securities.
Neither of the Funds should be considered a balanced or complete investment
program although the Westport Fund may be viewed as a "core" investment holding.
The investment objective of a Fund may not be changed without the approval of
shareholders.
INVESTMENT STRATEGY
The investment discipline practiced by the Adviser is a modified form of value
investing that can be most accurately described as second generation value
investing. Historically, value investors have used statistical criteria to
select a subset from the available investment universe which is expected to
provide superior returns. However, the domestic financial markets have matured
through heightened competition so that simple statistical selection criteria are
no longer effective. Today forward-looking business analysis is essential for
superior returns.
Often a catalyst or event is necessary for those excess returns. A new chief
executive officer or a change in government regulations which impact the
economics of the business are examples. For that change to be of investment
significance, it must create a significant increase in earnings or cash flow
within the investment horizon. This is low P/E investing, the focus of classic
value investment, but on a forward-looking basis. This approach is unique in
that it combines low valuation, a value attribute, with improving earnings or
cashflow, a growth attribute.
Second generation value investing provides investors with a less aggressive way
to take advantage of growth opportunities in smaller companies. Using this
approach, the Funds will seek to invest in companies selling at a discount to
fundamental value based on earnings potential or assets. This variation of value
investing therefore may reduce downside risk while offering potential for
capital appreciation as a stock gains favor among other investors and its stock
price rises.
The Funds will be managed by the Adviser in accordance with the investment
disciplines that Westport has employed in managing its equity portfolios for
over thirteen years. The Adviser relies on stock selection to achieve its
results, rather than trying to time market fluctuations. It seeks out those
stocks that are undervalued and, in some cases, neglected by financial analysts.
The investment process begins with the identification of change in a company's
products, operations, or management. In mid range or small capitalization
companies, dynamic change of this type tends to be material, may create
misunderstanding in the marketplace, and may result in a company's stock
becoming undervalued.
Once change is identified, the Adviser evaluates the company from a number of
perspectives: what the market is willing to pay for stock of comparable
companies, what a strategic buyer would pay for the whole company, and how the
company's products are positioned in their various markets.
Mid cap companies identified by second generation value investing are often out
of favor due to negative operational or financial events which the Adviser views
as transitory or misinterpretation
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of various business factors by the investment community. Unrecognized assets or
business opportunities, changes in regulations, legal action, including the
initiation of bankruptcy proceedings, are some of the factors that create these
opportunities. In addition, mid cap companies are often acquisition targets for
larger companies, as they can offer the acquirer a competitive advantage in the
form of economies of scale in manufacturing or distribution or product line
additions.
A small cap investment opportunity may be simply unrecognized by the financial
community. Fundamental research, company visits and management assessment are
all very important to the evaluation process. Small Cap portfolios emphasize,
but are not limited to, companies with capitalizations of under $1 billion.
Operating in this market segment offers several advantages. Firstly, there is
more opportunity for above-average growth and entrepreneurial impact. Secondly,
this market segment is less efficiently covered by Wall Street. Thirdly, small
cap companies are also often acquisition targets for larger companies.
In its overall assessment, the Adviser seeks stocks for the Funds that it
believes have a greater upside potential than risk over an 18 to 24 month
holding period. If the securities in which a Fund invests never reach their
perceived potential or the valuation of such securities in the marketplace does
not in fact reflect significant undervaluation, there may be little or no
appreciation and may be depreciation in the value of such securities.
INVESTMENT RISKS
An investment in either or both Funds is not by itself a complete or balanced
investment program. Nevertheless, the mid cap and small capitalization segments
of the equity markets may be an important part of an investor's portfolio,
particularly for long-term investors able to tolerate short-term fluctuations in
a Fund's net asset value. Investing in mid or small capitalization companies can
entail more risk than investing in larger, more established companies, however.
Investment returns from stocks of mid capitalization companies over long periods
of time tend to fall below those of small capitalization companies but exceed
those from large capitalization companies. The volatility of those returns is
greater than that for the large capitalization issues but less than that
associated with small capitalization issues. These characteristics result in
part from the ability of mid capitalization companies to react to changes in the
business environment at a faster rate than larger companies. In addition, they
generally have more developed, more mature businesses, and greater diversity
than small capitalization companies providing business stability relative to
such small companies.
A company may have a small capitalization because it is new or has recently gone
public, or because it operates in a new industry or regional market. These
companies may respond more quickly to change in an industry, and are expected to
increase their earnings more rapidly than larger companies. Historically, small
companies have offered greater opportunity for capital appreciation than larger,
more established companies.
At the same time, investing in small companies can be riskier than other
investments. Small companies may have more limited product lines, markets, and
financial resources, making them
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more susceptible to economic or market setbacks. A significant portion of the
securities in which the Westport Small Cap Fund invests are traded in the
over-the-counter markets or on a regional securities exchange, and may be more
thinly traded and volatile than the securities of larger companies. Analysts and
other investors typically follow small companies less actively, and information
about these companies is not always readily available. For these and other
reasons, the prices of small capitalization securities may fluctuate more
significantly than the securities of larger companies, in response to news about
the company, the markets or the economy. As a result, the price of the Westport
Small Cap Fund's shares may exhibit a higher degree of volatility than the
market averages.
In addition, securities traded in the over-the-counter market or on a regional
securities exchange may not be traded every day or in the volume typical of
securities traded on a national exchange. The Westport Small Cap Fund therefore
may have to sell a portfolio security to meet redemptions (or for other reasons)
at a discount from market prices, sell during periods when disposition is not
desirable, or make many small sales over a lengthy period of time.
A Fund may invest up to 10% of its total assets in debt securities which are
below investment grade, commonly known as "junk bonds." Investments of this type
are subject to greater risk of loss and principal. Securities are considered
investment grade if they are rated Baa or better by Moody's Investors Service,
Inc. ("Moody's") or BBB or better by Standard & Poor's Corporation ("Standard &
Poor's"). Bonds rated Baa or lower by Moody's or BB or lower by Standard &
Poor's may have speculative characteristics. See the SAI for a description of
the ratings mentioned above that are assigned by Moody's and Standard & Poor's.
INVESTMENT POLICIES
General. The investment objectives of a Fund may not be changed without approval
of a majority of the outstanding voting securities of that Fund, as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"). There is no
assurance that these objectives will be achieved. Investors should refer to the
prospectus section entitled "Investment Risks" and to the "Investment Objective
and Policies, Techniques and Strategies, and Restrictions" section in the SAI
for additional portfolio management discussions.
Each Fund is subject to certain investment restrictions which may not be changed
without the approval of the holders of a majority of that Fund's outstanding
voting securities.
The Funds pursue their investment objectives primarily by investing in "equity
securities," which for this purpose consist of common stock, securities
convertible into common stock, such as bonds and preferred stocks, American
Depositary Receipts and securities such as rights and warrants which permit the
holder to purchase equity securities.
To the extent consistent with their investment objectives and policies, the
Funds may also invest in fixed-income securities for current income and capital
preservation and in some circumstances for capital appreciation. Fixed-income
securities may have a fixed or variable rate. In general, the value of
fixed-income securities will rise when interest rates fall, and fall when
interest rates rise, affecting the net asset value of a Fund. Either of the
Funds may at times for defensive purposes
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temporarily place all or a portion of their assets in cash, short-term
commercial paper, U.S. government securities, high quality debt securities,
including Eurodollar and Yankee Dollar obligations, and obligations of banks
when, in the judgment of the Funds' Adviser, such investments are appropriate in
light of economic or market conditions.
Equity Securities may include common and preferred stock, convertible securities
and warrants. Common stock represents an equity or ownership interest in a
company. Although this interest often gives a Fund the right to vote on measures
affecting the company's organization and operations, neither Fund intends to
exercise control over the management of companies in which it invests. Common
stocks have a history of long-term growth in value, but their prices tend to
fluctuate in the shorter term.
Preferred Stock generally does not exhibit as great a potential for appreciation
or depreciation as common stock, although it ranks above common stock in its
claim on income for dividend payments. Convertible Securities are securities
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 stock. Traditionally,
convertible securities have paid dividends or interest greater than on the
related common stocks, but less than fixed income non-convertible securities. By
investing in a convertible security, a Fund may participate in any capital
appreciation or depreciation of a company's stock, but to a lesser degree than
its common stock.
Warrants are options to purchase an equity security at a specified price at any
time during the life of the warrant. Unlike convertible securities and preferred
stocks, warrants do not pay a fixed dividend. Investments in warrants involve
certain risks, including the possible lack of a liquid market for the resale of
the warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised (in which case the warrant may
expire without being exercised, resulting in the loss of a Fund's entire
investment therein).
The market value of all securities, including equity securities, is based upon
the market's perception of value and not necessarily the book value of an issuer
or other objective measure of a company's worth.
American Depositary Receipts ("ADRs"). A Fund may invest in ADRs, which are
receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs, in registered form, are
designed for use in U.S. securities markets. In a "sponsored" ADR, the foreign
issuer typically bears certain expenses of maintaining the ADR facility.
"Unsponsored" ADRs may be created without the participation of the foreign
issuer. Holders of unsponsored ADRs generally bear all the costs of the ADR
facility. The bank or trust company depository of an unsponsored ADR may be
under no obligation to distribute shareholder communications received from the
foreign issuer or to pass through voting rights.
Securities of Other Investment Companies. A Fund may invest in shares of other
investment companies to the extent permitted by the 1940 Act. To the extent a
Fund invests in shares of an investment company, it will bear its pro rata share
of the other investment company's expenses, such as investment advisory and
distribution fees, and operating expenses.
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Illiquid and Restricted Securities. As a non-fundamental investment policy, a
Fund may not purchase a security if, as a result, more than 15% of its net
assets would be invested in illiquid securities. Over-the-counter options,
repurchase agreements not entitling the holder to payment of principal in seven
days, and certain "restricted securities" may be illiquid.
A security is restricted if it is subject to contractual or legal restrictions
on resale to the general public. A liquid institutional market has developed,
however, for certain restricted securities such as repurchase agreements,
commercial paper, foreign securities and corporate bonds and notes. Thus,
restrictions on resale do not necessarily indicate a lack of liquidity for the
security. For example, if a restricted security may be sold to certain
institutional buyers in accordance with Rule 144A under the Securities Act of
1933 or another exemption from registration under such Act, the Adviser may
determine that the security is liquid under guidelines adopted by the Board of
Trustees. These guidelines take into account trading activity in the securities
and the availability of reliable pricing information, among other factors. With
other restricted securities, however, there can be no assurance that a liquid
market will exist for the security at any particular time. A Fund might not be
able to dispose of such securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions. The Fund treats such
holdings as illiquid.
When-Issued and Delayed Delivery Transactions. A Fund may purchase securities on
a "when-issued" basis, and may purchase or sell such securities on a "delayed
delivery" basis. These terms refer to securities whose terms and indenture are
available and for which a market exists, but which are not available for
immediate delivery. The Funds do not intend to make such purchases for
speculative purposes. During the period between the purchase and settlement, the
underlying securities are subject to market fluctuations and no interest accrues
prior to delivery of the securities.
Repurchase Agreements. Both Funds may enter into repurchase agreements. They are
primarily used for cash liquidity purposes. In a repurchase transaction, a Fund
buys a security and simultaneously sells it to the vendor for delivery at a
future date. Repurchase agreements must be fully collateralized. However, if the
vendor fails to pay the resale price on the delivery date, the Fund may incur
costs in disposing of the collateral and may experience losses if there is any
delay in its ability to do so. There is no limit on the amount of a Fund's net
assets that may be subject to repurchase agreements of seven days or less.
Repurchase agreements with a maturity beyond seven days are subject to a Fund's
limitations on investments in illiquid and restricted securities, discussed
above.
Loans of Portfolio Securities. To attempt to increase its total return, a Fund
may lend its portfolio securities to certain types of eligible borrowers
approved by the Board of Trustees. Each loan must be collateralized in
accordance with applicable regulatory requirements. After any loan, the value of
the securities loaned is not expected to exceed 10% of a Fund's total assets.
There are some risks in connection with securities lending. A Fund might
experience a delay in receiving additional collateral to secure a loan or a
delay in recovery of the loaned securities.
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HEDGING
General. As described below, a Fund may purchase and sell certain kinds of
futures contracts, put and call options, forward contracts, and options on
securities, futures and broadly-based stock indices. These are all referred to
as "hedging instruments." The Funds do not use hedging instruments for
speculative purposes. The hedging instruments the Funds may use and the limits
on their use are described below and in greater detail in "Investment Objectives
and Policies, Techniques and Strategies, and Restrictions -- Other Investment
Techniques and Strategies" in the SAI.
A Fund may buy and sell options, futures and forward contracts for a number of
purposes. It may do so to try to manage its exposure to the possibility that the
prices of its portfolio securities may decline, or to establish a position in
the securities market as a temporary substitute for purchasing individual
securities. Some of these strategies, such as selling futures, buying puts and
writing covered calls, hedge a Fund's portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options, tend to
increase a Fund's exposure to the securities market.
Forward contracts are used to try to manage foreign currency risks on foreign
investments. Foreign currency options are used to try to protect against
declines in the dollar value of foreign securities. Writing covered call options
may also provide income to a Fund for liquidity purposes or to raise cash to
distribute to shareholders.
Futures. A Fund may buy and sell futures contracts that relate to broadly-based
stock indices (these are referred to as "Stock Index Futures") or foreign
currencies (these are called "Forward Contracts"). A Fund will not enter into
any financial futures or options contract unless such transactions are for bona
fide hedging purposes, or for other purposes only if the aggregate initial
margins and related option premiums would not exceed 5% of the Fund's total
assets. The notional value of the futures contracts used for hedging and gaining
exposure to the securities markets may substantially exceed this limitation.
Put and Call Options. A Fund may buy and sell certain kinds of put options
(puts) and call options (calls). Calls a Fund buys or sells must be listed on a
securities or commodities exchange, quoted on the automated quotation system of
NASDAQ, or traded in the over-the-counter market. In the case of puts and calls
on a foreign currency, they must be traded on a securities or commodities
exchange, in the over-the-counter market, or must be quoted by recognized
dealers in those options.
The Funds may buy calls on securities, broadly-based stock indices, or Stock
Index Futures. A Fund may buy calls to terminate its obligation on a call such
Fund previously wrote.
The Funds may write (that is, sell) covered call options. Each call a Fund
writes must be "covered" while it is outstanding. That means the Fund must own
the investment on which the call was written. A Fund may write calls on Futures
Contracts it owns, but these calls must be covered by securities or other liquid
assets such Fund owns and segregated to enable it to satisfy its obligations if
the call is exercised. When a Fund writes a call, it receives cash (called a
premium). The call gives the buyer the ability to buy the investment on which
the call was written
10
<PAGE>
from the Fund at the call price during the period in which the call may be
exercised. If the value of the investment does not rise above the call price, it
is likely that the call will lapse without being exercised, while the Fund keeps
the cash premium (and the investment).
A Fund may purchase and sell put options. Buying a put on an investment gives a
Fund the right to sell the investment at a set price to a seller of a put on
that investment. A Fund can buy a put on a Stock Index Future whether or not the
Fund owns the particular Stock Index Future in its portfolio. A Fund may write
puts on broadly-based stock indices or Stock Index Futures, but only if those
puts are covered by segregated liquid assets.
Special Risks. Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different than what is required for
normal portfolio management. If the Adviser uses a hedging instrument at the
wrong time or judges market conditions incorrectly, hedging strategies may
reduce a Fund's return. A Fund could also experience losses if the prices of its
futures and options positions were not correlated with its other investments or
if it could not close out a position because of an illiquid market for the
future or option.
Options trading involves the payment of premiums and has special tax effects on
a Fund. There are also special risks in particular hedging strategies. If a
covered call written by a Fund is exercised on an investment that has increased
in value, such Fund will be required to sell the investment at the call price
and will not be able to realize any profit if the investment has increased in
value above the call price. In writing a put, there is a risk that a Fund may be
required to buy the underlying security at a disadvantageous price. The use of
forward contracts may reduce the gain that would otherwise result from a change
in the relationship between the U.S. dollar and a foreign currency. These risks
are described in greater detail in the SAI.
ADDITIONAL INVESTMENT PRACTICES
Concentration. As a fundamental investment policy, a Fund may not purchase a
security (other than U.S. Government Securities, as such term is defined below)
if, as a result, more than 25% of its net assets would be invested in a
particular industry.
Diversification. As a fundamental investment policy, a Fund may not purchase a
security if, as a result (a) more than 5% of the Fund's total assets would be
invested in the securities of a single issuer, or (b) a Fund would own more than
10% of the outstanding voting securities of a single issuer. This limitation
applies only with respect to 75% of the Fund's total assets and does not apply
to U.S. Government Securities.
Borrowing. As a fundamental investment policy, a Fund may borrow money for
temporary or emergency purposes, including the meeting of redemption requests,
in amounts up to 33 1/3% of the Fund's total assets. As a non-fundamental
investment policy, a Fund may not purchase portfolio securities if its
outstanding borrowings exceed 5% of its total assets or borrow for purposes
other than meeting redemptions in an amount exceeding 5% of the value of its
total assets at the time the borrowing is made.
11
<PAGE>
Borrowing involves special risk considerations. Interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earnings on borrowed funds (or on the assets that were
retained rather than sold to meet the needs for which funds were borrowed).
Under adverse market conditions, the Fund might need to sell portfolio
securities to meet interest or principal payments at a time when investment
considerations would not favor such sales.
Cash and Temporary Defensive Positions. The Fund may hold a certain portion of
its assets in cash or in investment grade cash equivalents to retain flexibility
in meeting redemptions, paying expenses, and timing of new investments. Cash
equivalents may include (i) short-term obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities ("U.S. Government
Securities"), (ii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of commercial banks doing business in the
United States that have an A+ rating from Standard & Poor's or an A-1+ rating
from Moody's, (iii) commercial paper rated P-1 by Moody's or A-1 by Standard &
Poor's, (iv) repurchase agreements covering any of the securities in which a
Fund may invest directly, and (v) money market mutual funds.
In addition, when the Adviser believes that business or financial conditions
warrant, a Fund may assume a temporary defensive position. During such periods,
such Fund may invest without limit in cash or cash equivalents. When and to the
extent a Fund assumes a temporary defensive position, it will not pursue its
investment objective.
Portfolio Transactions. The frequency of portfolio transactions is generally
expressed in terms of a portfolio turnover rates. For example, an annual
turnover rate of 100% would occur if all of the securities in a Fund were
replaced once a year. Each Fund's portfolio turnover rate will vary from year to
year depending on market conditions. The Adviser anticipates that, under normal
conditions, neither Fund's portfolio turnover rate will exceed 75%.
MANAGEMENT
Board of Trustees. The overall management of the business and affairs of the
Funds is vested with the Board of Trustees. The Board of Trustees approves all
significant agreements between the Trust and persons or companies furnishing
services to it, including the Trust's agreements with its investment adviser,
administrator, custodian and transfer agent. The management of each Fund's
day-to-day operations is delegated to its officers, the Adviser and the Funds'
administrator, subject always to the investment objective and policies of the
Funds and to general supervision of the Board of Trustees. The Trustees and
officers of the Funds and their principal occupations are set forth below.
Edmund H. Nicklin Jr., President and Trustee, is a Managing Member of the
Adviser and a portfolio manager for Westport.
Ronald H. Oliver, Executive Vice President, Secretary, Treasurer and Trustee, is
President and one of the principals of Westport.
12
<PAGE>
Andrew J. Knuth, Executive Vice President, is Chairman and one of the principals
of Westport.
The Adviser. Westport Advisers, LLC, 253 Riverside Avenue, Westport, Connecticut
06880, serves as the investment adviser to the Funds pursuant to an investment
advisory agreement with the Trust (the "Advisory Agreement"). Subject to the
general control of the Board, the Adviser makes investment decisions for the
Funds. The Adviser is a limited liability corporation organized under the laws
of the State of Connecticut on [ ], 1997, and is a registered investment adviser
under the Investment Advisers Act of 1940. Although, as a new entity, the
Adviser has no previous experience managing an investment company, the Managing
Members and portfolio managers of the Adviser have substantial experience in
portfolio management through Westport, an affiliate of the Adviser that is also
a registered investment adviser, which provides investment services to
investment companies, pension plans, endowments, foundations, and individuals.
In addition, the portfolio manager for the Westport Fund and co-manager for the
Westport Small Cap Fund has more than 10 years experience managing an investment
company as the portfolio manager for the Evergreen Growth and Income Fund.
Westport has managed investments in small capitalization companies for thirteen
years. As of the date of this Prospectus, it has over $1.3 billion of assets
under management. The following table presents historical performance data that
is a composite of all Westport's managed assets within the following three
open-end investment companies: Managers Special Equity Fund (since 1/1/86);
Diversified Funds Special Equity (since 1/1/86); and The Investment Fund for
Foundations - U.S. Equity (since 6/1/94). The table below compares the composite
performance of these portfolios against the Russell 2000 Composite Stock Index
(the "Russell 2000"). The computed total rates of return include the impact of
capital appreciation as well as the reinvestment of interest and dividends. The
performance figures for Westport are not net of fees and expenses. The effect of
deducting operating expenses on a fund's annualized performance, including the
compounding effect over time, may be substantial. See "Expenses of Investing in
a Westport Fund." The table does not indicate how the Westport Small Cap Fund
may perform in the future.
Time Period (Calendar Years) Westport(1) Russell 2000 (2)
Inception 1986-1996 15.6% 11.7%
10 Yrs: 1987-1996 16.5% 12.4%
5 Yrs: 1992-1996 21.0% 15.7%
3 Yrs: 1994-1996 19.9% 13.7%
1 Yr: 1996 34.1% 16.5%
6 Mos: 1997 19.5% 10.2%
- -------------------
(1) The modified Bank Administration Institute (BAI) method is used to
compute a time-weighted rate of return in accordance with standards set
by the Association for Investment Management and Research (AIMR). The
composite does not reflect any assets under Westport's management
except its participation in the three open-end investment companies
listed and may not accurately reflect the performance of all accounts
it manages.
(2) The Russell 2000 is a market weighted index composed of 2000 companies
with market capitalizations from $127 million to $1.7 billion. The
index is unmanaged and reflects the reinvestment of dividends.
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<PAGE>
All information presented relies on data supplied by the Adviser or is derived
from statistical services, reports or other sources believed by the Trust to be
reliable. It has not been verified or audited.
The principals of Westport and the Adviser have more than 25 years of collective
portfolio management experience. The portfolio managers of the Adviser are
Edmund H. Nicklin Jr. and Andrew J. Knuth.
Prior to joining Westport, Mr. Nicklin served as the portfolio manager of the
Evergreen Growth and Income Fund (formerly, the Evergreen Value Timing Fund)
from its inception on October 15, 1986 through June 30, 1997, when that Fund had
$1.217 billion in net assets combining all its share classes. Mr. Nicklin holds
a Bachelor of Science in Electrical Engineering, a Masters of Science in
Management and a Ph.D. in Operations and Research and Statistics from Rensselaer
Polytechnic Institute. As portfolio manager from inception and president of that
fund from 1988 through June 30, 1994, Mr. Nicklin had full discretionary
authority over the selection of investments for the Evergreen Growth and Income
Fund. Average annual returns for the one-, three-, five- and ten-year periods
ended December 31, 1996, the first six months of 1997, and for the entire period
during which Mr. Nicklin managed the fund are compared in the following table
with the performance of the Standard & Poor's 500 Index (Reinvested), the
Standard & Poor's Mid Cap Index (Reinvested) and the Lipper Growth and Income
Fund Average. It is important to note that Morningstar Inc. classified the
Evergreen Growth and Income Fund as a "medium capitalization blend" for the more
than seven years that it has tracked that fund's performance in its
classification scheme that categorizes funds on the basis of capitalization of
holdings and value versus growth.
<TABLE>
<CAPTION>
Calendar Year
Inception
3 5 10 through
6 Mos 1 Year Years Years Years 6/30/97 (4)
----- ------ ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Evergreen Growth and Income Fund (1)(2) 15.0% 23.8% 18.7% 16.9% 14.6% 15.1%
Standard & Poor's 500(3) 20.6% 23.0% 19.7% 15.2% 15.3% 16.4%
Standard & Poor's Mid Cap 400(3) 13.0% 19.2% 15.0% 14.2% 16.1%
Lipper Growth and Income Fund Average 15.5% 20.8% 16.2% 13.9% 13.1%
- --------------------
(1) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions, and is net of Fund
expenses.
(2) The expense ratio of the Evergreen Growth and Income Fund ranged from
1.76% in 1987 to 1.27% in 1996, reflecting primarily economies of scale
associated with an increase in assets under management.
(3) The Standard & Poor's indices are unmanaged indices of common stocks
issued by United States companies. The indices are adjusted to reflect
reinvestment of dividends.
(4) The Evergreen Growth and Income Fund commenced operations on October
15, 1986.
</TABLE>
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<PAGE>
Historical performance is not indicative of future performance. The Evergreen
Growth and Income Fund is a separate fund and its historical performance cannot
be presumed to be reflective of the potential performance of the Funds.
Investment returns will fluctuate reflecting market conditions, as well as
changes in company specific fundamentals of portfolio securities.
Mr. Nicklin began his career as an associate in the Corporate Planning
Department of General Foods Corporation where he was employed from 1974 through
1980. Mr. Nicklin was a research associate and investment representative at Alex
Brown and Sons, Inc. from 1980 through 1982 and joined the Evergreen Funds as a
security analyst in 1982.
Andrew J. Knuth founded Westport Asset Management in 1983 and has more than 20
years of security analysis and portfolio management experience. Mr. Knuth was an
organizing member of the Institutional Equity Group for Lazard Freres and
Company, and spent two years with them specializing in investment research for
institutional clients. From 1969 through 1981, Mr. Knuth was director of
research for Lieber & Company, the investment adviser to the Evergreen Funds.
From 1966 to 1969, Mr. Knuth was a security analyst for Vanden Broeck, Lieber &
Company. From 1962 to 1966, he was involved in portfolio management with the
Mutual Benefit Life Insurance Company. Mr. Knuth holds a Bachelor's degree in
Economics from Dickinson College and a Masters degree in Business Administration
from New York University.
Ronald H. Oliver will also be active in the Funds' day-to-day management. Mr.
Oliver joined Westport Asset Management in 1984. Prior to joining Westport, Mr.
Oliver was president of Starwood Corporation, a registered investment adviser
managing assets for pension funds, charitable foundations, and high net worth
individuals. Mr. Oliver holds a Bachelor's degree in Science from San Jose State
University in California and did graduate work at the University of Maryland and
the University of California.
The Advisory Agreement. Pursuant to the Advisory Agreement, the Adviser
furnishes a continuous investment program for each Fund's portfolio, makes
day-to-day investment decisions for each Fund, and generally manages each Fund's
investments in accordance with the stated policies of each Fund, subject to the
general supervision of the Board of Trustees of the Trust. The Adviser also
selects brokers and dealers to execute purchase and sale orders for the
portfolio transactions of each Fund. Consistent with the Rules of Fair Practice
of the National Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Adviser may consider sales of shares of the Funds
as a factor in the selection of brokers and dealers to enter into portfolio
transactions with the Funds. The Adviser provides persons satisfactory to the
Trustees of the Trust to serve as officers of the Funds. Such officers, as well
as certain other employees and Trustees of the Trust, may be directors,
officers, or employees of the Adviser. Under the Advisory Agreement, the
Westport Fund and Westport Small Cap Fund each pay the Adviser a monthly
management fee in an amount equal to 1/12th of 0.90% and 1.00%, respectively, of
the average daily net assets of the relevant Fund. Such fees are higher than
those incurred by most other investment companies.
In addition to the payments to the Adviser under the Advisory Agreement
described above, each Fund pays certain other costs of its operations including
(a) custody, transfer and dividend disbursing expenses, (b) shareholder
servicing fees, (c) fees of Trustees who are not affiliated with
15
<PAGE>
the Adviser, (d) legal and auditing expenses, (e) clerical, accounting and other
office costs, (f) costs of printing the Funds' prospectuses and shareholder
reports, (g) costs of maintaining the Trust's existence, (h) interest charges,
taxes, brokerage fees and commissions, (i) costs of stationary and supplies, (j)
expenses and fees related to registration and filing with the Securities and
Exchange Commission and with state regulatory authorities, and (k) upon the
approval of the Board of Trustees, costs of personnel of the Adviser or its
affiliates rendering clerical, accounting and other office services.
The Administrator. On behalf of the Funds, the Trust has entered into an
Administration and Distribution Agreement with ________________ (the
"Administrator" and the "Distributor"). As provided in this agreement, the
Administrator is responsible for the supervision of the overall management of
the Trust (including the Trust's receipt of services for which it must pay),
providing the Trust with general office facilities and for certain special
functions, and providing persons satisfactory to the Board of Trustees to serve
as officers of the Trust. For these services, the Administrator receives a fee
computed and paid monthly based on the average daily net assets of each Fund.
Like the Adviser, the Administrator, in its sole discretion, may waive all or
any portion of its fees.
The Distributor. Pursuant to the Administration and Distribution Agreement, the
Distributor acts as distributor of each Fund's shares. The Distributor acts as
the agent of the Trust in connection with the offering of shares of the Funds.
The Distributor receives no compensation for its services under the Distribution
Agreement. The Distributor may enter into arrangements with banks,
broker-dealers or other financial institutions ("Selected Dealers") through
which investors may purchase or redeem shares. The Distributor may, at its own
expense and from its own resources, compensate certain persons who provide
services in connection with the sale or expected sale of shares of the Funds.
Investors purchasing shares of a Fund through another financial institution
should read any materials and information provided by the financial institution
to acquaint themselves with its procedures and any fees that it may charge.
Shareholder Services. The Trust has adopted a shareholder services plan with
respect to the Class A shares of each Fund providing that the Trust may obtain
the services of the Adviser and other qualified financial institutions to act as
shareholder servicing agents for their customers. Under this plan, the Trust (or
the Trust's agents) may enter into agreements pursuant to which the shareholder
servicing agent performs certain shareholder services not otherwise provided by
the transfer agent. For these services, the Trust pays the shareholder servicing
agent a fee of up to 0.25% of the average daily net assets of the Class A shares
owned by investors for which the shareholder servicing agent maintains a
servicing relationship.
Among the services provided by shareholder servicing agents are: answering
customer inquiries regarding account matters; assisting shareholders in
designating and changing various account options; aggregating and processing
purchase and redemption orders and transmitting and receiving funds for
shareholder orders; transmitting, on behalf of the Trust, proxy statements,
prospectuses and shareholder reports to shareholders and tabulating proxies;
processing dividend payments and providing subaccounting services for shares of
a Fund held beneficially; and providing such other services as the Trust or a
shareholder may request.
16
<PAGE>
PURCHASES AND REDEMPTIONS OF SHARES
Purchase of Shares
Shares of the Funds are offered at the next determined net asset value without
any sales charge by the Funds as an investment vehicle for individuals,
institutions, fiduciaries and retirement plans. Prospectuses, sales material and
subscription order forms can be obtained from the Funds at the address listed on
the cover of this Prospectus.
For each shareholder of record, the Transfer Agent, as the shareholder's agent,
establishes an open account to which all shares purchased are credited, together
with any dividends and capital gain distributions which are paid in additional
shares. See "Dividends and Tax Matters." Although most shareholders elect not to
receive stock certificates, certificates for full shares can be obtained on
specific written request to the Transfer Agent. No certificates are issued for
fractional shares.
Minimum Investment. The initial minimum investment for Class A shares of either
Fund is $5,000, or $2,000 for retirement accounts. The minimum for subsequent
investments for such Class in either Fund is $100. For Class B shares, the
minimum investment is $1 million for either Fund and the minimum for subsequent
investments is $10,000.
Purchase Procedures -- By Mail. To purchase shares of the Funds an investor
should send a check made payable to "The Westport Funds" and a completed
subscription order form to the Transfer Agent at:
[ ]
Checks are accepted subject to collection at full face value in United States
currency.
By Bank Wire. To purchase shares of a Fund using the wire system for transmittal
of money among banks, an investor should first telephone the Transfer Agent at [
], to obtain an account number. The investor should then instruct a member
commercial bank to wire funds to:
[ ]
The investor should then promptly complete and mail the subscription order form.
Subsequent purchases can be made by bank wire, as indicated above, by mailing a
check to the Transfer Agent at the address listed above or by electronic funds
transfer, described immediately below. Each investment in shares of a Fund,
including dividends and capital gain distributions reinvested, is acknowledged
by a statement showing the number of shares purchased, the net asset value at
which the shares were purchased, and the new balance of Fund shares owned.
By Automated Clearing House ("ACH"). An investor that elects telephone purchase
privileges may purchase shares by telephone with payment by ACH, electronically
transferring funds from the investor's designated bank account. An investor may
purchase additional shares by telephone using ACH for purchases greater than
$100. In order to purchase shares by telephone and make payment by ACH, an
investor must complete the appropriate sections of the subscription order
17
<PAGE>
form. Shareholders who have authorized telephone purchases may effect purchases
by telephoning the Transfer Agent at [ ].
Purchasing Through Your Broker-Dealer. Shareholder accounts may be maintained
through certain broker-dealers. These broker-dealers may make arrangements for
their customers to purchase and redeem shares of the Funds by telephone and some
broker-dealers may impose a charge for their services. Alternatively, an
investor who has not made his initial purchase through a broker-dealer may
purchase and redeem those shares directly through the Transfer Agent without any
such charges.
Automatic Investment Plan. Investors may also purchase shares by arranging
systematic monthly investments into a Fund with either Fund's Automatic
Investment Plan ("AIP"). The minimum initial investment is $5,000 and the
minimum subsequent investment is $100. After investors give a Fund proper
authorization, their bank accounts, which must be with banks that are members of
ACH, will be debited accordingly to purchase shares. Investors will receive a
confirmation for every transaction, and a withdrawal will appear on their bank
statements.
To participate in the AIP, investors must complete the appropriate sections of
the subscription order form or the Automatic Investment Plan Form. These forms
may be obtained by calling the Funds' Transfer Agent at [ ]. The amount
investors specify will automatically be invested in shares at the relevant
Fund's net asset value per share next determined after payment is received by
that Fund.
To change the amount invested, written instructions must be received by a Fund
at least seven Business Days in advance of the next transfer. If the bank or
bank account number is changed, instructions must be received by a Fund at least
20 Business Days in advance. If there are insufficient funds in the investor's
designated bank account to cover the shares purchased using AIP, the investor's
bank may charge the investor a fee or may refuse to honor the transfer
instruction (in which case no Fund shares will be purchased).
Investors should check with their banks to determine whether they are members of
the ACH and whether their banks charge a fee for transferring funds through the
ACH. Expenses incurred by a Fund related to AIP are borne by that Fund and
therefore there is no direct charge by such Fund to investors for use of these
services.
Redemption of Shares
Upon receipt by the Transfer Agent of a redemption request in proper form,
shares of a Fund will be redeemed at their next determined net asset value.
Redemption Procedures -- Written Requests. Redemptions requests may be made in
writing to the Transfer Agent at:
[ ]
18
<PAGE>
The request must specify the name of the Fund, the dollar amount or number of
shares to be redeemed, and the account number. The request must be signed in
exactly the same way the account is registered (if there is more than one owner
of the shares, all must sign). A signature guarantee is required for any written
redemption request for an amount greater than $50,000. Signature guarantees are
described more fully under "Purchases and Redemptions of Shares --Signature
Guarantees" below.
If shares to be redeemed are held in certificate form, the certificates must be
enclosed with the written redemption request. Certificates must be properly
endorsed and, for protection, shareholders should use registered mail. Further
documentation, such as copies of corporate resolutions and instruments of
authority, may be requested from corporations, administrators, executors,
personal representatives, trustees or custodians to evidence the authority of
the person or entity making the redemption request.
Redemptions requests may also be made through the broker-dealer through whom you
purchased your shares.
By Telephone. Shareholders who wish to redeem shares by telephone must elect
this option by properly completing the appropriate section of their subscription
order form. Due to the time required to set up this service initially, this
privilege may not be available until several weeks after a shareholder's
application is received. Shares for which certificates have been issued may not
be redeemed by telephone.
A shareholder who has elected telephone redemption privileges may make a
telephone redemption request by calling the Transfer Agent at [ ] and providing
the shareholder's account number, the exact name in which the shareholder's
shares are registered and the shareholder's social security or taxpayer
identification number. In response to the telephone redemption instruction, a
Fund will mail a check to the shareholder's record address, or, if a shareholder
has provided bank wire or ACH redemption authorization, a Fund will wire or
electronically transfer the proceeds to the shareholder's designated bank
account. Shareholders must complete the appropriate sections of the subscription
order form to authorize receipt of redemption proceeds by bank wire or ACH.
Redemptions for amounts less than $5,000 will be made by check or by ACH.
Redemptions of $5,000 or more maybe made by bank wire.
In an effort to prevent unauthorized or fraudulent redemption requests by
telephone, the Transfer Agent will follow reasonable procedures to confirm that
such instructions are genuine. If such procedures are followed, neither the
Transfer Agent, the Administrator, the Adviser nor the Funds will be liable for
any losses due to unauthorized or fraudulent redemption requests.
In times of drastic economic or market changes, it may be difficult to make
redemptions by telephone. If a shareholder cannot reach the Transfer Agent by
telephone, redemption requests may be mailed or hand-delivered to the Transfer
Agent.
Signature Guarantees. A signature guarantee is required for any written request
to redeem an amount greater than $50,000 and for any endorsement on a stock
certificate. In addition, a signature guarantee is required for instructions to
change a shareholder's (i) record name or
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<PAGE>
address, (ii) ACH bank or bank account information, (iii) Systematic Withdrawal
information, (iv) dividend election or (v) telephone purchase, redemption or
exchange options. Signature guarantees may be provided by any bank,
broker-dealer, national securities exchange, credit union, or savings
association that is authorized to guarantee signatures and which is acceptable
to the Transfer Agent. Whenever a signature guarantee is required, each person
required to sign for the account must have his signature guaranteed. Signature
guarantees by notaries public are not acceptable.
Systematic Withdrawal Plan. Any shareholder who owns shares of a Fund with an
aggregate value of $10,000 or more may establish a Systematic Withdrawal Plan
under which the shareholder offers to sell to such Fund at net asset value the
number of full and fractional shares which will produce the monthly or quarterly
payments specified (minimum $100 per payment). Depending on the amounts
withdrawn, systematic withdrawals may deplete the investor's principal.
Investors contemplating participation in this Plan should consult their tax
advisers.
Shareholders wishing to utilize this Plan may do so by completing an application
which may be obtained by writing or calling the Transfer Agent at [ ]. No
additional charge to the shareholder is made for this service.
Other Redemption Information. The proceeds of a redemption may be more or less
than the amount invested and, therefore, a redemption may result in a gain or
loss for Federal income tax purposes. Checks for redemption proceeds normally
will be mailed, and bank wire or ACH redemption payments will normally be made,
within seven days, but will not be mailed until all checks (including a
certified or cashier's check) in payment for the purchase of the shares to be
redeemed have been cleared, currently considered by the Funds to occur 15 days
after investment. Unless other instructions are given, a check for the proceeds
of a redemption will be sent to the shareholder's address of record.
The Funds may suspend the right of redemption during any period when (i) trading
on the New York Stock Exchange is restricted or the Exchange is closed, other
than customary weekend and holiday closings, (ii) the Securities and Exchange
Commission has by order permitted such suspension or (iii) an emergency, as
defined by rules of the Securities and Exchange Commission, exists making
disposal of portfolio investments or determination of the value of the net
assets of a Fund not reasonably practicable.
To be in a position to eliminate excessive expenses, the Funds reserve the right
to redeem upon not less than 30 days' notice all shares of a Fund in an account
(other than an IRA) which has a value below $1,000. However, a shareholder will
be allowed to make additional investments prior to the date fixed for redemption
to avoid liquidation of the account.
Proceeds of redemptions normally are paid by check, electronic transfer or bank
wire. However, payments may be made wholly or partially in portfolio securities
if the Board determines that payment in cash would be detrimental to the best
interests of a Fund.
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Retirement Plans
The Funds have a master IRA plan described briefly below. Detailed information
concerning the IRA plan including related documentation on applications and
charges of the custodian may be obtained from the Funds. Contributions to these
plans are deductible for Federal income tax purposes for certain investors and
become taxable only upon withdrawal. In addition, income and capital gains
earned by these plans are sheltered from taxation until withdrawal.
In general, individuals earning compensation may make tax deductible IRA
contributions of up to $2,000 per year. The deductibility of an individual's IRA
contribution may be reduced or eliminated if the individual or, in the case of a
married individual, or the individual's spouse is an active participant in an
employer-sponsored retirement plan. In the case of an active participant, the
deduction will not be available for an individual with adjusted gross income
above $35,000, a married couple filing a joint return with adjusted gross income
above $50,000 and a married individual filing separately with adjusted gross
income above $10,000. In addition, an individual with a non-working spouse may
establish a separate IRA for the spouse and annually contribute a total of up to
$4,000 to the two IRAs, provided that no more than $2,000 may be contributed to
the IRA of either spouse. The minimum investment to establish an IRA is $2,000.
The master IRA plan also permits an IRA rollover of a lump sum distribution from
a qualified pension or profit-sharing plan. The participant may roll over all or
part of such a distribution into an IRA plan and thereby postpone Federal income
tax on that part of the distribution. The rollover must be made within 60 days
after receipt of the distribution. Rollovers must be made directly from the plan
to avoid certain withholding taxes.
Withdrawals from an IRA, other than that portion, if any, of the withdrawal
considered to be a return of the investor's non-deductible IRA contribution, are
taxed as ordinary income when received. Such withdrawals may be made without
penalty after the participant reaches age 59 1/2, and must commence shortly
after age 70 1/2. Withdrawals before age 59 1/2 or the failure to commence
withdrawals on a timely basis after age 70 1/2 may involve the payment of
certain penalties.
The Fund may also be used as a funding vehicle for 401(k) and other retirement
plans.
For more information call the Adviser at [ ] or write to the Fund.
DIVIDENDS AND TAX MATTERS
Dividends. Each Fund's policy will be to make distributions at least annually
from the investment company taxable income of such Fund. Net capital gain (net
long-term capital gain in excess of net short-term capital loss), if any, is
also expected to be distributed at least annually. Investment company taxable
income of a Fund consists of all of that Fund's taxable income other than the
excess, if any, of net long-term capital gain over net short-term capital loss,
reduced by deductible expenses of that Fund. The expenses of a Fund are accrued
each day. Unless a shareholder elects to have dividends and distributions paid
in cash, such dividends and distributions will be reinvested in additional
shares of the relevant Fund.
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Taxation. The following discussion is intended for general information only. An
investor should consult with his or her own tax advisor as to the tax
consequences of an investment in a Fund, including the status of distributions
under applicable state or local law.
Federal Income Taxes. The Trust intends to elect and qualify annually to be
treated as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code"). To qualify, the Trust must meet certain income,
distribution and diversification requirements. In any year in which the Trust
qualifies as a regulated investment company and timely distributes all of its
taxable income, the Trust generally will not pay any U.S. federal income or
excise tax.
Dividends paid out of the Trust's investment company taxable income (including
dividends, interest and net short-term capital gains) will be taxable to a U.S.
shareholder as ordinary income. Because a portion of each Fund's income may
consist of dividends paid by U.S. corporations, a portion of the dividends paid
by a Fund may be eligible for the corporate dividends-received deduction.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses), if any, designated as capital gain
dividends are taxable as long-term capital gains, regardless of how long the
shareholder has held a Fund's shares. Dividends are taxable to shareholders in
the same manner wheth7er received in cash or reinvested in additional shares of
a Fund.
A distribution of an amount in excess of the Funds' current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by a Fund in October, November or December with a record
date in such a month and paid by a Fund during January of the following calendar
year. Such distributions will be taxable to shareholders in the calendar year in
which the distributions are declared, rather than the calendar year in which the
distributions are received.
Each year, each Fund will notify its shareholders of the tax status of dividends
and distributions.
Upon the sale or other disposition of shares of a Fund, a shareholder may
realize a capital gain or loss which will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares.
The Funds may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide a Fund
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S.
federal income tax liability.
Further information relating to tax consequences is contained in the SAI.
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State and Local Taxes. A Fund's distributions also may be subject to state and
local taxes. Shareholders should consult their own tax advisors regarding the
particular tax consequences on an investment in a Fund.
ORGANIZATION AND DESCRIPTION OF
SHARES OF BENEFICIAL INTEREST
The Trust was created on September 17, 1997 as a Delaware business trust and is
authorized to issue an unlimited number of shares of beneficial interest which
may be issued in any number of series and classes. All shares of each Fund will
have equal voting rights and each shareholder is entitled to one vote for each
full share held and fractional votes for fractional shares held and will vote on
the election of Trustees and any other matter submitted to a shareholder vote.
The Trust is not required to and does not intend to hold meetings of
shareholders. The Trust will call such special meetings of shareholders as may
be required under the 1940 Act (e.g., to approve a new investment advisory
agreement or changing the fundamental investment policies) or by the Declaration
of Trust. A shareholder's meeting shall, however, be called by the secretary
upon the written request of the holders of not less than 10% of the outstanding
shares of a Fund. The Fund will assist shareholders wishing to communicate with
one another for the purpose of requesting such a meeting. Shares of each Fund
will, when issued, be fully paid and non-assessable and have no preemptive or
conversion rights. Each share is entitled to participate equally in dividends
and distributions declared by the relevant Fund and in the net assets of such
Fund on liquidation or dissolution after satisfaction of outstanding
liabilities.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
[ ], which has its principal business address at [ ], has been retained to act
as Custodian of the Funds' investments. [ ] has no part in deciding the Funds'
investment policies or which securities are to be purchased or sold for the
Funds' portfolios. [Name], [address], has been retained to serve as the Funds'
transfer agent and dividend disbursing agent.
REPORTS TO SHAREHOLDERS
The fiscal year of the Funds ends on May 31 of each year. The Funds send to
their shareholders, at least semi-annually, reports showing the investments and
other information (including unaudited financial statements). An annual report,
containing financial statements audited by the Funds' independent accountants,
is sent to each Fund's shareholders each year.
THE FUNDS' PERFORMANCE
Total Return. From time to time, the Trust may advertise certain information
about the performance of the Funds. Each Fund may present its "average annual
total return" over various periods of time. Such total return figures show the
average annual percentage change in value of an investment in such Fund from the
beginning date of the measuring period to the end of the measuring period. These
figures reflect changes in the price of such Fund's shares and assume that any
income dividends and/or capital gains distributions made by that Fund during the
period
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were reinvested in shares of such Fund. Figures may be given for the most
current one-, five- and ten-year periods (or the life of such Fund, if it has
not been in existence for any such period) and may be given for other periods as
well. When considering "average" total return figures for periods longer than
one year, it is important to note that a Fund's annual total return for any one
year in the period might have been greater or less than the average for the
entire period.
Furthermore, in reports or other communications to shareholders or in
advertising material, a Fund may compare its performance with that of other
mutual funds as listed in the rankings prepared by Lipper Analytical Services,
Inc. or similar independent services which monitor the performance of mutual
funds, other industry or financial publications or financial indices or a
composite benchmark index. It is important to note that the total return figures
are based on historical returns and are not intended to indicate future
performance.
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to the Trust as the address or
telephone number listed on the cover page of this Prospectus. This Prospectus,
including the SAI which has been incorporated by reference herein, does not
contain all the information set forth in the Registration Statement filed by the
Trust with the Securities and Exchange Commission under the Securities Act of
1933. Copies of the Registration Statement may be obtained at a reasonable
charge from the Securities and Exchange Commission or may be examined, without
charge, at the offices of the Securities and Exchange Commission in Washington,
D.C. (http://www.sec.gov).
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Statement of Additional Information
[ ], 1997
The Westport Funds
------------------
Westport Fund
Westport Small Cap Fund
253 Riverside Avenue
Westport, Connecticut 06880
203-227-3601
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of The Westport Funds - Westport Fund and
Westport Small Cap Fund, dated _________, 1997 (the "Prospectus"), which has
been filed with the Securities and Exchange Commission and can be obtained,
without charge, by writing or calling The Westport Funds at the address and
telephone number given above.
<PAGE>
TABLE OF CONTENTS
Page
Investment Objectives and Policies, Techniques and Strategies,
and Restrictions......................................................1
Management of the Fund........................................................11
Determination of Net Asset Value..............................................12
Redemption of Shares..........................................................13
Portfolio Turnover............................................................13
Portfolio Transactions and Brokerage..........................................13
Taxation......................................................................14
Calculation of Performance Data...............................................20
Counsel and Independent Accountants...........................................21
Appendix A....................................................................22
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES, TECHNIQUES
AND STRATEGIES, AND RESTRICTIONS
Investment Objectives and Policies
The Westport Funds (the "Trust") is a no-load, open-end, management investment
company with two different investment portfolios -- Westport Fund and Westport
Small Cap Fund (each, a "Fund" and, collectively, the "Funds"). The investment
objectives, strategy, risks and policies of each Fund, and a description of the
securities in which each Fund may invest is set forth in the Prospectus. The
investment objectives are fundamental and cannot be changed without the approval
of shareholders. The following expands upon the discussion in the Prospectus
regarding certain investments of each Fund.
U.S. Government Securities. All U.S. Treasury obligations are backed by the full
faith and credit of the United States. Obligations of U.S. Government agencies
or instrumentalities (including mortgage-backed securities) may or may not be
guaranteed or supported by the "full faith and credit" of the United States.
Some are backed by the right of the issuer to borrow from the U.S. Treasury;
others are supported by discretionary authority of the U.S. Government to
purchase the agencies' obligations; while still others are supported only by the
credit of the instrumentality. If the securities are not backed by the full
faith and credit of the United States, the owner of the securities must look
principally to the agency issuing the obligation for repayment and may not be
able to assert a claim against the United States in the event that the agency of
instrumentality does not meet its commitment. The Fund will invest in the
securities of such agencies or instrumentalities only when Westport Advisers,
LLC, the Funds' investment adviser (the "Adviser") is satisfied that the credit
risk with respect to such instrumentality is minimal.
Convertible Securities. The Funds may invest in fixed-income securities which
are convertible into common stock. Convertible securities rank senior to common
stock in a corporation's capital structure and, therefore, entail less risk than
the corporation's common stock. The value of a convertible security is a
function of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
Lower-Grade Securities. Each Fund may invest up to 10% of its total assets in
lower-grade securities. Lower-grade securities (commonly known as "junk bonds")
are rated less than "BBB" by Standard & Poor's Corporation ("Standard &
Poor's"), or less than "Baa" by Moody's Investors Service, Inc. ("Moody's"), or
have a comparable rating from another rating organization. If unrated, the
security is determined by the Adviser to be of comparable quality to securities
rated less than investment grade.
High yield, lower-grade securities, whether rated or unrated, have special risks
that make them riskier investments than investment grade securities. They may be
subject to greater market fluctuations and risk of loss of income and principal
than lower yielding, investment grade securities. There may be less of a market
for them and therefore they may be harder to sell at an
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acceptable price. There is a relatively greater possibility that the issuer's
earnings may be insufficient to make the payments of interest due on the bonds.
The issuer's low creditworthiness may increase the potential for its insolvency.
For more information about the rating systems of Moody's and Standard & Poor's,
see Appendix A to this SAI.
Rights and Warrants. Warrants basically are options to purchase equity
securities at specific prices valid for a specific period of time. Their prices
do not necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Rights and warrants have
no voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
Other Investment Techniques and Strategies
When-Issued Securities. The Funds may take advantage of offerings of eligible
portfolio securities on a "when-issued" basis where delivery of and payment for
such securities takes place sometime after the transaction date on terms
established on such date. The Funds only will make when-issued commitments on
eligible securities with the intention of actually acquiring the securities. If
a Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. When-issued
commitments will not be made if, as a result, more than 15% of the net assets of
a Fund would be so committed.
Repurchase Agreements. The Funds may acquire securities subject to repurchase
agreements for liquidity purposes to meet anticipated redemptions, or pending
the investment of the proceeds from sales of Fund shares, or pending the
settlement of purchases of portfolio securities. In a repurchase transaction, a
Fund acquires a security from, and simultaneously agrees to resell it to, an
approved vendor. An "approved vendor" is a U.S. commercial bank or the U.S.
branch of a foreign bank or a broker-dealer that has been designated a primary
dealer in government securities, that must meet credit requirements set by the
Trust's Board of Trustees from time to time. The resale price exceeds the
purchase price by an amount that reflects an agreed-upon interest rate effective
for the period during which the repurchase agreement is in effect. The majority
of these transactions run from day to day, and delivery pursuant to the resale
typically will occur within one to five days of the purchase. Repurchase
agreements are considered "loans" under the Investment Company Act of 1940 (the
"1940 Act"), collateralized by the underlying security.
Illiquid and Restricted Securities. To enable the Funds to sell restricted
securities not registered under the Securities Act of 1933, the Funds may have
to cause those securities to be registered. The expenses of registration of
restricted securities may be negotiated by a Fund with the issuer at the time
such securities are purchased by such Fund, if such registration is required
before such securities may be sold publicly. Securities having contractual
restrictions on their resale might limit a Fund's ability to dispose of such
securities and might lower the amount realizable upon the sale of such
securities.
Each Fund has percentage limitations that apply to purchases of illiquid and
restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted
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securities that are eligible for sale to qualified institutional purchasers
pursuant to Rule 144A under the Securities Act of 1933, provided that those
securities have been determined to be liquid by the Board of Trustees of the
Trust. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, a Fund's holding of that security may be deemed to be illiquid.
Foreign Securities. The Funds may invest in securities (which may be denominated
in U.S. dollars or non-U.S. currencies) issued or guaranteed by foreign
corporations, certain supranational entities (described below) and foreign
governments or their agencies or instrumentalities, and in securities issued by
U.S. corporations denominated in non-U.S. currencies. All such securities are
referred to as "foreign securities."
Investing in foreign securities offers potential benefits not available from
investing solely in securities of domestic issuers, including the opportunity to
invest in foreign issuers that appear to offer growth potential, or in foreign
countries with economic policies of business cycles different from those of the
U.S., or to reduce fluctuations in portfolio value by taking advantage or
foreign stock markets that do not move in a manner parallel to U.S. markets. If
a Fund's portfolio securities are held abroad, the countries in which they may
be held and the sub-custodians or depositories holding them must be approved by
the Trust's Board of Trustees to the extent that approval is required under
applicable rules of the Securities and Exchange Commission.
Risks of Foreign Investing. Investments in foreign securities present special
additional risks and considerations not typically associated with investments in
domestic securities: reduction of income by foreign taxes; fluctuation in value
of foreign portfolio investments due to changes in currency rates and control
regulations (e.g., currency blockage); transaction charges for currency
exchange; lack of public information about foreign issuers; lack of uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers; less volume on foreign exchanges than on U.S.
exchanges; greater volatility and less liquidity on foreign markets than in the
U.S.; less regulation of foreign issuers, stock exchanges and brokers than in
the U.S.; greater difficulties in commencing lawsuits and obtaining judgments in
foreign courts; higher brokerage commission rates than in the U.S.; increased
risks of delays in settlement of portfolio transactions or loss of certificates
for portfolio securities; possibilities in some countries of expropriation,
confiscatory taxation, political, financial or social instability or adverse
diplomatic developments; and unfavorable differences between the U.S. economy
and foreign economies. In the past, U.S. Government policies have discouraged
certain investments abroad by U.S. investors, through taxation or other
restrictions, and it is possible that such restrictions could be re-imposed.
Loans of Portfolio Securities. The Funds may lend their portfolio securities
subject to the restrictions stated in the Prospectus. Under applicable
regulatory requirements (which are subject to change), the loan collateral on
each business day must at least equal the value of the loaned securities and
must consist of cash, bank letters of credit or securities of the U.S.
Government (or its agencies or instrumentalities). To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded by a
Fund if the demand meets the terms of the letter. Such terms and the issuing
bank must be satisfactory to the Funds. The terms of each Fund's loans must meet
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applicable tests under the Internal Revenue Code of 1986 (the "Code") and must
permit a Fund to reacquire loaned securities on five days' notice or in time to
vote on any important matter.
Hedging With Options and Futures Contracts. The Funds may purchase and sell
certain kinds of futures contracts, put and call options, forward contracts, and
options on securities, futures and broadly-based stock indices for the purposes
described in the Prospectus. These are all referred to as "hedging instruments."
When hedging to attempt to protect against declines in the market value of a
Fund's portfolio, or to permit a Fund to retain unrealized gains in the value of
portfolio securities which have appreciated, or to facilitate selling securities
for investment reasons, a Fund may: (i) sell futures contracts that relate to
broadly based stock indices (these are referred to as "Stock Index Futures"),
(ii) buy puts on securities or securities indices, or (iii) write covered calls
on securities, securities indices or Stock Index Futures (as described in the
Prospectus). When hedging to establish a position in the equity securities
markets as a temporary substitute for the purchase of individual equity
securities a Fund may: (i) buy Stock Index Futures, or (ii) buy calls on
securities, securities indices or Stock Index Futures. Normally, a Fund would
then purchase the equity securities and terminate the hedging portion.
A Fund's strategy of hedging with futures and options on futures will be
incidental to such Fund's investment activities in the underlying cash market.
In the future, a Fund may employ hedging instruments and strategies that are not
presently contemplated, but which may be subsequently developed, to the extent
such investment methods are consistent with such Fund's investment objective,
and are legally permissible and disclosed in the Prospectus. Additional
information about the hedging instruments a Fund may use is provided below.
Stock Index Futures. As described in the Prospectus, the Fund may invest in
Stock Index Futures only if they relate to broadly-based stock indices. A stock
index is considered to be broadly-based if it includes stocks that are not
limited to issues in any particular industry or group of industries. A stock
index assigns relative values to the common stocks included in the index and
fluctuates with the changes in the market value of those stocks.
Stock Index Futures are contracts based on the future value of the basket of
securities that comprise the underlying stock index. The contracts obligate the
seller to deliver and the purchaser to take cash to settle the futures
transaction or to enter into an obligation contract. No physical delivery of the
securities underlying the index is made on settling the futures obligation. No
monetary amount is paid or received by a Fund on the purchase or sale of a Stock
Index Future. Upon entering into a futures transaction, a Fund will be required
to deposit an initial margin payment, in cash or U.S. Treasury bills, with the
futures commission merchant (the "futures broker"). Initial margin payments will
be deposited with such Fund's Custodian in an account registered in the futures
broker's name; however, the futures broker can gain access to that account only
under certain specified conditions. As the future is marked to market (that is,
its value on the Fund's books is changed) to reflect changes in its market
value, subsequent margin payments, called variation margin, will be paid to or
by the futures broker on a daily basis.
At any time prior to the expiration of the future, a Fund may elect to close out
its position by taking an opposite position, at which time a final determination
of variation margin is made and additional cash is required to be paid by or
released to such Fund. Any gain or loss is then
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realized by such Fund on the future for tax purposes. Although Stock Index
Futures by their terms call for settlement by the delivery of cash, in most
cases the settlement obligation is fulfilled without such delivery by entering
into an offsetting transaction. All futures transactions are effected through a
clearing house associated with the exchange on which the contracts are traded.
Writing Call Options. As described in the Prospectus, a Fund may write covered
calls. When a Fund writes a call on an investment, it receives a premium and
agrees to sell the callable investment to a purchaser of a corresponding call
during the call period (usually not more than nine months) at a fixed exercise
price (which may differ from the market price of the underlying investment)
regardless of market price changes during the call period. To terminate its
obligation on a call it has written, a Fund may purchase a corresponding call in
a "closing purchase transaction." A profit or loss will be realized, depending
upon whether the net of the amount of option transaction costs and the premium
received on the call a Fund has written is more or less than the price of the
call such Fund subsequently purchased. A profit may also be realized if the call
lapses unexercised because such Fund retains the underlying investment and the
premium received. Those profits are considered short-term capital gains for
Federal income tax purposes, as are premiums on lapsed calls, and when
distributed by a Fund are taxable as ordinary income. If a Fund could not effect
a closing purchase transaction due to the lack of a market, it would have to
hold the callable investment until the call lapsed or was exercised.
A Fund may also write calls on futures without owning a futures contract of
deliverable securities, provided that at the time the call is written, such Fund
covers the call by segregating in escrow an equivalent dollar value of
deliverable securities or liquid assets. Each Fund will segregate additional
liquid assets if the value of the escrowed assets drops below 100% of the
current value of the future. In no circumstances would an exercise notice as to
a future put a Fund in a short futures position.
Writing Put Options. A put option on securities gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying investment at the
exercise price during the option period. Writing a put covered by segregated
liquid assets equal to the exercise price of the put has the same economic
effect to a Fund as writing a covered call. The premium a Fund receives from
writing a put option represents a profit, as long as the price of the underlying
investment remains above the exercise price. However, such Fund has also assumed
the obligation during the option period to buy the underlying investment from
the buyer of the put at the exercise price, even though the value of the
investment may fall below the exercise price. If the put expires unexercised,
such Fund (as the writer of the put) realizes a gain in the amount of the
premium less transaction costs. If the put is exercised, such Fund must fulfill
its obligation to purchase the underlying investment at the exercise price,
which will usually exceed the market value of the investment at that time. In
that case, such Fund may incur a loss, equal to the sum of the sale price of the
underlying investment and the premium received minus the sum of the exercise
price and any transaction costs incurred.
When writing put options on securities, to secure its obligation to pay for the
underlying security, a Fund will deposit in escrow liquid assets with a value
equal to or greater than the exercise price of the underlying securities. Such
Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets. As long as the obligation of such Fund as
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the put writer continues, it may be assigned an exercise notice by the exchange
or broker-dealer through whom such option was sold, requiring such Fund to
exchange currency at the specified rate of exchange or to take delivery of the
underlying security against payment of the exercise price. Such Fund may have no
control over when it may be required to purchase the underlying security, since
it may be assigned an exercise notice at any time prior to the termination of
its obligation as the writer of the put. This obligation terminates upon
expiration of the put, or such earlier time at which such Fund effects a closing
purchase transaction by purchasing a put of the same series as that previously
sold. Once such Fund has been assigned an exercise notice, it is thereafter not
allowed to effect a closing purchase transaction.
A Fund may effect a closing purchase transaction to realize a profit on an
outstanding put option it has written or to prevent an underlying security from
being put. Furthermore, effecting such a closing purchase transaction will
permit such Fund to write another put option to the extent that the exercise
price thereof is secured by the deposited assets, or to utilize the proceeds
from the sale of such assets for other investments by that Fund. Such Fund will
realize a profit or loss from a closing purchase transaction if the cost of the
transaction is less or more than the premium received from writing the option.
As above for writing covered calls, any and all such profits described herein
from writing puts are considered short-term capital gains for Federal tax
purposes, and when distributed by a Fund, are taxable as ordinary income.
The Trustees have adopted a non-fundamental policy that each Fund may write
covered call options or write covered put options with respect to not more than
5% of the value of its net assets. Similarly, each Fund may only purchase call
options and put options with a value of up to 5% of its net assets.
Purchasing Puts and Calls. A Fund may purchase calls to protect against the
possibility that such Fund's portfolio will not participate in an anticipated
rise in the securities market. When a Fund purchases a call (other than in a
closing purchase transaction), it pays a premium and, except as to calls on
stock indices, has the right to buy the underlying investment from a seller of a
corresponding call on the same investment during the call period at a fixed
exercise price. In purchasing a call, a Fund benefits only if the call is sold
at a profit or if, during the call period, the market price of the underlying
investment is above the sum of the exercise price, transaction costs, and the
premium paid, and the call is exercised. If the call is not exercised or sold
(whether or not at a profit), it will become worthless at its expiration date
and such Fund will lose its premium payment and the right to purchase the
underlying investment. When a Fund purchases a call on a stock index, it pays a
premium, but settlement is in cash rather than by delivery of the underlying
investment to such Fund.
When a Fund purchases a put, it pays a premium and, except as to puts on stock
indices, has the right to sell the underlying investment to a seller of a
corresponding put on the same investment during the put period at a fixed
exercise price. Buying a put on an investment a Fund owns (a "protective put")
enables that Fund to attempt to protect itself during the put period against a
decline in the value of the underlying investment below the exercise price by
selling the underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is equal to
or above the exercise price and as a result the put is not exercised or resold,
the put will become worthless at its expiration and such Fund will lose the
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premium payment and the right to sell the underlying investment. However, the
put may be sold prior to expiration (whether or not at a profit).
Puts and calls on broadly-based stock indices or Stock Index Futures are similar
to puts and calls on securities or futures contracts except that all settlements
are in cash and gain or loss depends on changes in the index in question (and
thus on price movements in the stock market generally) rather than on price
movements of individual securities or futures contracts. When a Fund buys a call
on a stock index or Stock Index Future, it pays a premium. If a Fund exercises
the call during the call period, a seller of a corresponding call on the same
investment will pay such Fund an amount of cash to settle the call if the
closing level of the stock index or Future upon which the call is based is
greater than the exercise price of the call. That cash payment is equal to the
difference between the closing price of the call and the exercise price of the
call times a specified multiple (the "multiplier") which determines the total
dollar value for each point of difference. When a Fund buys a put on a stock
index or Stock Index Future, it pays a premium and has the right during the put
period to require a seller of a corresponding put, upon such Fund's exercise of
its put, to deliver cash to such Fund to settle the put if the closing level of
the stock index or Stock Index Future upon which the put is based is less than
the exercise price of the put. That cash payment is determined by the
multiplier, in the same manner as described above as to calls.
When a Fund purchases a put on a stock index, or on a Stock Index Future not
owned by it, the put protects such Fund to the extent that the index moves in a
similar pattern to the securities such Fund holds. Such Fund can either resell
the put or, in the case of a put on a Stock Index Future, buy the underlying
investment and sell it at the exercise price. The resale price of the put will
vary inversely with the price of the underlying investment. If the market price
of the underlying investment is above the exercise price, and as a result the
put is not exercised, the put will become worthless on the expiration date. In
the event of a decline in price of the underlying investment, such Fund could
exercise or sell the put at a profit to attempt to offset some or all of its
loss on its portfolio securities.
Each Fund's options activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by a Fund may cause that
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by a Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within each Fund's control, holding a put might cause
a Fund to sell the related investments for reasons that would not exist in the
absence of the put. A Fund will pay a brokerage commission each time it buys or
sells a call, put or an underlying investment in connection with the exercise of
a put or call. Those commissions may be higher than the commissions for direct
purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market value of the
underlying investments and, consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result in
a Fund's net asset value being more sensitive to changes in the value of the
underlying investments.
Regulatory Aspects of Hedging Instruments. The Funds are required to operate
within certain guidelines and restrictions with respect to its use of futures
and options thereon as established by
7
<PAGE>
the Commodities Futures Trading Commission (the "CFTC"). In particular, each
Fund is excluded from registration as a "commodity pool operator" if it complies
with the requirements of Rule 4.5 adopted by the CFTC. Under this rule, neither
Fund is limited regarding the percentage of its assets committed to futures
margins and related options premiums subject to a hedge position. However,
aggregate initial futures margins and related options premiums are limited to 5%
or less of each Fund's net asset value for other than bona fide hedging
strategies employed by each Fund within the meaning and intent of applicable
provisions of the Commodity Exchange Act and CFTC regulations thereunder.
Transactions in options by the Funds are subject to limitations established by
option exchanges governing the maximum number of options that may be written or
held by a single investor or group of investors acting in concert, regardless of
whether the options were written or purchased on the same or different exchanges
or are held in one or more accounts or through one or more different exchanges
or through one or more brokers. Thus the number of options which a Fund may
write or hold may be affected by options written or held by other entities,
including other investment companies having the same adviser as the Funds (or an
adviser that is an affiliate of the Funds' adviser). The exchanges also impose
position limits on futures transactions. An exchange may order the liquidation
of positions found to be in violation of those limits and may impose certain
other sanctions.
Due to requirements under the 1940 Act, when a Fund purchases a Stock Index
Future, such Fund will maintain, in a segregated account or account with its
Custodian, cash or readily-marketable, short-term (maturing in one year or less)
debt instruments in an amount equal to the market value of the securities
underlying such future, less the margin deposit applicable to it.
Additional Information About Hedging Instruments and their Use. The Funds'
Custodian or a securities depository acting for the Custodian, will act as the
Funds' escrow agent, through the facilities of Options Clearing Corporation
("OCC"), as to the investments on which the Funds have written options traded on
exchanges or as to other acceptable escrow securities, so that no margin will be
required for such transactions. OCC will release the securities on the
expiration of the option or upon the Funds' entering into a closing transaction.
An option position may be closed out only on a market which provides secondary
trading for options of the same series, and there is no assurance that a liquid
secondary market will exist for any particular option.
When a Fund writes an over-the-counter ("OTC") option, it will enter into an
arrangement with a primary U. S. Government securities dealer, which would
establish a formula price at which such Fund would have the absolute right to
purchase that OTC option. That formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the extent to which the option is "in-the-money"). When a Fund writes an OTC
option, it will treat as illiquid (for purposes of the limit on its assets that
may be invested in the illiquid securities as stated in the Prospectus) the
marked to market value of any OTC option held by it. The Securities and Exchange
Commission is evaluating whether OTC options should be considered liquid
securities, and the procedure described above could be affected by the outcome
of that evaluation.
8
<PAGE>
A Fund's option activities may affect its turnover rate and brokerage
commissions. The exercise by a Fund of puts on securities will cause the sale of
related investments, increasing portfolio turnover. Although such exercise is
within a Fund's control, holding a put might cause a Fund to sell the related
investments for reasons which would not exist in the absence of the put. Each
Fund will pay a brokerage commission each time it buys a put or call, sells a
call, or buys or sells an underlying investment in connection with the exercise
of a put or call. Such commissions may be higher than those which would apply to
direct purchases or sales of such underlying investments. Premiums paid for
options are small in relation to the market value of the related investments,
and consequently, put and call options offer large amounts of leverage. The
leverage offered by trading options could result in a Fund's net asset value
being more sensitive to changes in the value of the underlying investments.
Additional Risk Factors in Hedging. In addition to the risks with respect to
options discussed in the Prospectus and above, there is a risk in using short
hedging by (i) selling Stock Index Futures or (ii) purchasing puts on stock
indices or Stock Index Futures to attempt to protect against declines in the
value of a Fund's equity securities. The risk is that the prices of Stock Index
Futures will correlate imperfectly with the behavior of the cash (i.e., market
value) prices of a Fund's equity securities. The ordinary spreads between prices
in the cash and futures markets are subject to distortions, due to differences
in the natures of those markets. First, all participants in the futures markets
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close out futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures markets depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures markets could be reduced, thus
producing distortion. Third, from the point of view of speculators, the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions.
The risk of imperfect correlation increases as the composition of a Fund's
portfolio diverges from the securities included in the applicable index. To
compensate for the imperfect correlation of movements in the price of the equity
securities being hedged and movements in the price of the hedging instruments, a
Fund may use hedging instruments in a greater dollar amount than the dollar
amount of equity securities being hedged if the historic volatility of the
prices of the equity securities being hedged is more than the historic
volatility of the applicable index. It is also possible that if a Fund has used
hedging instruments in a short hedge, the market may advance and the value of
equity securities held in such Fund's portfolio may decline. If that occurred,
such Fund would lose money on the hedging instruments and also experience a
decline in value in its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of equity securities will tend to move in the same
direction as the indices upon which the hedging instruments are based.
If a Fund uses hedging instruments to establish a position in the equities
markets as a temporary substitute for the purchase of individual equity
securities (long hedging) by buying Stock Index Futures and/or calls on such
futures, on securities or on stock indices, it is possible that the
9
<PAGE>
market may decline. If such Fund then concludes not to invest in equity
securities at that time because of concerns as to a possible further market
decline or for other reasons, such Fund will realize a loss on the hedging
instruments that is not offset by a reduction in the price of the equity
securities purchased.
Other Investment Restrictions
Each Fund's most significant investment restrictions are set forth in the
Prospectus. There are additional investment restrictions that each Fund must
follow that are also fundamental policies. Fundamental polices and each Fund's
investment objective cannot be changed without the vote of a "majority" of a
Fund's outstanding voting securities. Under the 1940 Act, such a majority vote
is defined as the vote of the holders of the lesser of: (i) 67% or more of the
shares present or represented by proxy at a shareholder meeting, if the holders
of more than 50% of the outstanding shares are present or represented by proxy,
or (ii) more than 50% of the outstanding shares.
Under these additional restrictions, neither Fund can:
- - invest in physical commodities or physical commodity contracts or
speculate in financial commodity contracts, but each Fund is authorized to
purchase and sell financial futures contracts and options on such futures
contracts exclusively for hedging and other non-speculative purposes to
the extent specified in the Prospectus;
- - invest in real estate or real estate limited partnerships (direct
participation programs); however, each Fund may purchase securities of
issuers which engage in real estate operations and securities which are
secured by real estate or interests therein;
- - make short sales whereby the dollar amount of short sales at any one time
would exceed 5% of the net assets of the Fund; provided that the Fund
maintains collateral in a segregated account consisting of cash or liquid
portfolio securities with a value equal to the current market value of
shorted securities, which is marked to market daily. If the Fund owns an
equal amount of such securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities
of the same issuer as, and equal in amount to, the securities sold short
(which sales are commonly referred to as "short sales against the box"),
such restrictions shall not apply;
- - purchase securities on margin, except short-term credits as are necessary
for the purchase and sale of securities, provided that the deposit or
payment of initial or variation margin in connection with futures
contracts or related options will not be deemed to be a purchase on
margin;
- - underwrite securities of other companies except in so far as either Fund
may be deemed to be an underwriter under the Securities Act of 1933 in
disposing of a security;
- - invest in interests in oil, gas or other mineral exploration or
development programs or leases, except that the Fund may purchase
securities of companies engaging in whole or in part in such activities;
10
<PAGE>
- - borrow money, or pledge its assets, except that the Funds may borrow money
from banks for temporary or emergency purposes, including the meeting of
redemption requests which might require the untimely disposition of
securities. Borrowing in the aggregate may not exceed 10%, and, borrowing
for purposes other than meeting redemptions may not exceed 5%, of the
value of a Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing
made. Outstanding borrowings in excess of 5% of the value of the Fund's
total assets will be repaid before any subsequent investments are made;
- - invest for the purpose of exercising control or management of another
company;
- - issue any senior securities, except that collateral arrangements with
respect to transactions such as forward contracts, future contracts, short
sales or options, including deposits of initial and variation margin,
shall not be considered to be the issuance of a senior security for
purposes of this restriction;
- - pledge, mortgage or hypothecate its assets except in connection with
permitted borrowings;
- - make loans to other persons except through the lending of securities held
by it (but not to exceed a value of [one-third] of total assets), through
the use of repurchase agreements, and by the purchase of debt securities,
all in accordance with the Funds' investment policies;
- - acquire or retain securities of any investment company, except that the
Fund may (a) acquire securities of investment companies up to the limits
permitted by Sec. 12(d)(1) of the 1940 Act, and (b) acquire securities of
any investment company as part of a merger, consolidation or similar
transaction.
MANAGEMENT OF THE FUND
The Trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. An asterisk (*) has been placed next to
the name of each Trustee who is an "interested person" of the Trust, as such
term is defined in the 1940 Act, by virtue of such person's affiliation with the
Trust, a Fund or the Adviser.
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position with the Trust During the Past Five Years
- --------------------- ----------------------- --------------------------
<S> <C> <C>
Edmund H. Nicklin Jr.*, 50 Trustee and President Managing Member, Westport Advisers, LLC; Portfolio
253 Riverside Avenue Manager, Westport Asset Management, Inc.; Portfolio
Westport, CT 06880 Manager, Evergreen Funds (1982-1997).
Ronald H. Oliver*, 68 Trustee, Executive Vice President, Westport Asset Management, Inc.;
253 Riverside Avenue President, Secretary and Director, Automated Security (Holdings) (1995-1996).
Westport, CT 06880 Treasurer
Andrew J. Knuth, 59 Executive Vice President Chairman, Westport Asset Management, Inc.
253 Riverside Avenue
Westport, CT 06880
</TABLE>
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<PAGE>
The Trustees of the Trust who are employees of the Adviser or officers or
employees of any of its affiliates receive no remuneration from the Trust. Each
of the other Trustees is paid an annual retainer of $5,000, and a fee of $1,000
for each meeting attended and is reimbursed for the expenses of attendance of
such meetings.
Compensation of Trustees and Certain Officers
The following table sets forth information regarding compensation of Trustees by
the Trust, and by the fund complex of which the Trust is a part, for the fiscal
year ended May 31, 1998. Officers of the Trust and Trustees who are interested
persons of the Trust do not receive any compensation from the Trust. In the
column head "Total Compensation From Registrant and Fund Complex Paid to
Trustees," the number in parentheses indicates the total number of boards in the
fund complex on which the Trustee serves. The Trust does not pay any pension or
retirement benefits.
Estimated Compensation Table
Fiscal Year Ended May 31, 1998
<TABLE>
<CAPTION>
Total Compensation from
Aggregate Compensation Registrant and Fund
Name of Person, Position from Registrant Complex Paid to Trustee
- ------------------------ ---------------- -----------------------
<S> <C> <C>
Edmund H. Nicklin Jr.**, Trustee and $0 $0(1)
President
Ronald H. Oliver**, Trustee, 0 0(1)
Executive Vice President, Secretary
and Treasurer
- -----------------
* Member of Audit Committee.
** "Interested person," as defined in the Investment Company Act of 1940,
of the Trust because of the affiliation with Westport Advisers, LLC,
the Funds' investment adviser.
</TABLE>
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value per share is computed as of the close of trading on
the New York Stock Exchange on each day during which the New York Stock Exchange
is open for trading. The net asset value per share of each Fund is computed by
dividing the total current value of the assets of each Fund, less its
liabilities, by the total number of shares of such Fund outstanding at the time
of such computation.
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities and for securities traded in the
over-the-counter market, the security is valued at the midpoint between the
latest
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<PAGE>
available and representative asked and bid prices. Securities for which
market quotations are not readily available or which are not readily marketable
and all other assets of the Funds are valued at fair value as the Board of
Trustees may determine in good faith.
REDEMPTION OF SHARES
Payment of the redemption price for shares redeemed may be made either in cash
or in portfolio securities (selected in the discretion of the Board of Trustees
and taken at their value used in determining a Fund's net asset value per share
as described under "Determination of Net Asset Value"), or partly in cash and
partly in portfolio securities. However, payments will be made wholly in cash
unless the Board believes that economic conditions exist which would make such a
practice detrimental to the best interests of a Fund. If payment for shares
redeemed is made wholly or partly in portfolio securities, brokerage costs may
be incurred by the investor in converting the securities to cash. Neither Fund
will distribute in kind portfolio securities that are not readily marketable.
PORTFOLIO TURNOVER
The Funds may engage in portfolio trading when considered appropriate, but
short-term trading will not be used as the primary means of achieving their
investment objectives. Although the Funds cannot accurately predict their
portfolio turnover rate, it is not expected to exceed 75% in normal
circumstances. However, there are no limits on the rate of portfolio turnover,
and investments may be sold without regard to length of time held when, in the
opinion of the Adviser, investment considerations warrant such actions. Higher
portfolio turnover rates, such as rates in excess of 100%, and short-term
trading involve correspondingly greater commission expenses and transaction
costs.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Funds, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions. Purchases and sales of securities on a
securities exchange are effected through brokers who charge a commission for
their services. Brokerage commissions on United States securities exchanges are
subject to negotiation between the Adviser and the broker.
In the over-the-counter market, securities are generally traded on a "net" basis
with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of the Funds, the Adviser is required
to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Adviser will
consider the research and investment services provided by brokers or dealers who
effect, or are parties to, portfolio transactions of the Funds or the Adviser's
other
13
<PAGE>
clients. Such research and investment services are those which brokerage houses
customarily provide to institutional investors and include statistical and
economic data and research reports on particular companies and industries. Such
services are used by the Adviser in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for the Funds may be used in managing other investment accounts.
Conversely, brokers furnishing such services may be selected for the execution
of transactions of such other accounts, and the services furnished by such
brokers may be used by the Adviser in providing investment management for the
Funds. Commission rates are established pursuant to negotiations with the broker
based on the quality and quantity of execution services provided by the broker
in light of generally prevailing rates. The Adviser's policy is to pay higher
commissions to brokers for particular transactions than might be charged if a
different broker had been selected on occasions when, in the Adviser's opinion,
this policy furthers the objective of obtaining the most favorable price and
execution. In addition, the Adviser is authorized to pay higher commissions on
brokerage transactions for the Funds to brokers in order to secure research and
investment services described above, subject to review by the Board of Trustees
from time to time as to the extent and continuation of the practice. The
allocation of orders among brokers and the commission rates paid are reviewed
periodically by the Board.
TAXATION
Taxation of the Funds
Each Fund intends to qualify annually and to elect to be treated as a regulated
investment company under the Code. To qualify as a regulated investment company,
each Fund must, among other things, (a) derive in each taxable year at least 90%
of its gross income from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stock,
securities or foreign currencies or other income derived with respect to its
business of investing in such stock, securities or currencies; (b) diversify its
holding so that, at end of each quarter of the taxable year, (i) at least 50% of
the market value of that Fund's assets is represented by cash and cash items
(including receivables), U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
of any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of that Fund's total assets and not greater than
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of its total assets is invested in the securities of any one
issuer (other than U.S. Government securities or the securities of other
regulated investment companies); and (c) distribute at least 90% of its
investment company taxable income (which includes, among other items, dividends,
interest and net short-term capital gains in excess of net long-term capital
losses) each taxable year.
As regulated investment companies, the Funds generally will not be subject to
U.S. federal income tax on their investment company taxable income and net
capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that they distribute to shareholders. The Funds intend
to distribute to their shareholders, at least annually, substantially all of
their investment company taxable income and net capital gains. Amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax. To prevent imposition
of the excise tax, each Fund must distribute during each
14
<PAGE>
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for the one-year period ending on October
31 of the calendar year, and (3) any ordinary income and capital gains for
previous years that was not distributed during those years. A distribution will
be treated as paid December 31 of the current calendar year if it is declared by
a Fund in October, November or December with a record date in such a month and
paid by such Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, each Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.
Distributions
Dividends paid out of a Fund's investment company taxable income will be taxable
to a U.S. shareholder as ordinary income. Because a portion of a Fund's income
may consist of dividends paid by U.S. corporations, a portion of the dividends
paid by such Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains, if any, designated as capital
gain dividends are taxable as long-term capital gains, regardless of how long
the shareholder has held the relevant Fund's shares, and are not eligible for
the dividends-received deduction. Shareholders receiving distributions in the
form of additional shares, rather than cash, generally will have a cost basis in
each such share equal to the net value of a share of the relevant Fund on the
reinvestment date.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of
additional shares will receive a report as to the net asset value of those
shares.
A distribution of an amount in excess of a Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares.
Sale of Shares
Upon the sale or other disposition of shares of a Fund, a shareholder may
realize a capital gain or loss which will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares. 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 disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of shares of a Fund held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
15
<PAGE>
Original Issue Discount Securities
Investments by a Fund in zero coupon or other discount securities will result in
income to such Fund equal to a portion of the excess of the face value of the
securities over their issue price (the "original issue discount") each year that
the securities are held, even though such Fund receives no cash interest
payments. This income is included in determining the amount of income which that
Fund must distribute to maintain its status as a regulated investment company
and to avoid the payment of federal income tax and the 4% excise tax. In
addition, if a Fund invests in certain high yield original issue discount
securities issued by corporations, a portion of the original issue discount
accruing on any such obligation may be eligible for the deduction for dividends
received by corporations. In such event, dividends of investment company taxable
income received from such Fund by its corporate shareholders, to the extent
attributable to such portion of accrued original issue discount, may be eligible
for this deduction for dividends received by corporations if so designated by
that Fund in a written notice to shareholders.
Market Discount Bonds
Gains derived by a Fund from the disposition of any market discount bonds (i.e.,
bonds purchased other than at original issue, where the face value of the bonds
exceeds their purchase price) held by such Fund will be taxed as ordinary income
to the extent of the accrued market discount of the bonds, unless such Fund
elects to include the market discount in income as it accrues.
Options and Hedging Transactions
The taxation of equity options and over-the-counter options on debt securities
is governed by Code section 1234. Pursuant to Code section 1234, the premium
received by a Fund for selling a put or call option is not included in income at
the time of receipt. If the option expires, the premium is short-term capital
gain to a Fund. If a Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium is received is
short-term capital gain or loss. If a call option written by a Fund is
exercised, thereby requiring such Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Certain options, futures contracts and forward contracts in which the Funds may
invest are "section 1256 contracts." Gains or losses on section 1256 contracts
generally are considered 60% long-term and 40% short-term capital gains or
losses ("60-40"); however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as ordinary income or
loss. Also, section 1256 contracts held by a Fund at the end of each taxable
year (and, generally, for purposes of the 4% excise tax, on October 31 of each
year) are "marked-
16
<PAGE>
to-market" (that is, treated as sold at fair market value), resulting in
unrealized gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by the Funds may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to a Fund of engaging in hedging transactions
are not entirely clear. Hedging transactions may increase the amount of
short-term capital gain realized by a Fund which is taxed as ordinary income
when distributed to shareholders.
The Funds may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses, defer
losses and/or accelerate the recognition of gains or losses from the affected
straddle positions, the amount which may be distributed to shareholders, and
which will be taxed to them as ordinary income or long-term capital gain, may be
increased or decreased as compared to a fund that did not engage in such hedging
transactions.
The 30% limitation described above and the diversification requirements
applicable to a Fund's assets may limit the extent to which a Fund will be able
to engage in transactions in options, future contracts and forward contracts.
Currency Fluctuations - "Section 988" Gains or Losses
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues receivables or liabilities
denominated in foreign currency and the time such Fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, and on disposition of certain options, futures and foreign
currency contracts, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
or losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of a Fund's investment company taxable income to
be distributed to its shareholders as ordinary income.
A Fund will not realize gain or loss on a short sale of a security until it
closes the transaction by delivering the borrowed security to the lender. All or
a portion of any gain arising from a short sale may be treated as short-term
capital gain, regardless of the period for which a Fund held the security used
to close the short sale. In addition, a Fund's holding period for any security
which is
17
<PAGE>
substantially identical to that which is sold short may be reduced or eliminated
as a result of the short sale. In many cases, a Fund is required to recognize
gain (but not loss) upon entering into a short sale with respect to an
appreciated security that such Fund owns, as though such Fund constructively
sold the security at the time of entering into the short sale.
Passive Foreign Investment Companies
If a Fund invests in stock of certain foreign investment companies, such Fund
may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
of such Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of a Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to such Fund at the highest
ordinary income tax rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in such Fund's investment company taxable income
and, accordingly, would not be taxable to that Fund to the extent distributed by
such Fund as a dividend to its shareholders.
A Fund may be able to make an election, in lieu of being taxable in the manner
described above, to include annually in income its pro rata share of the
ordinary earnings and net capital gain of the foreign investment company,
regardless of whether it actually received any distributions from the foreign
company. These amounts would be included in a Fund's investment company taxable
income and net capital gain which, to the extent distributed by such Fund as
ordinary or capital gain dividends, as the case may be, would not be taxable to
that Fund. In order to make this election, such Fund would be required to obtain
certain annual information from the foreign investment companies in which it
invests, which in many cases may be difficult to obtain. Alternatively, a Fund
may be eligible to elect to mark to market its foreign investment company stock,
resulting in the stock being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income, and any resulting loss would not be recognized. If this
election were made, the special rules described above with respect to excess
distributions and dispositions would still apply.
Foreign Withholding Taxes
Income received by a Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries.
Backup Withholding
A Fund may be required to withhold U.S. federal income tax at the rate of 31% of
all taxable distributions payable to shareholders who fail to provide such Fund
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding.
18
<PAGE>
Backup withholding is not an additional tax. Any amounts withheld may be
credited against the shareholder's U.S. federal income tax liability.
Foreign Shareholders
U.S. taxation of a shareholder who, as to the United States, is a nonresident
alien individual, a foreign trust or estate, a foreign corporation or foreign
partnership ("foreign shareholder") depends on whether the income of a Fund is
"effectively connected" with a U.S. trade or business carried on by the
shareholder.
Income Not Effectively Connected. If the income from the Fund is not
"effectively connected" with a U.S. trade or business carried on by the foreign
shareholder, distributions of investment company taxable income will be subject
to a U.S. tax of 30% (or lower treaty rate, except in the case of any excess
inclusion income allocated to the shareholder), which tax is generally withheld
from such distributions.
Distributions of capital gain dividends and any amounts retained by a Fund which
are designated as undistributed capital gains will not be subject to U.S. tax at
the rate of 30% (or lower treaty rate) unless the foreign shareholder is a
nonresident alien individual and is physically present in the United States for
more than 182 days during the taxable year and meets certain other requirements.
However, this 30% tax on capital gains of nonresident alien individuals who are
physically present in the United States for more than the 182 day period only
applies in exceptional cases because any individual present in the United States
for more than 182 days during the taxable year is generally treated as a
resident for U.S. income tax purposes; in that case, he or she would be subject
to U.S. income tax on his or her worldwide income at the graduated rates
applicable to U.S. citizens, rather than the 30% U.S. tax. In the case of a
foreign shareholder who is a nonresident alien individual, a Fund may be
required to withhold U.S. income tax at a rate of 31% of distributions of net
capital gains unless the foreign shareholder certifies his or her non-U.S.
status under penalties of perjury or otherwise establishes an exemption. See
"Taxation -- Backup Withholding," above. If a foreign shareholder is a
nonresident alien individual, any gain such shareholder realizes upon the sale
or exchange of such shareholder's shares of a Fund in the United States will
ordinarily be exempt from U.S. tax unless (i) the gain is U.S. source income and
such shareholder is physically present in the United States for more than 182
days during the taxable year and meets certain other requirements, or is
otherwise considered to be a resident alien of the United States, or (ii) at any
time during the shorter of the period during which the foreign shareholder held
shares of a Fund and the five year period ending on the date of the disposition
of those shares, such Fund was a "U.S. real property holding corporation" and
the foreign shareholder held more than 5% of the shares of that Fund, in which
event the gain would be taxed in the same manner as for a U.S. shareholder, as
discussed above, and a 10% U.S. withholding tax would be imposed on the amount
realized on the disposition of such shares to be credited against the foreign
shareholder's U.S. income tax liability on such disposition. A corporation is a
"U.S. real property holding corporation" if the fair market value of its U.S.
real property interests equals or exceeds 50% of the fair market value of such
interests plus its interests in real property located outside the United States
plus any other assets used or held for use in a business. In the case of a Fund,
U.S. real property interests include
19
<PAGE>
interests in stock in U.S. real property holding corporations and certain
participating debt securities.
Income Effectively Connected. If the income from a Fund is "effectively
connected" with a U.S. trade or business carried on by a foreign shareholder,
then distributions of investment company taxable income and capital gain
dividends, any amounts retained by a Fund which are designated as undistributed
capital gains and any gains realized upon the sale or exchange of shares of a
Fund will be subject to U.S. income tax at the graduated rates applicable to
U.S. citizens, residents and domestic corporations. Foreign corporate
shareholders may also be subject to the branch profits tax imposed by the Code.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may differ from those described herein. Foreign
shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
Other Taxation
Fund shareholders may be subject to state, local and foreign taxes on their Fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.
CALCULATION OF PERFORMANCE DATA
The Funds may, from time to time, include the yield and total return in reports
to shareholders or prospective investors. Quotations of yield for a Fund will be
based on all investment income per share during a particular 30-day (or one
month) period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and are computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula which is prescribed by the Securities
and Exchange Commission:
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 of a Fund outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the period.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in a Fund
over periods of one, five and ten years (up to the life of such Fund),
calculated pursuant to the following formula which is prescribed by the
Securities and Exchange Commission:
P(1 + T)n = ERV
20
<PAGE>
Where: P = a hypothetical initial payment of $1,000;
T = the average annual total return;
n = the number of years; and
ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Legal matters in connection with the issuance of the shares of each Fund offered
hereby will be passed on by Dechert Price & Rhoads, 30 Rockefeller Plaza, New
York, New York 10112.
[Name and address] have been appointed as independent accountants for the Funds.
21
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
Moody's Ratings
Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with bonds rated Aaa (Moody's highest rating), they
compromise what are generally known as high-grade bonds. Aa bonds are rated
lower than Aaa bonds because margins of protection may not be as large as those
of Aaa bonds, or fluctuations of protective elements may be of greater
amplitude, or there may be other elements present which make the long-term risks
appear somewhat larger than those applicable to Aaa securities. Bonds which are
rated A by Moody's possess many favorable investment attributes and are to be
considered upper medium-grade obligations. Factors giving security to payment of
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Moody's Baa rated bonds are considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements because their
future cannot be considered as well assured. Uncertainty of position
characterizes bonds in this class, because the protection of interest and
principal payments may be very moderate and not well safeguarded.
Bonds which are rate B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the security over any long period of time may be small. Bonds which are rated
Caa are of poor standing. Such securities may be in default or there may be
present elements of danger with respect to principal or interest. Bonds which
are rated Ca represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings. Bonds which are
rated C are the lowest rated class of bonds and issues so rated can be regarded
having extremely poor prospects of attaining any real investment standing.
S&P's Ratings
Bonds rated AA by S&P have a very strong capacity to pay interest and differ
only in a small degree from issues rated AAA (S&P's highest rating). Bonds rated
AAA are considered by S&P to be the highest grade obligations and have an
extremely strong capacity to pay interest and principal. Bonds rated A by S&P
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.
S&P's BBB rated bonds are regarded as having adequate capacity to pay interest
and principal.
22
<PAGE>
Although these bonds normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and principal.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and principal
in accordance with the terms of the obligation. BB indicates the lowest degree
of speculation and C the highest degree of speculation. While such bonds may
have some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
23
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
Included in Part A of the Registration Statement:
None.
Included in Part B of the Registration Statement:
Report of Independent Certified Accountants*
Statement of Assets and Liabilities*
Notes to Financial Statements*
Included in Part C of the Registration Statement:
None.
(b) Exhibits
1. Declaration of Trust
2. By-Laws*
3. Not Applicable
4. Specimen certificate for shares of beneficial interest, par
value $.001 per share*
5. (A) Form of Investment Advisory Agreement*
(B) Form of Administration Agreement*
6. Form of Distribution Agreement*
7. Not Applicable
8. Form of Custodian Agreement*
9. (A) Form of Transfer Agency Agreement*
(B) Shareholders Service Plan*
(C) Form of Shareholder Service Agreement*
10. Opinion and Consent of Dechert Price & Rhoads*
11. Consent of Independent Certified Public Accountants*
12. Not Applicable
13. Not Applicable
14. Not Applicable
__________________________
* To be filed in a pre-effective amendment.
<PAGE>
15. Not Applicable
16. Not Applicable
17. Not Applicable
18. Powers of Attorney*
Item 25. Persons Controlled by or under Common Control with Registrant.
None. The Registrant is a recently organized business trust and has no
outstanding shares of beneficial interest.
Item 26. Number of Holders of Securities.
None. The Registrant is a recently organized business trust and has
not issued any securities as of the date of this Registration
Statement.
Item 27. Indemnification.
It is the Registrant's policy to indemnify its trustees, officers,
employees and other agents to the maximum extent permitted by 12 Del.
C. Sec. 3817 as set forth in Article IX, Section 2 of Registrant's
Declaration of Trust, filed as Exhibit 1, and ____________ of the
Registrant's By-laws, filed as Exhibit 2. The liability of the
Registrant's directors and officers is dealt with in Article IX,
Section 1 of the Registrant's Declaration of Trust and ______________
of the Registrant's By-laws. The indemnification of the Registrant's
shareholders is dealt with in Article IX, Section 3 of the
Registrant's Declaration of Trust. The liability of Westport Advisers,
LLC, the Registrant's investment adviser, for any loss suffered by the
Registrant or its shareholders is set forth in Section _________ of
the Advisory Agreement, filed as Exhibit 5 to this Registration
Statement. The liability of ___________, the Registrant's
administrator, for any loss suffered by the Registrant or its
shareholders is set forth in Section ____ of the Administration
Agreement, filed as Exhibit 9 to this Registration Statement.
Item 28. Business and Other Connections of Investment Advisor
The descriptions of the Adviser under the caption "Management" in the
Prospectus in Part A of this Registration Statement are incorporated
by reference herein. Mr. Edmund H. Nicklin Jr., Ronald H. Oliver and
Andrew J. Knuth has had no other business connections of a substantial
nature during the past two fiscal years.
Item 29. Principal Underwriters
To be provided in a pre-effective amendment.
Item 30. Location of Accounts and Records.
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained as follows: Journals, ledgers,
securities records and other original records will be maintained
principally at the offices of [ ]. All other records so required to be
maintained will be maintained at the offices of Westport Advisers,
LLC, 253 Riverside Avenue, Westport, Connecticut 06880.
Item 31. Management Services.
Not Applicable
<PAGE>
Item 32. Undertakings.
The Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a director, if
requested to do so by the holders of at least 10% of the Fund's
outstanding shares, and that it will assist communication with other
shareholders as required by Section 16(c) of the Investment Company
Act of 1940.
The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the effective date of this post-effective amendment to the
Registrant's 1933 Act Registration Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Westport and State of Connecticut on
the 17th day of September, 1997.
THE WESTPORT FUNDS
By:/s/ Edmund H. Nicklin Jr.
--------------------------------------
Edmund H. Nicklin Jr.
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Signature Title Date
/s/ Edmund H. Nicklin Jr. Trustee, President 9/17/97
- ------------------------
Edmund H. Nicklin Jr.
/s/ Ronald H. Oliver Trustee, Executive Vice President
- --------------------- Secretary and Treasurer 9/17/97
Ronald H. Oliver
* To be filed in a pre-effective amendment.
<PAGE>
THE WESTPORT FUNDS
(A Delaware Business Trust)
TRUST INSTRUMENT
Dated: September 17, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..........................................................1
ARTICLE II THE TRUSTEES........................................................2
SECTION 1. MANAGEMENT OF THE TRUST.........................................2
SECTION 2. INITIAL TRUSTEES AND NUMBER OF TRUSTEES.........................2
SECTION 3. ELECTION AND TERM...............................................2
SECTION 4. RESIGNATION AND REMOVAL.........................................2
SECTION 5. VACANCIES; APPOINTMENT OF TRUSTEES..............................3
SECTION 6. TEMPORARY VACANCY OR ABSENCE....................................3
SECTION 7. CHAIRMAN........................................................3
SECTION 8. ACTION BY THE TRUSTEES..........................................4
SECTION 9. OWNERSHIP OF TRUST PROPERTY.....................................4
SECTION 10. TRUSTEES, ETC. AS SHAREHOLDERS..................................4
ARTICLE III POWERS OF THE TRUSTEES.............................................4
SECTION 1. POWERS..........................................................4
SECTION 2. CERTAIN TRANSACTIONS............................................7
ARTICLE IV SERIES, CLASSES, SHARES.............................................7
SECTION 1. ESTABLISHMENT OF SERIES OR CLASSES..............................7
SECTION 2. SHARES..........................................................8
SECTION 3. INVESTMENT IN THE TRUST.........................................8
SECTION 4. ASSETS AND LIABILITIES OF SERIES................................8
SECTION 5. OWNERSHIP AND TRANSFER OF SHARES................................9
SECTION 6. STATUS OF SHARES: LIMITATION OF SHAREHOLDER LIABILITY.........10
ARTICLE V DISTRIBUTIONS AND REDEMPTIONS.......................................10
SECTION 1. DISTRIBUTIONS..................................................10
SECTION 2. REDEMPTIONS....................................................10
SECTION 3. DETERMINATION OF NET ASSET VALUE...............................11
SECTION 4. SUSPENSION OF RIGHT OF REDEMPTION..............................11
ARTICLE VI SHAREHOLDERS' VOTING POWERS AND MEETINGS...........................11
SECTION 1. VOTING POWERS..................................................11
SECTION 2. MEETINGS OF SHAREHOLDERS.......................................12
SECTION 3. QUORUM; REQUIRED VOTE..........................................12
ARTICLE VII CONTRACTS WITH SERVICE PROVIDERS..................................12
SECTION 1. INVESTMENT ADVISER.............................................12
SECTION 2. PRINCIPAL UNDERWRITER..........................................13
SECTION 3. TRANSFER AGENCY, SHAREHOLDER SERVICES AND
ADMINISTRATION AGREEMENTS....................................13
SECTION 4. CUSTODIAN......................................................13
SECTION 5. PARTIES TO CONTRACTS WITH SERVICE PROVIDERS....................13
ARTICLE VIII EXPENSES OF THE TRUST AND SERIES.................................14
ARTICLE IX LIMITATION OF LIABILITY AND INDEMNIFICATION........................14
SECTION 1. LIMITATION OF LIABILITY........................................14
- ii -
<PAGE>
SECTION 2. INDEMNIFICATION................................................15
SECTION 3. INDEMNIFICATION OF SHAREHOLDERS................................16
ARTICLE X MISCELLANEOUS.......................................................16
SECTION 1. TRUST NOT A PARTNERSHIP........................................16
SECTION 2. TRUSTEE ACTION; EXPERT ADVICE; NO BOND OR SURETY...............16
SECTION 3. RECORD DATES...................................................17
SECTION 4. TERMINATION OF THE TRUST.......................................17
SECTION 5. REORGANIZATION; MERGER; CONSOLIDATION..........................17
SECTION 6. TRUST INSTRUMENT...............................................18
SECTION 7. APPLICABLE LAW.................................................18
SECTION 8. AMENDMENTS.....................................................19
SECTION 9. FISCAL YEAR....................................................19
SECTION 10. SEVERABILITY...................................................19
SECTION 11. USE OF THE NAME "WESTPORT".....................................19
- iii -
<PAGE>
THE WESTPORT FUNDS
TRUST INSTRUMENT
This TRUST INSTRUMENT is made on September 17, 1997, by the Trustees,
to establish a business trust under the law of Delaware for the investment and
reinvestment of funds contributed to the Trust by investors. The Trustees
declare that all money and property contributed to the Trust shall be held and
managed in trust pursuant to this Trust Instrument. The name of the Trust
created by this Trust Instrument is The Westport Funds.
ARTICLE I
DEFINITIONS
Unless otherwise provided or required by the context:
(a) "Bylaws" means the Bylaws of the Trust adopted by the Trustees,
which Bylaws are incorporated by reference herein in their entirety, as amended
from time to time;
(b) "Class" means the class of Shares of a Series established pursuant
to Article IV;
(c) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations thereunder, as adopted or amended
from time to time;
(d) "Commission," "Interested Person," and "Principal Underwriter" have
the meanings provided in the 1940 Act;
(e) "Covered Person" means a person so defined in Article IX, Section
2;
(f) "Delaware Act" means Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as amended from time to time;
(g) "Majority Shareholder Vote" means "the vote of a majority of the
outstanding voting securities" as defined in the 1940 Act;
(h) "Net Asset Value" means the net asset value of each Series of the
Trust, determined as provided in Article V, Section 3;
(i) "Outstanding Shares" means Shares shown in the books of the Trust
or its transfer agent as then outstanding;
(j) "Principal Underwriter" shall have the meaning given such term
under the 1940 Act;
(k) "Series" means a series of Shares established pursuant to Article
IV;
(l) "Shareholder" means a record owner of Outstanding Shares;
<PAGE>
(m) "Shares" mean the equal proportionate transferable units of
interest into which the beneficial interest of each Series or Class is divided
from time to time (including whole Shares and fractions of Shares);
(n) "Trust" means The Westport Funds established hereby, and reference
to the Trust, when applicable to one or more Series, refers to that Series;
(o) "Trustees" means the persons who have signed this Trust Instrument,
so long as they shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time be duly qualified and serving as
Trustees in accordance with Article II, in all cases in their capacities as
Trustees hereunder;
(p) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the Trust or the
Trustees on behalf of the Trust or any Series; and
(q) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
ARTICLE II
THE TRUSTEES
Section 1. Management of the Trust. The business and affairs of the
Trust shall be managed by or under the direction of the Trustees, and they shall
have all powers necessary or desirable to carry out that responsibility. The
Trustees may execute all instruments and take all action they deem necessary or
desirable to promote the interests of the Trust. Any determination made by the
Trustees in good faith as to what is in the interests of the Trust shall be
conclusive.
Section 2. Initial Trustees and Number of Trustees. The number of
Trustees shall initially be two (2), and thereafter shall be such number as
shall be fixed from time to time by a written instrument signed by a majority of
the Trustees, provided, however, that the number of Trustees shall in no event
be less than two (2) nor more than fifteen (15).
Section 3. Election and Term. Except for the Trustees named herein,
designated by such Trustees prior to the issuance of Shares, or appointed to
fill vacancies pursuant to Article II, Section 5 hereof, the Trustees shall be
elected by the Shareholders owning of record a plurality of the Shares voting at
a meeting of Shareholders called for that purpose. Except in the event of
resignation or removal pursuant to Article II, Section 4 hereof, each Trustee
shall hold office until the next such meeting of Shareholders and until his
successor is duly elected and qualified.
Section 4. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any Trustee may be removed (i) without cause, by the unanimous
action of the remaining Trustees, (ii) with cause, by the action of two-thirds
of the remaining Trustees, or (iii) by the vote of holders of two-thirds of the
outstanding Shares of the Trust, either by declaration in writing
- 2 -
<PAGE>
or at a meeting called for such purpose. A meeting for the purpose of
considering the removal of a person serving as Trustee shall be called by the
Trustees if requested in writing to do so by holders of not less than 10% of the
outstanding Shares of the Trust. Upon the resignation or removal of a Trustee,
or his otherwise ceasing to be a Trustee, he shall execute and deliver such
documents as the remaining Trustees shall require for the purpose of conveying
to the Trust or the remaining Trustees any Trust Property held in the name of
the resigning or removed Trustee. Upon the incapacity or death of any Trustee,
his legal representative shall execute and deliver on his behalf such documents
as the remaining Trustees shall require as provided in the preceding sentence.
Section 5. Vacancies; Appointment of Trustees. The term of office of a
Trustee shall terminate and a vacancy shall occur in the event of the death,
resignation, removal, bankruptcy, adjudicated incompetence or other incapacity
to perform the duties of the office of a Trustee. No such vacancy shall operate
to annul the Declaration or to revoke any existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees. Subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees shall fill
such vacancy by the appointment of such other persons as they in their
discretion shall see fit, made by a written instrument signed by a majority of
the Trustees then in office. Any such appointment shall not become effective,
however, until the person named in the written instrument of appointment shall
have accepted in writing such appointment and agreed in writing to be bound by
the terms of the Declaration. An appointment of a Trustee may be made in
anticipation of a vacancy to occur at a later date by reason of retirement,
resignation or increase in the number of Trustees, provided that such
appointment shall not become effective prior to such retirement, resignation or
increase in the number of Trustees. Whenever a vacancy in the number of Trustees
shall occur, until such vacancy is filled as provided in this Article II,
Section 5, the Trustees in office, regardless of their number, shall have all
the powers granted to the Trustees and shall discharge all duties imposed upon
the Trustees by the Declaration. A written instrument certifying the existence
of such vacancy signed by a majority of the Trustees in office shall be
conclusive evidence of the existence of such vacancy.
Section 6. Temporary Vacancy or Absence. Whenever a vacancy in the
Trustees shall occur, until such vacancy is filled, or while any Trustee is
absent from his domicile (unless that Trustee has made arrangements to be
informed about, and to participate in, the affairs of the Trust during such
absence), or is physically or mentally incapacitated, the remaining Trustees
shall have all the powers hereunder and their certificate as to such vacancy,
absence or incapacity shall be conclusive. Any Trustee may, by power of
attorney, delegate his powers as Trustee for a period not to exceed six (6)
months, unless otherwise extended for one or more additional consecutive six (6)
month periods, to any other Trustee or Trustees.
Section 7. Chairman. The Trustees shall appoint one of their number to
be Chairman of the Trustees. The Chairman shall preside at all meetings of the
Trustees, shall be responsible for the execution of policies established by the
Trustees and the administration of the Trust.
Section 8. Action by the Trustees. The Trustees shall act by majority
vote at a meeting duly called (including at a telephonic meeting at which all
participants can hear one another, unless the 1940 Act requires that a
particular action be taken only at a meeting of the Trustees in person) at which
a quorum is present or by written consent of a majority of Trustees (or such
greater number as may be required by applicable law) without a meeting.
One-third of the Trustees shall constitute a quorum at
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any meeting. Meetings of the Trustees may be called orally or in writing by the
Chairman of the Trustees or by any two other Trustees. Notice of the time, date
and place of all Trustees meetings shall be given to each Trustee by telephone,
facsimile or other electronic mechanism sent to his home or business address at
least twenty-four hours in advance of the meeting or by written notice mailed to
his home or business address at least seventy-two hours in advance of the
meeting. Notice need not be given to any Trustee who attends the meeting without
objecting to the lack of notice or who signs a waiver of notice either before,
at or after the meeting. Subject to the requirements of the 1940 Act, the
Trustees by majority vote may delegate to any Trustee or Trustees authority to
approve particular matters or take particular actions on behalf of the Trust.
Any written consent or waiver may be provided and delivered to the Trust by
facsimile or other similar electronic mechanism.
Section 9. Ownership of Trust Property. The Trust Property of the Trust
and of each Series shall be held separate and apart from any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. All of the Trust Property and legal title thereto
shall at all times be considered as vested in the Trust, provided that the
Trustees may cause legal title to any Trust Property to be held by or in the
name of the Trustees acting on behalf of the Trust, or in the name of any person
as nominee. No Shareholder shall be deemed to have a severable ownership in any
individual asset of the Trust or of any Series or any right of partition or
possession thereof, but each Shareholder shall have, as provided in Article IV,
a proportionate undivided beneficial interest in the Trust or Series represented
by Shares. The Trust or the Trustees on behalf of the Trust shall be deemed to
hold legal and beneficial ownership of any income earned on securities held by
the Trust issued by any business entity formed, organized or existing under the
laws of any jurisdiction other than a state, commonwealth, possession or colony
of the United States or the laws of the United States.
Section 10. Trustees, Etc. as Shareholders. Subject to any restrictions
in the Bylaws, any Trustee, officer, agent or independent contractor of the
Trust may acquire, own and dispose of Shares to the same extent as any other
Shareholder, and the Trustees may issue and sell Shares to and buy Shares from
any such person or any firm or company in which such person is interested,
subject only to any general limitations herein.
ARTICLE III
POWERS OF THE TRUSTEES
Section 1. Powers. The Trustees in all instances shall act as
principals, free of the control of the Shareholders. The Trustees shall have
full power and authority to take or refrain from taking any action and to
execute any contracts and instruments that they may consider necessary or
desirable in the management of the Trust. The Trustees shall not in any way be
bound or limited by current or future laws or customs applicable to trust
investments, but shall have full power and authority to make any investments
which they, in their sole discretion, deem proper to accomplish the purposes of
the Trust. The Trustees may exercise all of their powers without recourse to any
court or other authority. Subject to any applicable limitation herein or in the
Bylaws or resolutions of the Trust, the Trustees shall have power and authority,
without limitation:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, without in any event being bound or limited by any
current or future law or custom
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concerning investments by trustees, and to sell, exchange, lend, pledge,
mortgage, hypothecate, write options on and lease any or all of the Trust
Property; to invest in obligations, securities and assets of any kind, and
without regard to whether they may mature before or after the possible
termination of the Trust; and without limitation to invest all or any part of
its cash and other assets and property in securities issued by any investment
company or series thereof;
(b) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and proper to conduct such a business;
(c) To adopt Bylaws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent such right is not reserved to the Shareholders;
(d) To elect and remove such officers and appoint and terminate such
agents, independent contractors and delegates as they deem appropriate;
(e) To employ an investment adviser (subject to such general or
specific instruments as the Trustees may from time to time adopt) to effect
purchases, sales, loans or exchanges of Trust Property on behalf of the Trustees
or may authorize any officer, employee or Trustee to effect such purchases,
sales, loans or exchanges pursuant to recommendations of any such investment
adviser;
(f) To employ as custodian of any Trust Property, subject to any
provisions herein or in the Bylaws, one or more banks, trust companies or
companies that are members of a national securities exchange, or other entities
permitted by the Commission to serve as such;
(g) To retain one or more transfer agents, dividend disbursing agents,
placement agents, administrators, or shareholder servicing agents;
(h) To provide for the distribution of Shares, either through a
Principal Underwriter or distributor as provided herein, or by the Trust itself,
or both, or pursuant to a distribution plan of any kind;
(i) To set record dates in the manner provided for herein or in the
Bylaws;
(j) To delegate such authority as they consider desirable to any
officers of the Trust and to any agent, subagent, independent contractor,
delegate, manager, investment adviser, custodian or underwriter;
(k) To sell or exchange any or all of the Trust Property;
(l) To vote or give assent, or exercise any rights of ownership, with
respect to securities or other property; and to execute and deliver powers of
attorney delegating such power to other persons;
(m) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(n) To hold any security or other Trust Property (i) in a form not
indicating any trust, whether in bearer, book entry, unregistered or other
negotiable form, or (ii) either in the Trust's or
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Trustees' own name or in the name of a custodian or a nominee or nominees,
subject to safeguards according to the usual practice of business trusts or
investment companies;
(o) To establish separate and distinct Series with separately defined
investment objectives, policies or restrictions and distinct investment
purposes, and with separate Shares representing beneficial interests in such
Series, and to establish separate Classes, all in accordance with the provisions
of Article IV;
(p) To the full extent permitted by Section 3806 of the Delaware Act,
to allocate assets, liabilities and expenses of the Trust to a particular Series
and liabilities and expenses to a particular Class or to apportion the same
between or among two or more Series or Classes, provided that any liabilities or
expenses incurred by a particular Series or Class shall be payable solely out of
the assets belonging to that Series or Class as provided for in Article IV,
Section 4;
(q) To consent to or participate in any plan for the liquidation,
reorganization, consolidation or merger of any corporation or concern whose
securities are held by the Trust; to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or concern; and to pay calls or
subscriptions with respect to any security held by the Trust;
(r) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(s) To make distributions of income and of capital gains to
Shareholders in the manner provided in this Trust Instrument or in the Bylaws;
(t) To borrow money and in connection therewith to issue notes or other
evidences of indebtedness and to pledge or grant security interests in Trust
Property as security therefor;
(u) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of Shareholders whose
investment is less than such minimum upon giving notice to such Shareholders;
(v) To establish committees for such purposes, with such membership,
and with such responsibilities, as the Trustees may consider proper;
(w) To issue, sell, repurchase, redeem, cancel, retire, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares; to establish terms and
conditions regarding the issuance, sale, repurchase, redemption, cancellation,
retirement, acquisition, holding, resale, reissuance, disposition of or dealing
in Shares; and, subject to Articles IV and V, to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or
property of the Trust or of the particular Series with respect to which such
Shares are issued;
(x) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and agents of the
Trust;
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(y) To sell all or a portion of the Shares to another investment
company that is registered under the 1940 Act, in the Trustees' sole discretion,
without the vote or approval of any Shareholder or Shareholders, notwithstanding
any other provision of this Trust Instrument or the Bylaws to the contrary; and
(z) To carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary or desirable to
accomplish any purpose or to further any of the foregoing powers, and to take
every other action incidental to the foregoing business or purposes, objects or
powers.
The clauses above shall be construed as objects and powers, and the
enumeration of specific powers shall not limit in any way the general powers of
the Trustees. Any action by one or more of the Trustees in their capacity as
such hereunder shall be deemed an action on behalf of the Trust or the
applicable Series, and not an action in an individual capacity. No one dealing
with the Trustees shall be under any obligation to make any inquiry concerning
the authority of the Trustees, or to see to the application of any payments made
or property transferred to the Trustees or upon their order. In construing this
Trust Instrument, the presumption shall be in favor of a grant of power to the
Trustees.
Section 2. Certain Transactions. Except as prohibited by applicable
law, the Trustees may, on behalf of the Trust, buy any securities from or sell
any securities to, or lend any assets of the Trust to, any Trustee or officer of
the Trust or any firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with any investment adviser, administrator,
distributor or transfer agent for the Trust or with any Interested Person of
such person. The Trust may employ any such person or entity in which such person
is an Interested Person, as broker, legal counsel, registrar, investment
adviser, administrator, distributor, transfer agent, dividend disbursing agent,
shareholder servicing agent, custodian or in any other capacity upon customary
terms.
ARTICLE IV
SERIES; CLASSES; SHARES
Section 1. Establishment of Series or Classes. The Trust shall consist
of one or more Series. The Trustees hereby establish the Series listed in
Schedule A attached hereto and made a part hereof. Each additional Series shall
be established by the adoption of a resolution of the Trustees. The Trustees may
designate the relative rights and preferences of the Shares of each Series. The
Trustees may divide the Shares of any Series into Classes. In such case each
Class of a Series shall represent interests in the assets of that Series and
have identical voting, dividend, liquidation and other rights and the same terms
and conditions, except that expenses allocated to a Class may be borne solely by
such Class as determined by the Trustees and a Class may have exclusive voting
rights with respect to matters affecting only that Class. The Trust shall
maintain separate and distinct records for each Series and hold and account for
the assets thereof separately from the other assets of the Trust or of any other
Series. A Series may issue any number of Shares and need not issue Shares. Each
Share of a Series shall represent an equal beneficial interest in the net assets
of such Series. Each holder of Shares of a Series shall be entitled to receive
his pro rata share of all distributions made with respect to such Series. Upon
redemption of his Shares, such Shareholder shall be paid solely out of the funds
and property of such Series. The Trustees may change the name of any Series or
Class. At any time that there are no
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Shares outstanding of any particular Series previously established and
designated, the Trustees may by a majority vote abolish that Series and rescind
the establishment and designation thereof.
Section 2. Shares. The beneficial interest in the Trust shall be
divided into Shares of one or more separate and distinct Series or Classes
established by the Trustees. The number of Shares of each Series and Class is
unlimited and each Share shall have a par value of $0.001 per Share. All Shares
issued hereunder shall be fully paid and nonassessable. Shareholders shall have
no preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust. The Trustees shall have full power and
authority, in their sole discretion and without obtaining Shareholder approval:
to issue original or additional Shares at such times and on such terms and
conditions as they deem appropriate; to issue fractional Shares and Shares held
in the treasury; to establish and to change in any manner Shares of any Series
or Classes with such preferences, terms of conversion, voting powers, rights and
privileges as the Trustees may determine (but the Trustees may not change
Outstanding Shares in a manner materially adverse to the Shareholders of such
Shares); to divide or combine the Shares of any Series or Classes into a greater
or lesser number; to classify or reclassify any unissued Shares of any Series or
Classes into one or more Series or Classes of Shares; to abolish any one or more
Series or Classes of Shares; to issue Shares to acquire other assets (including
assets subject to, and in connection with, the assumption of liabilities) and
businesses; and to take such other action with respect to the Shares as the
Trustees may deem desirable. Shares held in the treasury shall not confer any
voting rights on the Trustees and shall not be entitled to any dividends or
other distributions declared with respect to the Shares.
Section 3. Investment in the Trust. The Trustees shall accept
investments in any Series from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities, valued as provided
in Article V, Section 3. Investments in a Series shall be credited to each
Shareholder's account in the form of full Shares at the Net Asset Value per
Share next determined after the investment is received or accepted as may be
determined by the Trustees; provided, however, that the Trustees may, in their
sole discretion, (a) impose a sales charge upon investments in any Series or
Class, (b) issue fractional Shares, or (c) determine the Net Asset Value per
Share of the initial capital contribution. The Trustees shall have the right to
refuse to accept investments in any Series at any time without any cause or
reason therefor whatsoever.
Section 4. Assets and Liabilities of Series. All consideration received
by the Trust for the issue or sale of Shares of a particular Series, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof (including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may
be), shall be held and accounted for separately from the other assets of the
Trust and every other Series and are referred to as "assets belonging to" that
Series. The assets belonging to a Series shall belong only to that Series for
all purposes, and to no other Series, subject only to the rights of creditors of
that Series. Any assets, income, earnings, profits, and proceeds thereof, funds,
or payments which are not readily identifiable as belonging to any particular
Series shall be allocated by the Trustees between and among one or more Series
as the Trustees deem fair and equitable. Each such allocation shall be
conclusive and binding upon the Shareholders of all Series for all purposes, and
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such assets, earnings, income, profits or funds, or payments and proceeds
thereof shall be referred to as assets belonging to that Series. The assets
belonging to a Series shall be so recorded upon the books of the Trust, and
shall be held by the Trustees in trust for the benefit of the Shareholders of
that Series. The assets belonging to a Series shall be charged with the
liabilities of that Series and all expenses, costs, charges and reserves
attributable to that Series, except that liabilities and expenses allocated
solely to a particular Class shall be borne by that Class. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series or Class shall be
allocated and charged by the Trustees between or among any one or more of the
Series or Classes in such manner as the Trustees deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series or Classes for all purposes.
Without limiting the foregoing, but subject to the right of the
Trustees to allocate general liabilities, expenses, costs, charges or reserves
as herein provided, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series shall
be enforceable against the assets of such Series only, and not against the
assets of the Trust generally or of any other Series. Notice of this contractual
limitation on liabilities among Series may, in the Trustees' discretion, be set
forth in the certificate of trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the Delaware Act, and upon the giving of such
notice in the certificate of trust, the statutory provisions of Section 3806 of
the Delaware Act relating to limitations on liabilities among Series (and the
statutory effect under Section 3806 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series. Any
person extending credit to, contracting with or having any claim against any
Series may look only to the assets of that Series to satisfy or enforce any
debt, liability, obligation or expense incurred, contracted for or otherwise
existing with respect to that Series. No Shareholder or former Shareholder of
any Series shall have a claim on or any right to any assets allocated or
belonging to any other Series.
Section 5. Ownership and Transfer of Shares. The Trust shall maintain a
register containing the names and addresses of the Shareholders of each Series,
the number of Shares of each Series and Class thereof, and a record of all Share
transfers. The register shall be conclusive as to the identity of Shareholders
of record and the Shares held by them from time to time. The Trustees may
authorize the issuance of certificates representing Shares and adopt rules
governing their use. The Trustees may make rules governing the transfer of
Shares, whether or not represented by certificates.
Section 6. Status of Shares: Limitation of Shareholder Liability.
Shares shall be deemed to be personal property giving Shareholders only the
rights provided in this Trust Instrument. Every Shareholder, by virtue of having
acquired a Share, shall be held expressly to have assented to and agreed to be
bound by the terms of this Trust Instrument. No Shareholder shall be personally
liable for the debts, liabilities, obligations and expenses incurred by,
contracted for, or otherwise existing with respect to, the Trust or any Series.
Neither the Trust nor the Trustees shall have any power to bind any Shareholder
personally or to demand payment from any Shareholder for anything, other than as
agreed by the Shareholder. Shareholders shall have the same limitation of
personal liability as is extended to shareholders of a private corporation for
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profit incorporated in the State of Delaware. Every written obligation of the
Trust or any Series shall contain a statement to the effect that such obligation
may only be enforced against the assets of the Trust or such Series; however,
the omission of such statement shall not operate to bind or create personal
liability for any Shareholder or Trustee.
ARTICLE V
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions. The Trustees may declare and pay dividends
and other distributions, including dividends on Shares of a particular Series
and other distributions from the assets belonging to that Series. The amount and
payment of dividends or distributions and their form, whether they are in cash,
Shares or other Trust Property, shall be determined by the Trustees. Dividends
and other distributions may be paid pursuant to a standing resolution adopted
once or more often as the Trustees determine. All dividends and other
distributions on Shares of a particular Series shall be distributed pro rata to
the Shareholders of that Series in proportion to the number of Shares of that
Series they held on the record date established for such payment, except that
such dividends and distributions shall appropriately reflect expenses allocated
to a particular Class of such Series. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
similar plans as the Trustees deem appropriate.
Section 2. Redemptions. Each Shareholder of a Series shall have the
right at such times as may be permitted by the Trustees to require the Series to
redeem all or any part of his Shares at a redemption price per Share equal to
the Net Asset Value per Share at such time as the Trustees shall have prescribed
by resolution. In the absence of such resolution, the redemption price per Share
shall be the Net Asset Value next determined after receipt by the Series of a
request for redemption in proper form less such charges as are determined by the
Trustees and described in the Trust's Registration Statement for that Series
under the Securities Act of 1933. The Trustees may specify conditions, prices,
and places of redemption, and may specify binding requirements for the proper
form or forms of requests for redemption. Payment of the redemption price may be
wholly or partly in securities or other assets at the value of such securities
or assets used in such determination of Net Asset Value, or may be in cash. Upon
redemption, Shares may be reissued from time to time. The Trustees may require
Shareholders to redeem Shares for any reason under terms set by the Trustees,
including the failure of a Shareholder to supply a personal identification
number if required to do so, or to have the minimum investment required, or to
pay when due for the purchase of Shares issued to him. To the extent permitted
by law, the Trustees may retain the proceeds of any redemption of Shares
required by them for payment of amounts due and owing by a Shareholder to the
Trust or any Series or Class. Notwithstanding the foregoing, the Trustees may
postpone payment of the redemption price and may suspend the right of the
Shareholders to require any Series or Class to redeem Shares during any period
of time when and to the extent permissible under the 1940 Act.
Section 3. Determination of Net Asset Value. The Trustees shall cause
the Net Asset Value of Shares of each Series or Class to be determined from time
to time in a manner consistent with applicable laws and regulations. The
Trustees may delegate the power and duty to determine Net Asset Value per Share
to one or more Trustees or officers of the Trust or to a custodian, depository
or other agent appointed for such purpose. The Net Asset Value of Shares shall
be
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determined separately for each Series or Class at such times as may be
prescribed by the Trustees or, in the absence of action by the Trustees, as of
the close of trading on the New York Stock Exchange on each day for all or part
of which such Exchange is open for unrestricted trading.
Section 4. Suspension of Right of Redemption. If, as referred to in
Section 2 of this Article, the Trustees postpone payment of the redemption price
and suspend the right of Shareholders to redeem their Shares, such suspension
shall take effect at the time the Trustees shall specify, but not later than the
close of business on the business day next following the declaration of
suspension. Thereafter Shareholders shall have no right of redemption or payment
until the Trustees declare the end of the suspension. If the right of redemption
is suspended, a Shareholder may either withdraw his request for redemption or
receive payment based on the Net Asset Value per Share next determined after the
suspension terminates.
ARTICLE VI
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. The Shareholders shall have power to vote
only with respect to (a) the election of Trustees; (b) the removal of Trustees;
(c) any investment advisory or management contract as provided in Article VII,
Section 1; (d) any termination of the Trust as provided in Article X, Section 4;
(e) the amendment of this Trust Instrument to the extent and as provided in
Article X, Section 8; and (f) such additional matters relating to the Trust as
may be required by law, this Trust Instrument, or the Bylaws or any registration
of the Trust with the Commission or any State, or as the Trustees may consider
desirable.
On any matter submitted to a vote of the Shareholders, all Shares shall
be voted by individual Series or Class, except (a) when required by the 1940
Act, Shares shall be voted in the aggregate and not by individual Series or
Class, and (b) when the Trustees have determined that the matter affects the
interests of more than one Series or Class, then the Shareholders of all such
Series or Classes shall be entitled to vote thereon. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. There
shall be no cumulative voting in the election of Trustees. Shares may be voted
in person or by proxy or in any manner provided for in the By-laws. The By-laws
may provide that proxies may be given by any electronic or telecommunications
device or in any other manner, but if a proposal by anyone other than the
officers or Trustees is submitted to a vote of the Shareholders of any Series or
Class, or if there is a proxy contest or proxy solicitation or proposal in
opposition to any proposal by the officers or Trustees, Shares may be voted only
in person or by written proxy. Until Shares of a Series are issued, as to that
Series, the Trustees may exercise all rights of Shareholders and may take any
action required or permitted to be taken by Shareholders by law, this Trust
Instrument or the Bylaws.
Section 2. Meetings of Shareholders. The first Shareholders' meeting
shall be held to elect Trustees at such time and place as the Trustees
designate, provided, however, that such election may be accomplished by the
Shareholders' written consent. Special meetings of the Shareholders of any
Series or Class may be called by the Trustees and shall be called by the
Trustees upon the written request of Shareholders owning at least ten percent
(10%) of the Outstanding Shares of such Series entitled to vote. Shareholders
shall be entitled to at least ten days notice of any meeting, given as
determined by the Trustees.
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Section 3. Quorum; Required Vote. One third of the Outstanding Shares
of each Series or Class, or one third of the Outstanding Shares of the Trust,
entitled to vote in person or by proxy shall be a quorum for the transaction of
business at a Shareholders meeting with respect to such Series or Class, or with
respect to the entire Trust, respectively. Except when a larger vote is required
by law, this Trust Instrument or the Bylaws, at any meeting at which a quorum is
present, a majority of the total Shares voted in person or by proxy shall decide
any matters to be voted upon with respect to the entire Trust and a plurality of
such Shares shall elect a Trustee; provided, that if this Trust Instrument or
applicable law permits or requires that Shares be voted on any matter by
individual Series or Classes, then a majority of the Shares of that Series or
Class (or, if required by law, a Majority Shareholder Vote of that Series) voted
in person or by proxy on the matter shall decide that matter insofar as that
Series or Class is concerned. Shareholders may act as to the Trust or any Series
or Class by the written consent of a majority (or such greater amount as may be
required by applicable law) of the Outstanding Shares of the Trust or of such
Series or Class, as the case may be.
Notwithstanding any other provision herein or in the Bylaws, any
meeting of Shareholders, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the total Shares represented at
that meeting, either in person or by proxy. Any adjourned session of a meeting
of Shareholders may be held within a reasonable time without further notice.
ARTICLE VII
CONTRACTS WITH SERVICE PROVIDERS
Section 1. Investment Adviser. Subject to a Majority Shareholder Vote,
the Trustees may enter into one or more investment advisory contracts on behalf
of the Trust or any Series, providing for investment advisory services,
statistical and research facilities and services, and other facilities and
services to be furnished to the Trust or Series on terms and conditions
acceptable to the Trustees. Any such contract may provide for the investment
adviser to effect purchases, sales or exchanges of portfolio securities or other
Trust Property on behalf of the Trustees or may authorize any officer or agent
of the Trust to effect such purchases, sales or exchanges pursuant to
recommendations of the investment adviser. The Trustees may authorize the
investment adviser to employ one or more subadvisers. Any reference in this
Trust Instrument to the investment adviser shall be deemed to include such
subadvisers, unless the context otherwise requires.
Section 2. Principal Underwriter. The Trustees may enter into contracts
on behalf of the Trust or any Series or Class, providing for the distribution
and sale of Shares by the other party, either directly or as sales agent, on
terms and conditions acceptable to the Trustees. The Trustees may adopt a plan
or plans of distribution with respect to Shares of any Series or Class and enter
into any related agreements, whereby the Series or Class finances directly or
indirectly any activity that is primarily intended to result in sales of its
Shares, subject to the requirements of Section 12 of the 1940 Act, Rule 12b-1
thereunder, and other applicable rules and regulations.
Section 3. Transfer Agency, Shareholder Services and Administration
Agreements. The Trustees, on behalf of the Trust or any Series or Class, may
enter into transfer agency agreements, Shareholder service agreements and
administration and management agreements with any party or parties on terms and
conditions acceptable to the Trustees or delegate to a service provider the
arrangement of these and other services.
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Section 4. Custodian. The Trustees shall at all times place and
maintain the securities and similar investments of the Trust and of each Series
in custody meeting the requirements of Section 17(f) of the 1940 Act and the
rules thereunder. The Trustees, on behalf of the Trust or any Series, may enter
into an agreement with a custodian on terms and conditions acceptable to the
Trustees, providing for the custodian, among other things, to (a) hold the
securities owned by the Trust or any Series and deliver the same upon written
order or oral order confirmed in writing, (b) receive and receipt for any moneys
due to the Trust or any Series and deposit the same in its own banking
department or elsewhere, (c) disburse such funds upon orders or vouchers, and
(d) employ one or more sub-custodians.
Section 5. Parties to Contracts with Service Providers. The Trustees
may enter into any contract referred to in this Article with any entity,
although one or more of the Trustees or officers of the Trust may be an officer,
director, trustee, partner, shareholder or member of such entity, and no such
contract shall be invalidated or rendered void or voidable because of such
relationship. No person having such a relationship shall be disqualified from
voting on or executing a contract in his capacity as Trustee and/or Shareholder,
or be liable merely by reason of such relationship for any loss or expense to
the Trust with respect to such a contract or accountable for any profit realized
directly or indirectly therefrom.
Any contract referred to in Sections 1 and 2 of this Article shall be
consistent with and subject to the applicable requirements of Section 15 of the
1940 Act and the rules and orders thereunder with respect to its continuance in
effect, its termination and the method of authorization and approval of such
contract or renewal. No amendment to a contract referred to in Section 1 of this
Article shall be effective unless assented to in a manner consistent with the
requirements of Section 15 of the 1940 Act, and the rules and orders thereunder.
ARTICLE VIII
EXPENSES OF THE TRUST AND SERIES
Subject to Article IV, Section 4, the Trust or a particular Series
shall pay, directly or indirectly through contractual arrangements, or shall
reimburse the Trustees from the Trust estate or the assets belonging to the
particular Series, for their expenses and disbursements, including, but not
limited to, interest charges, taxes, brokerage fees and commissions; expenses of
pricing Trust portfolio securities; expenses of sale, addition and reduction of
Shares; certain insurance premiums; applicable fees, interest charges and
expenses of third parties, including the Trust's investment advisers, managers,
administrators, distributors, custodians, transfer agents, shareholder servicing
agents and fund accountants; fees of pricing, interest, dividend, credit and
other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Trust and its Series and maintaining
its existence; costs of preparing and printing the prospectuses of the Trust and
each Series, statements of additional information and Shareholder reports and
delivering them to Shareholders; expenses of meetings of Shareholders and proxy
solicitations therefor; costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; fees and expenses of the Trustees;
compensation of the Trust's officers and employees and costs of other personnel
performing services for the Trust or any Series; costs of Trustee meetings;
Commission registration fees and related expenses; registration fees and related
expenses under state or foreign securities or other laws; and for such
non-recurring items as
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may arise, including litigation to which the Trust or a Series (or a Trustee or
officer of the Trust acting as such) is a party, and for all losses and
liabilities by them incurred in administering the Trust. The Trustees shall have
a lien on the assets belonging to the appropriate Series, or in the case of an
expense allocable to more than one Series, on the assets of each such Series,
prior to any rights or interests of the Shareholders thereto, for the
reimbursement to them of such expenses, disbursements, losses and liabilities.
This Article shall not preclude the Trust from directly paying any of the
aforementioned fees and expenses.
ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Liability. All persons contracting with or
having any claim against the Trust or a particular Series shall look only to the
assets of the Trust or such Series for payment under such contract or claim; and
neither the Trustees nor any of the Trust's officers, employees or agents,
whether past, present or future, shall be personally liable therefor. Every
written instrument or obligation on behalf of the Trust or any Series shall
contain a statement to the foregoing effect, but the absence of such statement
shall not operate to make any Trustee or officer of the Trust liable thereunder.
Provided they have exercised reasonable care and have acted under the reasonable
belief that their actions are in the best interest of the Trust, the Trustees,
officers, employees and managers of the Trust shall not be responsible or liable
for any act or omission or for neglect or wrongdoing of them or any officer,
agent, employee, manager, investment adviser, delegate or independent contractor
of the Trust, but nothing contained in this Trust Instrument or in the Delaware
Act shall protect any Trustee, officer, employee or manager of the Trust against
liability to the Trust or to Shareholders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Section 2. Indemnification.
(a) Subject to the exceptions and limitations contained in subsection
(b) below:
(i) every person who is, or has been, a Trustee, officer,
employee, manager or agent of the Trust (including persons who serve at the
Trust's request as directors, trustees, officers or agents of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise) ("Covered Person") shall be indemnified by the Trust or the
appropriate Series to the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by such person in connection
with any claim, action, suit or proceeding in which such person becomes involved
as a party or otherwise by virtue of being or having been a Covered Person and
against amounts paid or incurred by such person in the settlement thereof,
whether or not such person is a Covered Person at the time such expenses are
incurred;
(ii) as used herein, the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in office or
thereafter, and the words "liability" and "expenses" shall include, without
limitation, attorney's fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
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(b) No indemnification shall be provided hereunder to a Covered Person:
(i) Who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office, or (B)
not to have acted in good faith in the reasonable belief that his action was in
or not opposed to the best interests of the Trust; or
(ii) In the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office: (A) by the court or other body approving the settlement;
(B) by at least a majority of those Trustees who are neither Interested Persons
of the Trust nor are parties to the matter based upon a review of readily
available facts (as opposed to a full trial type inquiry); or (C) by written
opinion of independent legal counsel based upon a review of readily available
facts (as opposed to a full trial type inquiry).
(c) To the maximum extent permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in subsection (a) of this
Section may be paid by the Trust or applicable Series from time to time prior to
final disposition thereof upon receipt of an undertaking by or on behalf of such
Covered Person that such amount will be paid over by such person to the Trust or
applicable Series if it is ultimately determined that such person is not
entitled to indemnification under this Section; provided, however, that either
(i) such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a full trial type inquiry) that there is
reason to believe that such Covered Person will not be disqualified from
indemnification under this Section.
(d) The rights of indemnification herein provided shall be severable,
shall not be exclusive of or affect any other rights to which any Covered Person
may now or hereafter be entitled, and shall inure to the benefit of the heirs,
executors and administrators of a Covered Person.
(e) By action of the Trustees, and notwithstanding any interest of the
Trustees in the action, the Trust shall have power to purchase and maintain
insurance, in such amounts as the Trustees deem appropriate, on behalf of any
Covered Person, whether or not such person is indemnified against such liability
or expense under the provisions of this Article IX and whether or not the Trust
would have the power or would be required to indemnify such person against such
liability under the provisions of this Article IX or of the Delaware Act or by
any other applicable law, subject only to any limitations imposed by the 1940
Act.
(f) Any repeal or modification of this Article IX by the Shareholders
of the Trust, or adoption or modification of any other provision of the Trust
Instrument or Bylaws inconsistent with this Article, shall be prospective only,
to the extent that such repeal or modification would, if applied
retrospectively, adversely affect any limitation on the liability of any Covered
Person or indemnification available to any Covered Person with respect to any
act or omission which occurred prior to such repeal, modification or adoption.
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Section 3. Indemnification of Shareholders. If any Shareholder or
former Shareholder of any Series shall be held personally liable solely by
reason of being or having been a Shareholder and not because of acts or
omissions or for some other reason, the Shareholder or former Shareholder (or
such person's heirs, executors, administrators or other legal representatives or
in the case of any entity, its general successor) shall be entitled out of the
assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability. The Trust,
on behalf of the affected Series, shall, upon request by such Shareholder,
assume the defense of any such claim made against such Shareholder for any act
or obligation of the Series and satisfy any judgment thereon from the assets of
the Series.
ARTICLE X
MISCELLANEOUS
Section 1. Trust Not a Partnership. This Trust Instrument creates a
trust and not a partnership, except to the extent such trust is deemed to
constitute a partnership under the Code and applicable state tax laws. No
Trustee shall have any power to bind personally either the Trust's officers or
any Shareholder.
Section 2. Trustee Action; Expert Advice; No Bond or Surety. The
exercise by the Trustees of their powers and discretion hereunder in good faith
and with reasonable care under the circumstances then prevailing shall be
binding upon everyone interested. Subject to the provisions of Article IX, the
Trustees shall not be liable for errors of judgment or mistakes of fact or law.
The Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Trust Instrument, and subject to the provisions of
Article IX, shall not be liable for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is obtained.
Section 3. Record Dates. The Trustees may fix in advance a date up to
ninety (90) days before the date of any Shareholders meeting, or the date for
the allotment of rights, or the date when any change or conversion or exchange
of Shares shall go into effect as a record date for the determination of the
Shareholders entitled to notice of, and to vote at, any such meeting, or to
receive any such allotment of rights, or to exercise such rights in respect of
any such change, conversion or exchange of Shares. Any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof.
Section 4. Termination of the Trust.
(a) Except as provided herein, the Trust shall have perpetual
existence. The Trust may be terminated at any time by vote of a majority of the
Shares of each Series entitled to vote, voting separately by Series, or by the
Trustees by written notice to the Shareholders. Any Series of Shares or Class
thereof may be terminated at any time by vote of a majority of the Shares of
such Series or Class entitled to vote or by the Trustees by written notice to
the Shareholders of such Series or Class.
(b) Upon the requisite Shareholder vote or action by the Trustees to
terminate the Trust or any one or more Series or any Class thereof, after making
reasonable provision for the payment of all known liabilities of the Trust or
any affected Series, the Trustees shall distribute the remaining proceeds
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or assets (as the case may be) ratably among the Shareholders of the Trust or
any affected Series or Class; however, the payment to any particular Class of
such Series may be reduced by any fees, expenses or charges allocated to that
Class. Upon completion of the distribution of the remaining proceeds or assets,
the Trust or affected Series or Class shall terminate and the Trustees and the
Trust shall be discharged of any and all further liabilities and duties
hereunder with respect thereto and the right, title and interest of all parties
therein shall be canceled and discharged.
(c) Upon termination of the Trust, following completion of winding up
of its business, the Trustees shall cause a certificate of cancellation of the
Trust's certificate of trust to be filed in accordance with the Delaware Act,
which certificate of cancellation may be signed by any one Trustee.
Section 5. Reorganization; Merger; Consolidation.
(a) Notwithstanding anything else herein, to change the Trust's form of
organization the Trustees may, without Shareholder approval to the extent
permitted by applicable law, (i) cause the Trust to merge or consolidate with or
into one or more entities, if the surviving or resulting entity is the Trust or
another open-end management investment company under the 1940 Act, or a series
thereof, that will succeed to or assume the Trust's registration under the 1940
Act, (ii) cause the Shares to be exchanged under or pursuant to any state or
federal statute to the extent permitted by law, (iii) sell the assets of the
Trust in exchange for shares of another management investment company, or (iv)
cause the Trust to incorporate under the laws of Delaware. Any agreement of
merger or consolidation or certificate of merger may be signed by a majority of
Trustees and facsimile signatures conveyed by electronic or telecommunication
means shall be valid.
(b) Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, an agreement of merger or consolidation approved in
accordance with this Section 5 may effect any amendment to the governing
instrument of the Trust or effect the adoption of a new trust instrument of the
Trust if it is the surviving or resulting trust in the merger or consolidation.
(c) The Trustees may create one or more business trusts to which all or
any part of the assets, liabilities, profits, or losses of the Trust or any
Series or Class thereof may be transferred and may provide for the conversion of
Shares in the Trust or any Series or Class thereof into beneficial interests in
any such newly created trust or trusts or any series or classes thereof.
Section 6. Trust Instrument. The original or a copy of this Trust
Instrument and of each amendment hereto or Trust Instrument supplemental shall
be kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by a Trustee or an
officer of the Trust as to the authenticity of the Trust Instrument or any such
amendments or supplements and as to any matters in connection with the Trust.
The masculine gender herein shall include the feminine and neuter genders.
Headings herein are for convenience only and shall not affect the construction
of this Trust Instrument. This Trust Instrument may be executed in any number of
counterparts, each of which shall be deemed an original.
Section 7. Applicable Law. This Trust Instrument and the Trust created
hereunder are governed by and construed and administered according to the
Delaware Act and the applicable laws of the State of Delaware; provided,
however, that there shall not be applicable to the Trust, the Trustees or this
Trust Instrument (a) the provisions of Section 3540 of Title 12 of the Delaware
Code, or (b)
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any provisions of the laws (statutory or common) of the State of Delaware (other
than the Delaware Act) pertaining to trusts which relate to or regulate (i) the
filing with any court or governmental body or agency of trustee accounts or
schedules of trustee fees and charges, (ii) affirmative requirements to post
bonds for trustees, officers, agents or employees of a trust, (iii) the
necessity for obtaining court or other governmental approval concerning the
acquisition, holding or disposition of real or personal property, (iv) fees or
other sums payable to trustees, officers, agents or employees of a trust, (v)
the allocation of receipts and expenditures to income or principal, (vi)
restrictions or limitations on the permissible nature, amount or concentration
of trust investments or requirements relating to the titling, storage or other
manner of holding of trust assets, or (vii) the establishment of fiduciary or
other standards of responsibility or limitations on the acts or powers of
trustees, which are inconsistent with the limitations on liabilities or
authority and powers of the Trustees set forth or referenced in this Trust
Instrument. The Trust shall be of the type commonly called a Delaware business
trust, and, without limiting the provisions hereof, the Trust may exercise all
powers which are ordinarily exercised by such a trust under Delaware law. The
Trust specifically reserves the right to exercise any of the powers or
privileges afforded to trusts or actions that may be engaged in by trusts under
the Delaware Act, and the absence of a specific reference herein to any such
power, privilege or action shall not imply that the Trust may not exercise such
power or privilege or take such actions.
Section 8. Amendments. The Trustees may, without any Shareholder vote,
amend or otherwise supplement this Trust Instrument by making an amendment, a
Trust Instrument supplemental hereto or an amended and restated trust
instrument; provided, that Shareholders shall have the right to vote on any
amendment (a) which would affect the voting rights of Shareholders granted in
Article VI, Section 1, (b) to this Section 8, (c) required to be approved by
Shareholders by law or by the Trust's registration statement(s) filed with the
Commission, and (d) submitted to them by the Trustees in their discretion. Any
amendment submitted to Shareholders which the Trustees determine would affect
the Shareholders of any Series or Class shall be authorized by vote of the
Shareholders of such Series or Class and no vote shall be required of
Shareholders of a Series or Class not affected.
Notwithstanding anything else herein, any amendment to Article IX which
would have the effect of reducing the indemnification and other rights provided
thereby to Trustees, officers, employees and agents of the Trust or to
Shareholders or former Shareholders, and any repeal or amendment of this
sentence, shall each require the affirmative vote of the holders of two-thirds
(2/3) of the Outstanding Shares of the Trust entitled to vote thereon.
Section 9. Fiscal Year. The fiscal year of the Trust shall end on the
date set by resolution approved by the Trustees. The Trustees may change the
fiscal year of the Trust without Shareholder approval.
Section 10. Severability. The provisions of this Trust Instrument are
severable. If the Trustees determine, with the advice of counsel, that any
provision hereof conflicts with the 1940 Act, the regulated investment company
or other provisions of the Code or with other applicable laws and regulations,
the conflicting provision shall be deemed never to have constituted a part of
this Trust Instrument; provided, however, that such determination shall not
affect any of the remaining provisions of this Trust Instrument or render
invalid or improper any action taken or omitted prior to such determination. If
any provision hereof shall be held invalid or unenforceable in any jurisdiction,
such
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invalidity or unenforceability shall attach only to such provision only in such
jurisdiction and shall not affect any other provision of this Trust Instrument.
Section 11. Use of the Name "Westport". Westport Advisers, LLC
("Westport") has consented to and granted a non-exclusive license for the use by
the Trust and by each Series thereof to the identifying word "Westport" in the
name of the Trust and of each Series. Such consent is conditioned upon the
Trust's employment of Westport or its affiliate as investment adviser to the
Trust and to each Series. As between Westport and the Trust, Westport shall
control the use of such name insofar as such name contains the identifying word
"Westport." Westport may from time to time use the identifying word "Westport"
in other connections and for other purposes, including without limitation in the
names of other investment companies, corporations or businesses that it may
manage, advise, sponsor or own or in which it may have a financial interest.
Westport may require the Trust or any Series to cease using the identifying word
"Westport" in the name of the Trust or any Series if the Trust or Series ceases
to employ Westport or an affiliate thereof as investment adviser.
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IN WITNESS WHEREOF, the undersigned, being all of the initial Trustees,
have executed this Trust Instrument as of the date first above written.
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Edmund H. Nicklin Jr., as
Trustee and not individually
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Ronald H. Oliver, as
Trustee and not individually
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SCHEDULE A
SERIES OF THE TRUST
Westport Fund
Westport Small Cap Fund
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