As filed with the Securities and Exchange Commission on December 19, 1997
File No. 333-35821
811-8359
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No. ____ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 2 [X]
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.
Title of Securities Being Registered
Westport Fund - Class A
Westport Fund - Class B
Westport Small Cap Fund - Class A
Westport Small Cap Fund - Class B
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 495
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 Financial Statements
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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 (888)
593-7878.
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.
Countrywide Fund Services, Inc. (the "Administrator") and Countrywide
Investments, Inc. or an affiliated company (the "Distributor") act,
respectively, as 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. For Class B shares, the
minimum investment is $1 million for either Fund. Currently, there is no minimum
for subsequent investments in either Class of either Fund; however, the Adviser
reserves the right to change such minimum for subsequent investments. 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 Fund Small Cap Fund
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
(After Reimbursement)(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) 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 miscellaneous expenses for the current fiscal year
would have amounted to 0.75% for the Class A shares of each Fund and
0.70% for the Class B shares of each 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
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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. In addition, futures contracts sales involve the risk of
theoretically unlimited loss.
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.
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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.
Raymond J. Armstrong, Trustee, is a Director [and principal] of Armstrong Shaw
Associates, an investment management company.
Stephen E. Milman, Trustee, is currently retired and was a principal of
Neuberger & Berman LLC until the end of December 1996.
D. Bruce Smith, II, Trustee, is an Independent Consultant with Gunn Partners,
Inc., a consulting firm.
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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 October 1, 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. In addition to being a Managing Member of
the Adviser, Westport, an affiliate of the Adviser that is also a registered
investment adviser, provides investment services to investment companies,
pension plans, endowments, foundations, and individuals. In addition, Edmund H.
Nicklin, Jr., 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. For
more information regarding the portfolio management experience of Mr. Nicklin,
please see page 14 of this Prospectus.
As of the date of this Prospectus, Westport has over $1.3 billion of assets
under management. The following table presents historical performance of the
portfolios of all private accounts managed by Westport that have an investment
style and objective substantially similar to those of the Westport Small Cap
Fund. This data compares the performance of these accounts 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 table does not indicate how the Westport Small Cap
Fund may perform in the future.
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Time Period (Calendar Years) Westport Composite(1) Russell 2000(2)
10 Yrs: 1987-1996 15.1% 12.4%
5 Yrs: 1992-1996 21.6% 15.7%
3 Yrs: 1994-1996 21.1% 13.7%
1 Yr: 1996 36.3% 16.5%
6 Mos: 1997 21.3% 10.2%
- -------------------
(1) The Westport Composite is a dollar-weighted composite of fully
discretionary, separately managed accounts under Westport's management.
Each account included in the Westport Composite has an investment style and
objective similar to the Westport Small Cap Fund. The performance
presentation was created by using AIMR-approved techniques to weight the
performance results of each account. The performance figures are net of
advisory fees. The net effect of the deduction of the operating expenses of
the Fund on annualized performance, including the compounding effect over
time, may be substantial.
The Westport Composite does not reflect all of the assets under Westport's
management and may not accurately reflect the performance of all accounts
Westport manages. In addition to advising institutional separate accounts,
Westport acts as the sub-adviser to three investment companies, each of
which has objectives, policies and strategies which are similar to those of
the Westport Small Cap Fund. These accounts have been omitted from the
Westport Composite because Westport manages only a portion of the assets of
each Fund.
(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.
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, who will serve as the sole portfolio
manager of the Westport Fund, 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. During his tenure as
portfolio manager, Mr. Nicklin was solely responsible for the day-to-day
management of the Evergreen Growth & Income Fund. 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 to August 22, 1997, and as
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. Mr. Nicklin's most important strength in managing
investment portfolios with the value based strategy explained in this prospectus
is the investment ideas generated by his original research. As a result of the
move to Westport Advisers, Mr. Nicklin will be working with Andrew Knuth who
employs a similar original research strategy, but has expertise in many
different industries. However, Evergreen Asset Management Corp., the investment
manager of the Evergreen Growth & Income Fund, has a larger in-house analytical
staff than Westport and the Adviser. 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.
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<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%
</TABLE>
- --------------------
(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. The expenses of
the Evergreen Growth & Income Fund are lower than those of the Westport
Fund. The use of the Westport Fund's expense structure would have
lowered the performance results. The performance shown is for the
no-load Class Y shares of the Evergreen Growth and Income Fund.
(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.
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. The value-based, catalyst-dependent investment strategy differentiates
the Evergreen Growth and Income Fund and the Westport Fund from others
suggesting commonalities of portfolio characteristics between the funds. Since
the Westport Fund has the same investment objective, a substantially similar
investment strategy executed by the same portfolio manager and similar
investment risks, the Westport Fund should be similarly classified as a medium
classification blend.
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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
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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 Agreement with Countrywide Fund Services, Inc., 312 Walnut
Street, Cincinnati, Ohio 45202 (the "Administrator"). 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 from each Fund a monthly fee at the annual rate of 0.125% of such
Funds' average daily net assets up to $50 million; 0.10% of such assets from $50
to $100 million; 0.075% of such assets from $100 to $150 million; provided,
however, that the minimum fee shall be $1,000 per month for each Fund.
The Distributor. The Trust has entered into a Distribution Agreement, on behalf
of the Funds, with Countrywide Investments, Inc. or an affiliated company, 312
Walnut Street, 21st Floor, Cincinnati, Ohio 45202 (the "Distributor"). Pursuant
to the 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 or redeeming 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.
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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." The Trust does not issue share
certificates.
Minimum Investment. Generally, the initial minimum investment for Class A shares
of either Fund is $5,000, or $2,000 for retirement accounts. For purchases under
the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act or through an
Automatic Investment Plan, there is a minimum initial purchase of $1,000 and a
minimum subsequent purchase of $100. For a further description of the Automatic
Investment Plan, see "Purchases and Redemptions of Shares--Automatic Investment
Plan" below. For Class B shares, the minimum investment is $1 million for either
Fund. Currently, there is no minimum for subsequent investments in either Class
of either Fund, unless the purchase is made through the Automatic Investment
Plan; however, the Adviser reserves the right to change such minimum for
subsequent investments.
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:
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
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
(888) 593-7878, to obtain an account number. The investor should then instruct a
member commercial bank to wire funds to:
Star Bank, NA
Cincinnati, Ohio
ABA #: 042000013
Credit: The Westport Funds
Account #: 4888-77275
Further credit: [Westport Fund/Westport Small Cap Fund]
Shareholder Name: __________________________
Shareholder Account #: _____________________
(Include your name, address and taxpayer identification number.)
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.
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<PAGE>
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 $1,000 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
the Automated Clearing House ("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 (888) 593-7878. 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:
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
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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 $25,000. Signature guarantees are
described more fully under "Purchases and Redemptions of Shares --Signature
Guarantees" below.
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.
A shareholder who has elected telephone redemption privileges may make a
telephone redemption request by calling the Transfer Agent at (888) 593-7878 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. There is a fee on
all redemptions paid by wire, currently $8.00.
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 $25,000. In addition, a signature guarantee is
required for instructions to change a shareholder's (i) record name or
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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 (888)
593-7878. 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 a
traditional IRA are deductible for Federal income tax purposes for certain
investors and become taxable only upon withdrawal. In addition, income and
capital gains earned in a traditional IRA are sheltered from taxation until
withdrawal.
In general, individuals earning compensation may make 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. 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.
Generally, if an individual is not covered by a qualified retirement plan, but
the individual's spouse is, the amount which can be deducted for IRA
contributions will be phased out if their adjusted gross income ("AGI") is
between $150,000 and $160,000.
If an individual is covered by a qualified retirement plan, the amount of
deductible IRA contributions may be reduced or eliminated based on the
individual's AGI for the year. The AGI level at which a single taxpayer's
deduction for 1997 is affected, $25,000, will increase annually to $50,000 in
2005. The AGI level at which the deduction for 1997 for a married taxpayer
(other than a married individual filing a separate return) is affected, $40,000,
will increase annually to $80,000 in 2007.
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 a traditional 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 Roth IRAs, 401(k) and other
retirement plans.
For more information call the Adviser at (888) 593-7878 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. Each Fund 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, each Fund must meet certain income,
distribution and diversification requirements. In any year in which a Fund
qualifies as a regulated investment company and timely distributes all of its
taxable income, the Fund generally will not pay any U.S. federal income or
excise tax.
Dividends paid out of a Fund'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 at the applicable mid-term or long-term capital gains
rate, regardless of how long the shareholder has held a Fund's shares. Dividends
are taxable to shareholders in the same manner whether 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
Star Bank, N.A. ("Star Bank"), which has its principal business address at 425
Walnut Street, M.L. 6118, Cincinnati, Ohio 45202, has been retained to act as
Custodian of the Funds' investments. Star Bank has no part in deciding the
Funds' investment policies or which securities are to be purchased or sold for
the Funds' portfolios. Countrywide Fund Services, Inc., 312 Walnut Street,
Cincinnati, Ohio 45202, 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 December 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
6
<PAGE>
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 25% or more of its net assets in one or more issuers conducting
their principal business in the same industry;
- - with respect to 75% of its assets, invest more than 5% of the market value
of its total assets in the securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
Government or any agency or instrumentality thereof);
- - with respect to 75% of its assets, purchase more than 10% of the
outstanding voting securities of any issuer (other than obligations of the
U.S. Government);
- - 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>
Raymond J. Armstrong, 72 Trustee Chairman and money manager, Armstrong Shaw Associates,
2 Bluewater Hill Inc. (registered investment adviser) (1984-present).
Westport, CT 06880
Stephen E. Milman, 60 Trustee Limited Partner, Orchard Park Associates L.P.,
5 Pratt Island Minor League Heroes, L.P., and Minor League
Darien, CT 06820 Sports Enterprises LP; Principal, Neuberger & Berman
LLC (1987-1996).
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); President and
Director, Lake Huron Cellular Corp.
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
D. Bruce Smith, II, 59 Trustee Independent Consultant, Gunn Partners, Inc.
19 Beaver Brook Road (March 1994-present), Controller, Solvents and
Ridgefield, CT 06877 Coatings Materials Division, Union Carbide Corp.
(manufacturer, sale of chemicals) (until December
1993).
Andrew J. Knuth, 59 Executive Vice President Chairman, Chief Investment Officer and portfolio
253 Riverside Avenue manager, Westport Asset Management, Inc.; General
Westport, CT 06880 manager, Riverside Associates Limited Partnership I.
</TABLE>
11
<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 December 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 December 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>
Raymond J. Armstrong*; Trustee $9,000 $9,000(1)
Stephen E. Milman*, Trustee $9,000 $9,000(1)
Edmund H. Nicklin Jr.**, Trustee and $0 $0(1)
President
Ronald H. Oliver**, Trustee, $0 $0(1)
Executive Vice President, Secretary
and Treasurer
D. Bruce Smith, II*, Trustee $9,000 $9,000(1)
- -----------------
* 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 scheduled close of
trading on the New York Stock Exchange (currently 4:00 p.m.) 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 last sales price on that
day, or if such price is not available, the closing bid price.
12
<PAGE>
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 rate, if any, designated as
capital gain dividends are taxable at the applicable mid-term or long-term
capital gains rate, 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 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.
Notwithstanding any of the foregoing, a Fund may recognize gain (but not loss)
from a constructive sale of certain "appreciated financial positions" if the
Fund enters into a short sale, offsetting notional principal contract, futures
or forward contract transaction with respect to the appreciated position or
substantially identical property. Appreciate financial positions subject to this
constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment does not apply to certain transactions closed in the 90-day
period ending with the 30th day after the close of the taxable year, if certain
conditions are met.
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.
Unless certain constructive sale rules (discussed more fully above) apply, a
Fund will not ealize 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, as described more fully under
"Options and Hedging Transactions" above, 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. Similarly, if a Fund
enters into a short sale of property that becomes substantially worthless, the
Fund will recognize gain at that time as though it had closed the short sale.
Future Treasury regulations may apply similar treatment to other transactions
with respect to property that becomes substantially worthless.
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 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 years. Any resulting gain would be reported as ordinary income; any
resulting loss and any loss from an actual disposition of the stock would be
reported as ordinary loss to the extent of any net mark-to-market gains reported
in prior years.
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.
In reports or other communications to shareholders of the Funds or in
advertising materials, the Funds may compare their performance with that of (i)
other mutual funds listed in the rankings prepared by Lipper Analytical
Services, Inc., publications such as Barrons, Business Week, Forbes, Fortune,
Institutional Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual
Fund Values, The New York times, The Wall Street Journal and USA Today or other
industry or financial publications or (ii) the Standard and Poor's Index of 500
Stocks, the Dow Jones Industrial Average and other relevant indices and industry
publications. The Funds may also compare the historical volatility of their
portfolios to the volatility of such indices during the same time periods.
(Volatility is a generally accepted barometer of the market risk associated with
a portfolio of securities and is generally measured in comparison to the stock
market as a whole-the beta-or in absolute terms-the standard deviation.)
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.
Tait, Weller & Baker, Two Penn Center Plaza, Suite 700, Philadelphia,
Pennsylvania 19102, have been appointed as independent accountants for the
Funds.
FINANCIAL STATEMENTS
WESTPORT
WESTPORT SMALLCAP
FUND FUND
-------- --------
ASSETS
Cash $50,000 $50,000
Deferred organization expenses 35,000 35,000
------- -------
Total assets 80,000 80,000
LIABILITIES
Due to Investment Adviser 35,000 35,000
------- -------
NET ASSETS
(Unlimited shares of no par
beneficial interest authorized;
5,000 shares outstanding each
Fund) $50,000 $50,000
------- -------
Net asset value and redemption
price per share
$50,000/5,000 shares $ 10.00 $ 10.00
------- -------
21
<PAGE>
(1) ORGANIZATION
The Westport Funds (the "Trust"), a diversified, open-end investment
company, was organized on September 17, 1997 as a Delaware Business Trust.
The Westport Fund and the Westport SmallCap Fund (the "Funds") are series
of the Trust. The Funds have had no operations through December 19, 1997
other than those relating to organizational matters and the sale and
issuance of 5,000 shares at $10.00 per share to the initial shareholders.
(2) DEFERRED ORGANIZATION EXPENSES
All expenses of the Funds incurred in connection with their organization
and the registration of their shares have been assumed by the Funds.
Westport Advisers, LLC (the "Adviser") has agreed to advance the
organization expenses incurred by the Funds and will be reimbursed for such
expenses after commencement of the Funds operations. The organization
expenses will be amortized over a period of five years commencing after the
effective date of the Funds' Registration Statement. If any of the initial
shares are redeemed before amortization of the deferred organization
expenses is completed, the redemption proceeds will be reduced by the pro
rata share (represented by the percentage of shares redeemed in relation to
the total initial shares) of unamortized deferred organization expenses
existing at the time of the redemption.
22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Trustees
The Westport Funds
Westport Connecticut
We have audited the accompanying statements of assets and liabilities of The
Westport Fund and the Westport SmallCap Fund, each a series of shares of the
Westport Funds, as of December 19, 1997. This financial statement is the
responsibility of the Funds' management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit of the statement of
assets and liabilities provides a reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of The
Westport Fund and The Westport SmallCap Fund as of December 19, 1997 in
conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 19, 1997
23
<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.
24
<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.
25
<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. Not Applicable
5. Form of Investment Advisory Agreement
6. Form of Distribution Agreement
7. Not Applicable
8. Form of Custodian Agreement
9. (A) Form of Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement
(B) Shareholders Service Plan
(C) Form of Shareholder Service Agreement
(D) Form of Administration Agreement
(E) Form of Accounting Services Agreement
10. Opinion and Consent of Dechert Price & Rhoads
11. Consent of Independent Certified Public Accountants
12. Not Applicable
13. Investment Representation Letters
14. Not Applicable
__________________________
* Filed with initial registration statement on September 17, 1997.
** To be filed in a subsequent pre-effective amendment.
<PAGE>
15. Not Applicable
16. Not Applicable
17. Not Applicable
18. Multi-class Plan
19. Powers of Attorney
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
Two shareholders of the Class A shares of the Westport Fund and two
shareholders of the Class A shares of the Westport Small Cap Fund as
of the effective 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. The liability of the
Registrant's directors and officers is dealt with in Article IX,
Section 1 of the Registrant's Declaration of Trust. 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 1 of the Advisory Agreement, filed as Exhibit
5 to this Registration Statement. The liability of Countrywide Fund
Services, Inc., the Registrant's administrator, for any loss suffered
by the Registrant or its shareholders is set forth in Section 9 of the
Administration Agreement, filed as Exhibit 9(d) 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.
<PAGE>
Item 29. Principal Underwriters
(a) Countrywide Investments, Inc. also acts as underwriter for Countrywide
Strategic Trust, Countrywide Investment Trust, Countrywide Tax-Free
Trust, The Milestone Funds, Brundage, Story and Rose Investment Trust
and Profit Funds Investment Trust. Unless otherwise indicated(*), the
address of the persons named below is 312 Walnut Street, Cincinnati,
Ohio 45202.
*The Address is 4500 Park Granada Road, Calabasas, California 91302.
Position Position
with with
(b) Name Underwriter Registrant
-------------------- ---------------- ----------
* Angelo R. Mozilo Chairman and None
Director
Robert H. Leshner President and None
Director
* Andrew S. Bielanski Director None
* Thomas H. Boone Director None
* Marshall M. Gates Director None
John J. Goetz First Vice None
President and
Chief Investment
Officer
Maryellen Peretzky First Vice None
President-
Administration,
Human Resources
and Operations
Sharon L. Karp First Vice None
President-
Marketing
John F. Splain Secretary and None
General Counsel
Robert G. Dorsey Treasurer None
Susan F. Flischel First Vice None
President-
Investments
Terrie A. Wiedenheft First Vice None
President and
Controller
Scott Weston Assistant Vice None
President-
Investment
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 Countrywide Fund Services, Inc., 312
Walnut Street, Cincinnati, Ohio 45202. 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
Item 32. Undertakings.
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 Pre-Effective Amendment No. 2 to its 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 19th day of December, 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 Pre-Effective Amendment No. 2 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 12/19/97
- --------------------------
Edmund H. Nicklin, Jr.
/s/ Ronald H. Oliver Trustee, Executive Vice President
- -------------------------- Secretary and Treasurer 12/19/97
Ronald H. Oliver
/s/ * Trustee 12/19/97
- --------------------------
Raymond J. Armstrong
/s/ * Trustee 12/19/97
- --------------------------
D. Bruce Smith, II
/s/ * Trustee 12/19/97
- --------------------------
Stephen E. Milman
/s/ Edmund H. Nicklin, Jr. Trustee 12/19/97
- --------------------------
Edmund H. Nicklin, Jr.
<PAGE>
Exhibits
- --------
99.2 By-Laws
99.5 Form of Investment Advisory Agreement
99.6 Form of Distribution Agreement
99.8 Form of Custodian Agreement
99.9(a) Form of Transfer, Dividend Disbursing, Shareholder Service
and Plan Agency Agreement
99.9(b) Shareholder Service Plan
99.9(c) Form of Shareholder Servicing Agreement
99.9(d) Form of Administration Agreement
99.9(e) Form of Accounting Services Agreement
99.10 Opinion and Consent of Dechert Price & Rhoads
99.11 Consent of Independent Certified Public Accountants
99.13 Investment Representation Letter
99.18 Multi-Class Plan
99.19 Powers of Attorney
THE WESTPORT FUNDS
(A Delaware Business Trust)
BY-LAWS
September 18, 1997
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I NAME OF TRUST, PRINCIPAL OFFICE AND SEAL................................................. 1
<S> <C> <C>
Section 1. Principal Office........................................................................... 1
Section 2. Delaware Office............................................................................ 1
Section 3. Seal....................................................................................... 1
ARTICLE II MEETINGS OF TRUSTEES..................................................................... 1
Section 1. Meetings................................................................................... 1
Section 2. Action Without a Meeting................................................................... 1
Section 3. Compensation of Trustees................................................................... 2
ARTICLE III COMMITTEES............................................................................... 2
Section 1. Organization............................................................................... 2
Section 2. Executive Committee........................................................................ 2
Section 3. Nominating Committee....................................................................... 2
Section 4. Audit Committee............................................................................ 2
Section 5. Other Committees........................................................................... 2
Section 6. Proceedings and Quorum..................................................................... 2
Section 7. Compensation of Committee Members.......................................................... 3
ARTICLE IV OFFICERS................................................................................. 3
Section 1. General.................................................................................... 3
Section 2. Election, Tenure and Qualifications of
Officers............................................................................. 3
Section 3. Vacancies and Newly Created Offices........................................................ 3
Section 4. Removal and Resignation.................................................................... 3
Section 5. President.................................................................................. 3
Section 6. Vice President............................................................................. 4
Section 7. Treasurer and Assistant Treasurers......................................................... 4
Section 8. Secretary and Assistant Secretaries........................................................ 4
Section 9. Subordinate Officers....................................................................... 4
Section 10. Compensation of Officers................................................................... 4
Section 11. Surety Bond................................................................................ 5
ARTICLE V MEETINGS OF SHAREHOLDERS................................................................. 5
Section 1. Annual Meetings............................................................................ 5
Section 2. Special Meetings........................................................................... 5
Section 3. Notice of Meetings......................................................................... 5
Section 4. Validity of Proxies........................................................................ 6
Section 5. Place of Meeting........................................................................... 6
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Section 6. Action Without a Meeting................................................................... 6
ARTICLE VI CUSTODY OF SECURITIES.................................................................... 6
Section 1. Employment of a Custodian.................................................................. 6
Section 2. Termination of Custodian Agreement......................................................... 7
Section 3. Other Arrangements......................................................................... 7
ARTICLE VII FISCAL YEAR AND ACCOUNTANT............................................................... 7
Section 1. Fiscal Year................................................................................ 7
Section 2. Accountant................................................................................. 7
ARTICLE VIII AMENDMENTS............................................................................... 7
Section 1. General.................................................................................... 7
ARTICLE IX MISCELLANEOUS............................................................................. 7
Section 1. Inspection of Books......................................................................... 7
Section 2. Severability................................................................................ 7
Section 3. Headings.................................................................................... 8
</TABLE>
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<PAGE>
BY-LAWS
OF
THE WESTPORT FUNDS
(A Delaware Business Trust)
These By-laws of The Westport Funds (the "Trust"), a Delaware business trust,
are subject to the Trust Instrument of the Trust dated September 17, 1997, as
from time to time amended, supplemented or restated (the "Trust Instrument").
Capitalized terms used herein have the same meaning as in the Trust Instrument.
ARTICLE I
NAME OF TRUST, PRINCIPAL OFFICE AND SEAL
Section 1. Principal Office. The principal office of the Trust shall be
located in Wesport, Connecticut, or such other location as the Trustees may from
time to time determine. The Trust may establish and maintain other offices and
places of business as the Trustees may from time to time determine.
Section 2. Delaware Office. The Trustees shall establish a registered
office in the State of Delaware and shall appoint as the Trust's registered
agent for service of process in the State of Delaware an individual resident of
the State of Delaware or a Delaware corporation or a corporation authorized to
transact business in the State of Delaware and in any case the business office
of such registered agent for service of process shall be identical with the
registered Delaware office of the Trust.
Section 3. Seal. The Trustees may adopt a seal which shall be in such
form and have such inscription as the Trustees may from time to time determine.
Any Trustee or officer of the Trust shall have authority to affix the seal to
any document, provided that the failure to affix the seal shall not affect the
validity or effectiveness of any document.
ARTICLE II
MEETINGS OF TRUSTEES
Section 1. Meetings. Meetings of the Trustees may be held at such
places and such times as the Trustees may from time to time determine. Such
meetings may be called orally or in writing by the Chairman of the Trustees, or
by any two other Trustees. Each Trustee shall be given notice of any meeting as
provided in Article II, Section 8, of the Trust Instrument.
Section 2. Action Without a Meeting. Actions may be taken by the
Trustees without a meeting or by a telephone meeting, as provided in Article II,
Section 8, of the Trust Instrument.
<PAGE>
Section 3. Compensation of Trustees. Each Trustee may receive such
compensation from the Trust for his or her services and reimbursement for his or
her expenses as may be fixed from time to time by the Trustees.
ARTICLE III
COMMITTEES
Section 1. Organization. The Trustees may designate one or more
committees of the Trustees. The Chairmen of such committees shall be elected by
the Trustees. The number composing such committees and the powers conferred upon
the same shall be determined by the vote of a majority of the Trustees. All
members of such committees shall hold office at the pleasure of the Trustees.
The Trustees may abolish any such committee at any time in their sole
discretion. Any committee to which the Trustees delegate any of their powers
shall maintain records of its meetings and shall report its actions to the
Trustees. The Trustees shall have the power to rescind any action of any
committee, but no such rescission shall have retroactive effect. The Trustees
shall have the power at any time to fill vacancies in the committees. The
Trustees may delegate to these committees any of its powers, subject to the
limitations of applicable law.
Section 2. Executive Committee. The Trustees may elect from their own
number an Executive Committee which shall have any or all the powers of the
Trustees when the Trustees are not in session. The Chairman of the Trustees
shall be a member of the Executive Committee.
Section 3. Nominating Committee. The Trustees may elect from their own
number a Nominating Committee composed entirely of Trustees who are not
Interested Persons which shall have the power to select and nominate Trustees
who are not Interested Persons, and shall have such other powers and perform
such other duties as may be assigned to it from time to time by the Trustees.
Section 4. Audit Committee. The Trustees may elect from their own
number an Audit Committee composed entirely of Trustees who are not Interested
Persons which shall have the power to review and evaluate the audit function,
including recommending independent certified public accountants, and shall have
such other powers and perform such other duties as may be assigned to it from
time to time by the Trustees.
Section 5. Other Committees. The Trustees may appoint other committees
whose members need not be Trustees. Each such committee shall have such powers
and perform such duties as may be assigned to it from time to time by the
Trustees, but shall not exercise any power which may lawfully be exercised only
by the Trustees or a committee thereof.
Section 6. Proceedings and Quorum. In the absence of an appropriate
resolution of the Trustees, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it shall deem proper
and desirable. In the event any member of any committee is absent from any
meeting, the members present at the meeting, whether or not they constitute a
quorum, may appoint a Trustee to act in the place of such absent member.
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Section 7. Compensation of Committee Members. Each committee member may
receive such compensation from the Trust for his or her services and
reimbursement for his or her expenses as may be fixed from time to time by the
Trustees.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Trust shall be a President, a
Treasurer, a Secretary, and may include one or more Vice Presidents, Assistant
Treasurers or Assistant Secretaries, and such other officers as the Trustees may
from time to time elect. It shall not be necessary for any Trustee or other
officer to be a Shareholder of the Trust.
Section 2. Election, Tenure and Qualifications of Officers. The
officers of the Trust, except those appointed as provided in Section 9 of this
Article, shall be elected by the Trustees. Each officer elected by the Trustees
shall hold office until his or her successor shall have been elected and
qualified or until his or her earlier resignation. Any person may hold one or
more offices of the Trust except that no one person may serve concurrently as
both President and Secretary. A person who holds more than one office in the
Trust may not act in more than one capacity to execute, acknowledge or verify an
instrument required by law to be executed, acknowledged or verified by more than
one officer. No officer need be a Trustee.
Section 3. Vacancies and Newly Created Offices. Whenever a vacancy
shall occur in any office, regardless of the reason for such vacancy, or if any
new office shall be created, such vacancies or newly created offices may be
filled by the Trustees or, in the case of any office created pursuant to Section
9 of this Article, by any officer upon whom such power shall have been conferred
by the Trustees.
Section 4. Removal and Resignation. Any officer may be removed from
office at any time, with or without cause, by the Trustees. In addition, any
officer or agent appointed in accordance with the provisions of Section 9 of
this Article may be removed, with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Trustees. Any officer may
resign from office at any time by delivering a written resignation to the
Trustees, the President, the Secretary, or any Assistant Secretary. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Section 5. President. Subject to the direction of the Trustees, the
President shall have general charge of the business affairs, policies and
property of the Trust and general supervision over its officers, employees and
agents. In the absence of the Chairman of the Trustees or if no Chairman of the
Trustees has been elected, the President shall preside at all Shareholders'
meetings and at all meetings of the Trustees and shall in general exercise the
powers and perform the duties of the Chairman of the Trustees. Except as the
Trustees may otherwise order, the President shall have the power to grant,
issue, execute or sign such powers of attorney, proxies, agreements or other
documents as may be deemed advisable or necessary in the furtherance of the
interests of the Trust or any Series or Class thereof. The President also shall
have the power to employ attorneys, accountants and other advisers and agents
for the Trust. The President shall exercise such other powers and perform such
other duties as the Trustees may from time to time assign to the President.
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<PAGE>
Section 6. Vice President. The Trustees may from time to time elect one
or more Vice Presidents who shall have such powers and perform such duties as
may from time to time be assigned to them by the Trustees or the President. At
the request or in the absence or disability of the President, the Vice President
(or, if there are two or more Vice Presidents, then the first appointed of the
Vice Presidents present and able to act) may perform all the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
Section 7. Treasurer and Assistant Treasurers. The Treasurer shall be
the principal financial and accounting officer of the Trust and shall have
general charge of the finances and books of the Trust. The Treasurer shall
deliver all funds and securities of the Trust to such company as the Trustees
shall retain as custodian in accordance with the Trust Instrument, these
By-laws, and applicable law. The Treasurer shall make annual reports regarding
the business and financial condition of the Trust as soon as possible after the
close of the Trust's fiscal year. The Treasurer also shall furnish such other
reports concerning the business and financial condition of the Trust as the
Trustees may from time to time require. The Treasurer shall perform all acts
incidental to the office of Treasurer, subject to the supervision of the
Trustees, and shall perform such additional duties as the Trustees may from time
to time designate.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Trustees or the Treasurer may assign, and, in the absence of the Treasurer, may
perform all the duties of the Treasurer.
Section 8. Secretary and Assistant Secretaries. The Secretary shall
record all votes and proceedings of the meetings of Trustees and Shareholders in
books to be kept for that purpose. The Secretary shall be responsible for giving
and serving of all notices of the Trust. The Secretary shall have custody of any
seal of the Trust. The Secretary shall be responsible for the records of the
Trust, including the Share register and such other books and papers as the
Trustees may direct and such books, reports, certificates and other documents
required by law. All of such records and documents shall at all reasonable times
be kept open by the Secretary for inspection by any Trustee for any proper Trust
purpose. The Secretary shall perform all acts incidental to the office of
Secretary, subject to the supervision of the Trustees, and shall perform such
additional duties as the Trustees may from time to time designate.
Any Assistant Secretary may perform such duties of the Secretary as the
Trustees or the Secretary may assign, and, in the absence of the Secretary, may
perform all the duties of the Secretary.
Section 9. Subordinate Officers. The Trustees may appoint from time to
time such other officers and agents as they may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the Trustees may determine. The Trustees may delegate
from time to time to one or more officers or committees of Trustees the power to
appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties. Any officer or agent
appointed in accordance with the provisions of this Section 9 may be removed,
either with or without cause, by any officer upon whom such power of removal
shall have been conferred by the Trustees.
Section 10. Compensation of Officers. Each officer may receive such
compensation from the Trust for services and reimbursement for expenses as may
be fixed from time to time by the Trustees.
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<PAGE>
Section 11. Surety Bond. The Trustees may require any officer or agent
of the Trust to execute a bond (including, without limitation, any bond required
by the Investment Company Act of 1940 and the rules and regulations of the
Securities and Exchange Commission) to the Trust in such sum and with such
surety or sureties as the Trustees may determine, conditioned upon the faithful
performance of his or her duties to the Trust, including responsibility for
negligence and for the accounting of any of the Trust's property, funds or
securities that may come into his or her hands.
ARTICLE V
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meetings. There shall be no annual Shareholders'
meetings except as required by law or as hereinafter provided.
Section 2. Special Meetings. Special meetings of Shareholders of the
Trust or of any Series or Class shall be called by the President or Secretary
whenever ordered by the Trustees, and shall be held at such time and place as
may be stated in the notice of the meeting.
Special meetings of the Shareholders of the Trust or of any Series or
Class shall be called by the Secretary upon the written request of Shareholders
owning at least ten percent (10%) of the outstanding shares entitled to vote at
such meeting, provided that (1) such request shall state the purposes of such
meeting and the matters proposed to be acted on, and (2) the Shareholders
requesting such meeting shall have paid to the Trust the reasonably estimated
cost of preparing and mailing the notice thereof, which the Secretary shall
determine and specify to such Shareholders.
If the Secretary fails for more than thirty (30) days to call a special
meeting, the Trustees or the Shareholders requesting such a meeting may, in the
name of the Secretary, call the meeting by giving the required notice. If the
meeting is a meeting of Shareholders of any Series or Class, but not a meeting
of all Shareholders of the Trust, then only a special meeting of Shareholders of
such Series or Class need be called and, in such case, only Shareholders of such
Series or Class shall be entitled to notice of and to vote at such meeting.
Section 3. Notice of Meetings. Except as provided in Section 2 of this
Article, the Secretary shall cause written notice of the place, date and time,
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. Notice shall be given as determined by the Trustees at least
ten (10) and not more than sixty (60) days before the date of the meeting. The
written notice of any meeting may be delivered or mailed, postage prepaid, to
each Shareholder entitled to vote at such meeting. If mailed, notice shall be
deemed to be given when deposited in the United States mail directed to the
Shareholder at his or her address as it appears on the records of the Trust.
Notice of any Shareholders' meeting need not be given to any Shareholder if a
written waiver of notice, executed before, at or after such meeting, is filed
with the record of such meeting, or to any Shareholder who is present at such
meeting in person or by proxy unless the Shareholder is present solely for the
purpose of objecting to the call of the meeting. Notice of adjournment of a
Shareholders' meeting to another time or place need not be given, if such time
and place are announced at the meeting at which the adjournment is taken and the
adjourned meeting is held within a reasonable time after the date set for the
original meeting. At the adjourned meeting, the Trust may transact any business
which might have been transacted at the original meeting. If after the
adjournment a new record date is fixed for the
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<PAGE>
adjourned meeting, a notice of the adjourned meeting shall be given to
Shareholders of record entitled to vote at such meeting. Any irregularities in
the notice of any meeting or the nonreceipt of any such notice by any of the
Shareholders shall not invalidate any action otherwise properly taken at any
such meeting.
Section 4. Validity of Proxies. Subject to the provisions of the Trust
Instrument, Shareholders entitled to vote may vote either in person or by proxy,
provided that either (1) a written instrument authorizing such proxy to act has
been signed and dated by the Shareholder or by his or her duly authorized
attorney, or (2) the Trustees adopt by resolution an electronic, telephonic,
computerized or other alternative to execution of a written instrument
authorizing the proxy to act, but if a proposal by anyone other than the
officers or Trustees is submitted to a vote of the Shareholders of the Trust or
of any Series, 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. Unless the proxy provides otherwise, it
shall not be valid if executed more than eleven months before the date of the
meeting. All proxies shall be delivered to the Secretary or other person
responsible for recording the proceedings before being voted. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the Trust
receives a specific written notice to the contrary from any one of them. Unless
otherwise specifically limited by their terms, proxies shall entitle the
Shareholder to vote at any adjournment of a Shareholders meeting. At every
meeting of Shareholders, unless the voting is conducted by inspectors, all
questions concerning the qualifications of voters, the validity of proxies, and
the acceptance or rejection of votes, shall be decided by the chairman of the
meeting. Subject to the provisions of the Trust Instrument or these By-laws, all
matters concerning the giving, voting or validity of proxies shall be governed
by the General Corporation Law of the State of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware corporation
and the Shareholders were shareholders of a Delaware corporation.
Section 5. Place of Meeting. All special meetings of Shareholders shall
be held at the principal place of business of the Trust or at such other place
as the Trustees may from time to time designate.
Section 6. Action Without a Meeting. Any action to be taken by
Shareholders may be taken without a meeting if a majority (or such other amount
as may be required by law) of the outstanding shares entitled to vote on the
matter consent to the action in writing and such written consents are filed with
the records of the Shareholders' meetings. Such written consent shall be treated
for all purposes as a vote at a meeting of the Shareholders held at the
principal place of business of the Trust. If the unanimous written consent of
all Shareholders entitled to vote shall not have been received, the Secretary
shall give prompt notice of the action approved by the Shareholders without a
meeting.
ARTICLE VI
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall at all times
place and maintain all funds, securities and similar investments of the Trust
and of each Series in the custody of a Custodian, including any sub-custodian
for the Custodian (the "Custodian"). The Custodian shall be one or more banks or
trust companies of good standing having an aggregate capital surplus, and
undivided profits of not less than two million dollars ($2,000,000), or such
other financial institutions or other entities as
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<PAGE>
shall be permitted by rule or order of the Securities and Exchange Commission.
The Custodian shall be appointed from time to time by the Trustees, who shall
determine its remuneration.
Section 2. Termination of Custodian Agreement. Upon termination of the
Custodian Agreement or inability of the Custodian to continue to serve, the
Trustees shall promptly appoint a successor Custodian. If so directed by
resolution of the Trustees or by vote of a majority of outstanding shares of the
Trust, the Custodian shall deliver and pay over all property of the Trust or any
Series held by it as specified in such vote.
Section 3. Other Arrangements. The Trust may make such other
arrangements for the custody of its assets (including deposit arrangements) as
may be required by any applicable law, rule or regulation.
ARTICLE VII
FISCAL YEAR AND ACCOUNTANT
Section 1. Fiscal Year. The fiscal year of the Trust shall be as
determined by the Trustees.
Section 2. Accountant. The Trust shall employ independent certified
public accountants as its accountant ("Accountant") to examine the accounts of
the Trust and to sign and certify financial statements filed by the Trust. The
Accountant's certificates and reports shall be addressed both to the Trustees
and to the Shareholders.
ARTICLE VIII
AMENDMENTS
Section 1. General. All By-laws of the Trust shall be subject to
amendment, alteration or repeal, and new By-laws may be made by the affirmative
vote of a majority of either: (1) the outstanding shares of the Trust entitled
to vote at any meeting; or (2) the Trustees at any meeting. In no event will
By-laws be adopted that are in conflict with the Trust Instrument, the Delaware
Act, the Investment Company Act of 1940, or applicable securities laws.
ARTICLE IX
MISCELLANEOUS
Section 1. Inspection of Books. The Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions the accounts and books of the Trust or any Series shall be open
to the inspection of Shareholders. No Shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by law
or otherwise by the Trustees.
Section 2. Severability. The provisions of these By-laws are severable.
If the Trustees determine, with the advice of counsel, that any provision hereof
conflicts with the Investment Company Act of 1940, the regulated investment
company or other provisions of the Internal Revenue Code or with other
applicable laws and regulations the conflicting provision shall be deemed never
to have constituted a part of these By-laws; provided, however, that such
determination shall not affect any of
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<PAGE>
the remaining provisions of these By-laws 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 invalidity or
unenforceability shall attach only to such provision only in such jurisdiction
and shall not affect any other provision of these By-laws.
Section 3. Headings. Headings are placed in these By-laws for
convenience of reference only and in case of any conflict, the text of these
By-laws rather than the headings shall control.
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THE WESTPORT FUNDS
253 Riverside Avenue
Westport, Connecticut 06880
November 25, 1997
Westport Advisers, LLC
253 Riverside Avenue
Westport, Connecticut 06880
Dear Sirs:
The undersigned, The Westport Funds, a Delaware business trust (the
"Trust"), is an investment company which may offer separate classes (or series)
of shares comprising different investment portfolios. Presently, the Trust
offers two series: the Westport Fund and the Westport Small Cap Fund (the
"Funds"). The Trust desires to employ its capital by investing and reinvesting
the same in securities in accordance with the limitations specified in its
Declaration of Trust and in the Prospectus for each Fund as from time to time in
effect, copies of which have been, or will be, submitted to you, and in such
manner and to such extent as may from time to time be approved by the Trustees
of the Trust. Subject to the terms and conditions of this Agreement, the Trust
desires to employ your company (the "Adviser") and the Adviser desires to be so
employed, to supervise and assist in the management of the business of each
Fund. Accordingly, this will confirm our agreement as follows:
1. The Adviser shall, on a continuous basis, furnish reports,
statistical and research services, and make investment decisions with respect to
the investments of each Fund. The Adviser shall use its best judgment in
rendering these services to the Trust, and the Trust agrees as an inducement to
the Adviser undertaking such services that the Adviser shall not be liable for
any mistake of judgment or in any other event whatsoever, except for lack of
good faith, provided that nothing herein shall be deemed to protect the Adviser
against any liability to the Trust or to the shareholders of the Trust (or any
Fund) to which it would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties
hereunder or by reason of the Adviser's reckless disregard of its obligations
and duties hereunder.
2. The Adviser agrees that it will not make short sales of the Trust's
shares of beneficial interest.
3. The Adviser agrees that in any case where an officer or member of
the Adviser is also an officer or director of another corporation, and the
purchase or sale of securities issued by such other corporation is under
consideration, such officer or member shall abstain from
1
<PAGE>
participation in any decision made on behalf of the Trust (or any Fund) to
purchase or sell any securities issued by such other corporation.
4. The Adviser will provide office facilities to the Trust. Each Fund
will pay the cost of all of its expenses and liabilities, including expenses and
liabilities incurred in connection with maintaining its registration under the
Investment Company Act of 1940 (the "Act") and the Securities Act of 1933, as
amended, and maintaining any registrations or qualifications under the
securities laws of the states in which the Trust's shares are registered or
qualified for sale, subsequent registrations and qualifications, share
certificates, mailing, brokerage, issue and transfer taxes on sales of Fund
securities, custodian and stock transfer charges, printing, legal and auditing
expenses, expenses of shareholders' meetings, and reports to shareholders.
5. In consideration of the Adviser performing its obligations
hereunder, the Trust will pay to the Adviser advisory fees, payable monthly, at
an annual rate of .90 of 1% of the daily net assets of the Westport Fund and 1%
of the daily net assets of the Westport Small Cap Fund during that month.
6. The Trust understands that the Adviser may act as investment
adviser to other investment companies, and that affiliates of the Adviser act as
investment advisers to individuals, partnerships, corporations, pension funds
and other entities, and the Trust confirms that it has no objection to the
Adviser or its affiliates so acting.
7. This Agreement shall be in effect until November 30, 1999. This
Agreement shall continue in effect from year to year thereafter with respect to
each Fund, provided it is approved, at least annually, in the manner required by
the Act. The Act requires that, with respect to each Fund, this Agreement and
any renewal thereof be approved by a vote of a majority of Trustees of the Trust
who are not parties thereto or interested persons (as defined in the Act) of any
such party, cast in person at a meeting duly called for the purpose of voting on
such approval, and by a vote of the Trustees of the Trust or a majority of the
outstanding voting securities of a Fund is defined in the Act to mean a vote of
the lesser of (i) more than 50% of the outstanding voting securities of the Fund
or (ii) 67% or more of the voting securities present at the meeting if more than
50% of the outstanding voting securities are present or represented by proxy.
This agreement may be terminated at any time with respect to a Fund,
without payment of any penalty, on sixty (60) days' prior written notice by a
vote of a majority of the Fund's outstanding voting securities, by a vote of a
majority of the Trustees of the Trust, or by the Adviser. This Agreement shall
be automatically terminated in the event of its assignment (as such term is
defined in the Act).
8. This Agreement is made by the Trust pursuant to authority granted
by the Trustees, and the obligations created hereby are not binding on any of
the Trustees or shareholders of the Trust individually, but bind only the
property of the Trust.
2
<PAGE>
If the foregoing is in accordance with your understanding, please so
indicate by signing and returning to the undersigned the enclosed copy hereof.
Very truly yours,
THE WESTPORT FUNDS
By:________________________
Edmund H. Nicklin Jr.
President
ACCEPTED:
WESTPORT ADVISERS, LLC
By:__________________________
Name:
Title:
3
DISTRIBUTION AGREEMENT
This Agreement made as of __________, 1997 by and between The Westport
Funds, a Delaware business trust (the "Trust"), and Countrywide Investments,
Inc., an Ohio corporation ("Distributor").
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, Distributor is a broker-dealer registered with the Securities
and Exchange Commission and a member of the National Association of Securities
Dealers, Inc. (the "NASD"); and
WHEREAS, the Trust and Distributor are desirous of entering into an
agreement providing for the distribution by Distributor of shares of beneficial
interest ("Shares") of each series of shares of the Trust (the "Series");
NOW, THEREFORE, in consideration of the promises and agreements of the
parties contained herein, the parties agree as follows:
1. Appointment.
The Trust hereby appoints Distributor as its agent for the
distribution of Shares, and Distributor hereby accepts such appointment under
the terms of this Agreement. While this Agreement is in force, the Trust shall
not sell any Shares except on the terms set forth in this Agreement.
Notwithstanding any other provision hereof, the Trust may terminate, suspend or
withdraw the offering of Shares whenever, in its sole discretion, it deems such
action to be desirable.
<PAGE>
Upon notice of such termination, suspension or withdrawal, the Distributor shall
cease to offer Shares.
2. Sale of Shares.
(a) Distributor will have the right, as agent for the Trust, to
offer, and to solicit offers to subscribe to, the unsold balance of Shares of
the Trust as shall then be effectively registered under the Securities Act of
1933 at the then current public offering price for the Shares.
(b) All subscriptions for Shares obtained by the Distributor
shall be directed to the Trust for acceptance and shall not be binding on the
Trust until accepted by the Trust. The Distributor shall have no authority to
make binding subscriptions on the Trust's behalf. The Distributor will send to
the Trust promptly all subscriptions placed with the Distributor.
(c) The public offering price for Shares of each Series shall be
the respective net asset value of Shares of that Series then in effect.
(d) The net asset value of Shares of each Series shall be
determined in the manner provided in the then current prospectus and statement
of additional information (the "Registration Statement"), and when determined
shall be applicable to transactions as provided for in the Registration
Statement. The net asset value of Shares of each Series shall be calculated by
the Trust or by another entity on behalf of the Trust. Distributor shall have no
duty to inquire into or
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liability for the accuracy of the net asset value per Share as calculated.
(e) on every sale, the Trust shall receive the applicable net
asset value of Shares promptly, but in no event later than the third business
day following the date on which Distributor shall have received an order for the
purchase of Shares.
(f) Upon receipt of purchase instructions, Distributor will
transmit such instructions to the Trust or its transfer agent for registration
of Shares purchased.
(g) Nothing in this Agreement shall prevent Distributor or any
affiliated person (as defined in the Act) of Distributor from acting as
underwriter or distributor for any other person, firm or corporation (including
other investment companies) or in any way limit or restrict Distributor or any
such affiliated person from buying, selling or trading any securities for its or
their own account or for the accounts of others for whom it or they may be
acting; provided, however, that Distributor expressly represents that it will
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
3. Sale of Shares by the Trust.
The Trust reserves the right to sell Shares through other
distributors or directly to investors through subscriptions received by the
Trust or the Trust's transfer agent. The right
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given to the Distributor under this Agreement shall not apply to Shares issued
in connection with (a) the merger or consolidation of any other investment
company with the Trust, (b) the Trust's acquisition, by purchase or otherwise,
of all or substantially all of the assets or stock of any other investment
company, or (c) the reinvestment in Shares by shareholders of the Trust of
dividends or other distributions or any other offering by the Trust of
securities to Trust shareholders.
4. Basis of Sale of Shares.
Distributor does not agree to sell any specific number of Shares.
Distributor, as agent for the Trust, undertakes to sell Shares on a best efforts
basis only against orders therefor.
5. Rules of NASD, etc.
(a) Distributor will conform to the Rules of Fair Practice of the
NASD and the securities laws of any jurisdiction in which it sells, directly or
indirectly, any Shares.
(b) Distributor will require each dealer with whom Distributor
has a dealer agreement to conform to the applicable provisions hereof and the
Registration Statement with respect to the public offering price of Shares, and
neither Distributor nor any such dealers shall withhold the placing of purchase
orders so as to make a profit thereby.
(c) Distributor agrees to furnish to the Trust sufficient copies
of any agreements, plans or other materials it intends to use in connection with
any sales of Shares in adequate time for the Trust to file and clear them with
the proper
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authorities before they are put in use, and not to use them until so filed and
cleared.
(d) Distributor, at its own expense, will qualify as dealer or
broker, or otherwise, under all applicable state or federal laws required in
order that Shares may be sold in such states as may be mutually agreed upon by
the parties.
(e) Distributor shall not make, or permit any representative to
make, in connection with any sale or solicitation of a sale of Shares, any
representations concerning Shares except those contained in the then current
prospectus and statement of additional information covering the Shares and in
printed information approved by the Trust as information supplemental to such
prospectus and statement of additional information. Copies of the then effective
prospectus and statement of additional information and any such printed
supplemental information will be supplied by the Trust to Distributor in
reasonable quantities upon request.
6. Records to be Supplied by Trust.
The Trust shall furnish to Distributor copies of all information,
financial statements and other papers which Distributor may reasonably request
for use in connection with the distribution of the Shares, and this shall
include, but shall not be limited to, one certified copy, upon request by
Distributor, of all financial statements prepared for the Trust by independent
public accountants.
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7. Expenses.
In the performance of its obligations under this Agreement,
Distributor will pay only the costs incurred in qualifying as a broker or dealer
under state and federal laws and in establishing and maintaining its
relationships with the dealers selling Shares. All other costs in connection
with the offering of Shares will be paid by the Trust or the Trust's investment
adviser (the "Adviser") in accordance with agreements between them as permitted
by applicable law, including the Act and rules and regulations promulgated
thereunder.
8. Indemnification of Trust.
Distributor agrees to indemnify and hold harmless the Trust, the
Adviser and each person who has been, is, or may hereafter be a trustee,
director, officer, employee, partner, shareholder or control person of the Trust
or the Adviser, against any loss, damage or expense (including the reasonable
costs of investigation) reasonably incurred by any of them in connection with
any claim or in connection with any action, suit or proceeding to which any of
them may be a party, which arises out of or is alleged to arise out of or is
based upon any untrue statement or alleged untrue statement of a material fact,
or the omission or alleged omission to state a material fact necessary to make
the statements not misleading, on the part of Distributor or any agent or
employee of Distributor or any other person for whose acts Distributor is
responsible, unless such statement or omission was made in reliance upon written
information furnished
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by the Trust or the Adviser. Distributor likewise agrees to indemnify and hold
harmless the Trust, the Adviser and each such person in connection with any
claim or in connection with any action, suit or proceeding which arises out of
or is alleged to arise out of Distributor's failure to exercise reasonable care
and diligence with respect to its services, if any, rendered in connection with
investment, reinvestment, automatic withdrawal and other plans for Shares. The
term "expenses" for purposes of this and the next paragraph includes amounts
paid in satisfaction of judgments or in settlements which are made with
Distributor's consent. The foregoing rights of indemnification shall be in
addition to any other rights to which the Trust, the Adviser or each such person
may be entitled as a matter of law.
9. Indemnification of Distributor.
Distributor, its directors, officers, employees, shareholders and
control persons shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Trust in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance, bad
faith or negligence on the part of any of such persons in the performance of
Distributor's duties or from the disregard by any of such persons of
Distributor's obligations and duties under this Agreement. The Trust will
advance attorneys' fees or other expenses incurred by any such person in
defending a proceeding, upon the undertaking by or on behalf of such person to
repay the advance if it is ultimately determined that such person is not
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entitled to indemnification. Any person employed by Distributor who may also be
or become an officer or employee of the Trust shall be deemed, when acting
within the scope of his employment by the Trust, to be acting in such employment
solely for the Trust and not as an employee or agent of Distributor.
10. Compensation of Distributor
For services rendered under this Agreement, the Distributor will
receive a fee of $1.00 per year.
11. Termination and Amendment of this Agreement.
This Agreement shall automatically terminate, without the payment
of any penalty, in the event of its assignment. This Agreement may be amended
only if such amendment is approved (i) by Distributor, (ii) either by action of
the Board of Trustees of the Trust or at a meeting of the Shareholders of the
Trust by the affirmative vote of a majority of the outstanding Shares, and (iii)
by a majority of the Trustees of the Trust who are not interested persons of the
Trust or of Distributor by vote cast in person at a meeting called for the
purpose of voting on such approval.
Either the Trust or Distributor may at any time terminate this
Agreement on sixty (60) days' written notice delivered or mailed by registered
mail, postage prepaid, to the other party.
12. Effective Period of this Agreement.
This Agreement shall take effect upon its execution and shall
remain in full force and effect for a period of two (2)
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years from the date of its execution (unless terminated automatically as set
forth in Section 11), and from year to year thereafter, subject to annual
approval (i) by Distributor, (ii) by the Board of Trustees of the Trust or a
vote of a majority of the outstanding Shares, and (iii) by a majority of the
Trustees of the Trust who are not interested persons of the Trust or of
Distributor by vote cast in person at a meeting called for the purpose of voting
on such approval.
13. Limitation of Liability.
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, Shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust, as provided in the Declaration of Trust. The execution
and delivery of this Agreement have been authorized by the Trustees and
Shareholders of the Trust and signed by an officer of the Trust, acting as such,
and neither such authorization by such Trustees and Shareholders nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust as provided in its Declaration
of Trust.
14. New Series.
The terms and provisions of this Agreement shall become
automatically applicable to any additional series of the Trust established
during the initial or renewal term of this Agreement.
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15. Successor Investment Company.
Unless this Agreement has been terminated in accordance with
Paragraph 11, the terms and provisions of this Agreement shall become
automatically applicable to any investment company which is a successor to the
Trust as a result of reorganization, recapitalization or change of domicile.
16. Severability.
In the event any provision of this Agreement is determined to be
void or unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
17. Questions of Interpretation.
(a) This Agreement shall be governed by the laws of the State of
Ohio.
(b) Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the Act shall be resolved by reference to such term or provision of
the Act and to interpretation thereof, if any, by the United States courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the Securities and Exchange Commission issued pursuant to said Act.
In addition, where the effect of a requirement of the Act, reflected in any
provision of this Agreement is revised by rule, regulation or order of the
Securities and Exchange Commission, such provision shall be
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deemed to incorporate the effect of such rule, regulation or order.
18. Notices.
Any notices under this Agreement shall be in writing, addressed
and delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
to the other party, it is agreed that the address of the Trust for this purpose
shall be 253 Riverside Avenue, Westport, Connecticut 06880 and that the address
of Distributor for this purpose shall be 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202.
IN WITNESS WHEREOF, the Trust and Distributor have each caused
this Agreement to be signed in duplicate on their behalf, all as of the day and
year first above written.
ATTEST: THE WESTPORT FUNDS
_______________________ By: __________________________
Its: President
ATTEST: COUNTRYWIDE INVESTMENTS, INC.
______________________ By: _________________________
Its: President
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CUSTODY AGREEMENT
This AGREEMENT, dated as of _________________ 1997, by and between The
Westport Funds (the "Trust"), a business trust organized under the laws of
Delaware, acting with respect to Westport Fund and Westport SmallCap Fund
(individually, a "Fund" and, collectively, the "Funds"), each of them a series
of the Trust and each of them operated and administered by the Trust, and STAR
BANK, N.A., a national banking association (the "Custodian").
WITNESSETH:
WHEREAS, the Trust desires that the Fund's Securities and cash be held
and administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the " 1940
Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
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1.1 "Authorized Person" means any Officer or other person duly
authorized by resolution of the Board of Trustees to give Oral Instructions and
Written Instructions on behalf of the Fund and named in Exhibit A hereto or in
such resolutions of the Board Of Trustees, certified by an Officer, as may be
received by the Custodian from time to time.
1.2 "Board of Trustees" shall mean the Trustees from time to time
serving under the Trust's Agreement and Declaration of Trust, as from time to
time amended.
1.3 "Book-Entry System" shall mean a federal book-entry system as
provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of
31 CFR Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart O.
1.4 "Business Day" shall mean any day recognized as a settlement day by
The New York Stock Exchange, Inc. and any other day for which the Trust computes
the net asset value of Shares of a Fund.
1.5 "Fund Custody Account" shall mean any of the accounts in the name
of the Trust, which is provided for in Section 3.2 below.
1.6 "NASD" shall mean The National Association of Securities Dealers,
Inc.
1.7 "Officer" shall mean the Chairman, President, any Vice President,
any Assistant Vice President, the Secretary, any Assistant Secretary, the
Treasurer, or any Assistant Treasurer of the Trust.
1.8 "Oral Instructions" shall mean instructions orally transmitted to
and accepted by the Custodian because such instructions are: (i) reasonably
believed by the Custodian to have
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been given by an Authorized Person, (ii) recorded and kept among the records of
the Custodian made in the ordinary course of business and (iii) orally confirmed
by the Custodian. The Trust shall cause all Oral Instructions to be confirmed by
Written Instructions prior to the end of the next Business Day. If such Written
Instructions confirming Oral Instructions are not received by the Custodian
prior to a transaction, it shall in no way affect the validity of the
transaction or the authorization thereof by the trust. If Oral Instructions vary
from the Written Instructions which purport to confirm them, the Custodian shall
notify the trust of such variance but such Oral Instructions will govern unless
the Custodian has not yet acted.
1.9 "Proper Instructions" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.10 "Securities Depository" shall mean The Depository Trust Company
and (provided that Custodian shall have received a copy of a resolution of the
Board of Trustees, certified by an Officer, specifically approving the use of
such clearing agency as a depository for the Fund) any other clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities and Exchange Act of 1934 as amended (the "1934 Act"), which acts as a
system for the central handling of Securities where all Securities of any
particular class or series of an issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of the Securities.
1.11 "Securities" shall include, without limitation, common and
preferred stocks, bonds, call options, put options, debentures, notes, bank
certificates of deposit, bankers' acceptances, mortgage-backed securities or
other obligations, and any certificates, receipts, warrants or other
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instruments or documents representing rights to receive, purchase or subscribe
for the same, or evidencing or representing any other rights or interests
therein, or any similar property or assets that the Custodian has the facilities
to clear and to service.
1.12 "Shares" shall mean, with respect to a Fund, the units of
beneficial interest issued by the trust on account of the Fund.
1.13 "Sub-Custodian" shall mean and include (i) any branch of a "U.S.
Bank," as that term is defined in Rule 17f-5 under the 1940 Act of (ii) any
"Eligible Foreign Custodian," as that term is defined in Rule 17f-5 under the
1940 Act, having a contract with the Custodian which the Custodian has
determined will provide reasonable care of assets of the Funds based on the
standards specified in Section 3.3 below. Such contract shall include provisions
that provide: (i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that the Funds will be adequately protected
against the risk of loss of assets held in accordance with such contract; (ii)
that the Funds' assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the Sub-Custodian or its
creditors except a claim of payment for their safe custody or administration or,
in the case of cash deposits, liens or rights in favor of creditors of the
Sub-Custodian arising under bankruptcy, insolvency, or similar laws; (iii) that
beneficial ownership for the Funds' assets will be freely transferable without
the payment of money or value other than for safe custody or administration;
(iv) that adequate records will be maintained identifying the assets as
belonging to the funds or as being held by a third party for the benefit of the
Funds; (v) that the Funds' independent public accountants will be given access
to those records or confirmation of the contents of those records; and (vi) that
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the Funds will receive periodic reports with respect to the safekeeping of the
Funds' assets, including, but not limited to, notification of any transfer to or
from a Fund's account or a third party account containing assets held for the
benefit of the Fund. Such contract may contain, in lieu of any or all of the
provisions specified above, such other provisions that the Custodian determines
will provide, in their entirety, the same or a greater level of care and
protection for Fund assets as the specified provisions, in their entirety.
1.14 "Written Instructions" shall mean (i) written communications
actually received by the Custodian and signed by an Authorized Person, or (ii)
communications by telex or any other such system from one or more persons
reasonably believed by the Custodian to be Authorized Persons, or (iii)
communications between electro-mechanical or electronic devices provided that
the use of such devices and the procedures for the use thereof shall have been
approved by resolutions of the Board Of Trustees, a copy of which, certified by
an Officer, shall have been delivered to the Custodian.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 Appointment. The Trust hereby constitutes and appoints the
Custodian as custodian of all Securities and cash owned by or in the possession
of the Fund at any time during the period of this Agreement.
2.2 Acceptance. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter set forth.
2.3 Documents to be Furnished. The following documents, including any
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amendments thereto, will be provided contemporaneously with the execution of the
Agreement to the Custodian by the Trust:
a. A copy of the Declaration of Trust of the Trust certified by
the Secretary;
b. A copy of the Bylaws of the Trust certified by the Secretary;
c. A copy of the resolution of the Board Of Trustees of the
Trust appointing the Custodian, certified by the Secretary;
d. A copy of the then current Prospectus of the Fund; and
e. A certification of the Chairman and Secretary of the Trust
setting forth the names and signatures of the current
Officers of the Trust and other Authorized Persons.
2.4 Notice of Appointment of Dividend and Transfer Agent. The Trust
agrees to notify the Custodian in writing of the appointment, termination or
change in appointment of any Dividend and Transfer Agent of the Fund.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held by the
Custodian for the account of each Fund (other than Securities maintained in a
Securities Depository or Book-Entry System) shall be physically segregated from
other Securities and non-cash property in the possession of the Custodian
(including the Securities and non-cash property of the other Funds) and shall be
identified as subject to this Agreement.
3.2 Fund Custody Accounts. As to each Fund, the Custodian shall open
and maintain
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in its trust department a custody account in the name of the Trust coupled with
the name of the Fund, subject only to draft or order of the Custodian, in which
the Custodian shall enter and carry all Securities, cash and other assets of
such Fund which are delivered to it.
3.3 Appointment of Agents. (a) In its discretion, the Custodian may
appoint one or more Sub-Custodians to act as Securities Depositories or as
sub-custodians to hold Securities and cash of the Funds and to carry out such
other provisions of this Agreement as it may determine, provided, however, that
the appointment of any such agents and maintenance of any Securities and cash of
the Funds shall be at the Custodian's expense and shall not relieve the
Custodian of any of its obligations or liabilities under this Agreement.
(b) If, after the initial approval of Sub-Custodians by the Board Of
Trustees in connection with this Agreement, the Custodian wishes to appoint
other Sub-Custodians to hold property of the Funds, it will so notify the Trust.
(c) The Agreement between the Custodian and each Sub-Custodian acting
hereunder shall contain the required provisions set forth in Rule
17f-5(a)(1)(iii).
(d) At the end of each calendar quarter, the Custodian shall provide
written reports notifying the Board of Trustees of the placement of the
Securities and cash of the Funds with a particular Sub-Custodian and of any
material change in the Funds' arrangements. The Custodian shall promptly take
such steps as may be required to withdraw assets of the Funds from any
Sub-Custodian that has ceased to meet the requirements of Rule 17f-5 under the
1940 Act.
(e) With respect to its responsibilities under this Section 3.3, the
Custodian hereby warrants to the Trust that it agrees to exercise reasonable
care, prudence and diligence such as a
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person having responsibility for the safekeeping of property of the Funds. The
Custodian further warrants that a Fund's assets will be subject to reasonable
care, based on the standards applicable to custodians in the relevant market, if
maintained with each Sub-Custodian, after considering all factors relevant to
the safekeeping of such assets, including, without limitation: (i) the
Sub-Custodian's practices, procedures, and internal controls, including, but not
limited to, the physical protections available for certificated securities (if
applicable), the method of keeping custodial records, and the security and data
protection practices; (ii) whether the Sub-Custodian has the requisite financial
strength to provide reasonable care for Fund assets; (iii) the Sub-Custodian's
general reputation and standing and, in the case of a Securities Depository, the
Securities Depository's operating history and number of participants; and (iv)
whether the Fund will have jurisdiction over and be able to enforce judgments
against the Sub-Custodian, such as by virtue of the existence of any offices of
the Sub-Custodian in the United States or the Sub-Custodian's consent to service
of process in the United States.
(f) The Custodian shall establish a system to monitor the
appropriateness of maintaining the Funds' assets with a particular Sub-Custodian
and the contract governing the Funds' arrangements with such Sub-Custodian.
3.4 Delivery of Assets to Custodian. The Trust shall deliver, or cause
to be delivered, to the Custodian all of the Funds' Securities, cash and other
assets, including (a) all payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by the Fund for the issuance, at any time during
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such period, of Shares. The Custodian shall not be responsible for such
Securities, cash or other assets until actually received by it.
3.5 Securities Depositories and Book-Entry System. The Custodian may
deposit and/or maintain Securities of a Fund in a Securities Depository or in a
Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Fund in any Securities
Depository or Book-Entry System, the Trust shall deliver to the Custodian a
resolution of the Board Of Trustees, certified by an Officer, authorizing and
instructing the Custodian on an on-going basis to deposit in such Securities
Depository or Book-Entry System all Securities eligible for deposit therein and
to make use of such Securities Depository or Book-Entry System to the extent
possible and practical in connection with its performance hereunder, including,
without limitation, in connection with settlements of purchases and sales of
Securities, loans of Securities, and deliveries and returns of collateral
consisting of Securities.
(b) Securities of the Fund kept in a Book-Entry System or Securities
Depository shall be kept in an account ("Depository Account") of the Custodian
in such Book-Entry System or Securities Depository which includes only assets
held by the Custodian as a fiduciary, custodian or otherwise for customers.
(c) The records of the Custodian with respect to Securities of the Fund
maintained in a Book-Entry System or Securities Depository shall, by book-entry,
identify such Securities as belonging to the Fund.
(d) If Securities purchased by the Fund are to be held in a Book-Entry
System or
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Securities Depository, the Custodian shall pay for such Securities upon (i)
receipt of advice from the Book-Entry System or Securities Depository that such
Securities have been transferred to the Depository Account, and (ii) the making
of an entry on the records of the Custodian to reflect such payment and transfer
for the account of the Fund. If Securities sold by a Fund are held in a
Book-Entry System or Securities Depository, the Custodian shall transfer such
Securities upon (i) receipt of advice from the Book-Entry System or Securities
Depository that payment for such Securities has been transferred to the
Depository Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Fund.
(e) The Custodian shall provide the Trust with copies of any report
(obtained by the Custodian from a Book-Entry System or Securities Depository in
which Securities of the Fund are kept) on the internal accounting controls and
procedures for safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage to the Fund
resulting (i) from the use of a Book-Entry System or Securities Depository by
reason of any negligence or willful misconduct on the part of Custodian or any
Sub-Custodian appointed pursuant to Section 3.3 above or any of its or their
employees, or (ii) from failure of Custodian or any such Sub-Custodian to
enforce effectively such rights as it may have against a Book-Entry System or
Securities Depository. At its election, the Trust shall be subrogated to the
rights of the Custodian with respect to any claim against a Book-Entry System or
Securities Depository or any other person from any loss or damage to the Fund
arising from the use of such Book-Entry System or Securities Depository, if
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and to the extent that the Fund has not been made whole for any such loss or
damage.
3.6 Disbursement of Moneys from Fund Custody Account. Upon receipt of
Proper Instructions, the Custodian shall disburse moneys from a Fund Custody
Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only in accordance
with Section 4.1 of this Agreement and only (i) in the case of Securities (other
than options on Securities, futures contracts and options on futures contracts),
against the delivery to the Custodian (or any Sub-Custodian appointed pursuant
to Section 3.3 above) of such Securities registered as provided in Section 3.9
below or in proper form for transfer, or if the purchase of such Securities is
effected through a Book-Entry System or Securities Depository, in accordance
with the conditions set forth in Section 3.5 above; (ii) in the case of options
on Securities, against delivery to the Custodian (or such Sub-Custodian) of such
receipts as are required by the customs prevailing among dealers in such
options; (iii) in the case of futures contracts and options on futures
contracts, against delivery to the Custodian (or such Sub-Custodian) of evidence
of title thereto in favor of the Fund or any nominee referred to in Section 3.9
below; and (iv) in the case of repurchase or reverse repurchase agreements
entered into between the Trust and a bank which is a member of the Federal
Reserve System or between the Trust and a primary dealer in U.S. Government
securities, against delivery of the purchased Securities either in certificate
form or through an entry crediting the Custodian's account at a Book-Entry
System or Securities Depository with such Securities;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section
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3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
(d) In payment of the redemption price of Shares as provided in Section
5.1 below;
(e) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of the Fund:
interest; taxes; administration, investment advisory, accounting, auditing,
transfer agent, custodian, trustee and legal fees; and other operating expenses
of the Fund; in all cases, whether or not such expenses are to be in whole or in
part capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer registered under the 1934 Act
and a member of the NASD, relating to compliance with rules of The Options
Clearing Corporation and of any registered national securities exchange (or of
any similar organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Fund;
(g) For transfer in accordance with the provision of any agreement
among the Trust, the Custodian, and a futures commission merchant registered
under the Commodity Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in connection with
transactions by the Fund;
(h) For the funding of any uncertificated. time deposit or other
interest-bearing account with any banking institution (including the Custodian),
which deposit or account has a term of one year or less; and
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(i) For any other proper purpose, but only upon receipt, in addition to
Proper Instructions, of a copy of a resolution of the Board Of Trustees,
certified by an Officer, specifying the amount and purpose of such payment,
declaring such purpose to be a proper corporate purpose, and naming the person
or persons to whom such payment is to be made.
3.7 Delivery of Securities from Fund Custody Account. Upon receipt of
Proper Instructions, the Custodian shall release and deliver Securities from a
Fund Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of the Fund but only
against receipt of payment therefor in cash, by certified or cashiers check or
bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with tender or other
similar offers for Securities of the Fund; provided that, in any such case, the
cash or other consideration is to be delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer into the name
of the Fund, the Custodian or any Sub-Custodian appointed pursuant to Section
3.3 above, or of any nominee or nominees of any of the foregoing, or (ii) for
exchange for a different number of certificates or other evidence representing
the same aggregate face amount or number of units; provided that, in any such
case, the new Securities are to be delivered to the Custodian;
(e) To the broker selling Securities, for examination in accordance
with the "street delivery" custom;
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(f) For exchange or conversion pursuant to any plan or merger,
consolidation, recapitalization, reorganization or readjustment of the issuer of
such Securities, or pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement, including surrender or receipt
of underlying Securities in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the new Securities and
cash, if any, are to be delivered to the Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase or
reverse repurchase agreement entered into by the Fund;
(h) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new Securities and cash,
if any, are to be delivered to the Custodian;
(i) For delivery in connection with any loans of Securities of the
Fund, but only against receipt of such collateral as the Trust shall have
specified to the Custodian in Proper Instructions;
(j) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Trust, but only against receipt by the
Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Trust;
(l) For delivery in accordance with the provisions of any agreement
among the Trust,
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the Custodian and a broker-dealer registered under the 1934 Act and a member of
the NASD, relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or of any
similar organization or organizations) regarding escrow or other arrangements in
connection with transactions by the Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Trust, the Custodian, and a futures commission merchant registered
under the Commodity Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in connection with
transactions by the Fund; or
(n) For any other proper corporate purpose, but only upon receipt, in
addition to Proper Instructions, of a copy of a resolution of the Board Of
Trustees, certified by an Officer, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
3.8 Actions Not Requiring Proper Instructions. Unless otherwise
instructed by the Trust, the Custodian shall with respect to all Securities held
for a Fund:
(a) Subject to Section 7.4 below, collect on a timely basis all income
and other payments to which the Fund is entitled either by law or pursuant to
custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect on a
timely basis the amount payable upon all Securities which may mature or be
called, redeemed, or retired, or otherwise become payable;
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(c) Endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect, and prepare and submit
reports to the Internal Revenue Service ("IRS") and to the Trust at such time,
in such manner and containing such information as is prescribed by the IRS;
(f) Hold for the Fund, either directly or, with respect to Securities
held therein, through a Book-Entry System or Securities Depository, all rights
and similar securities issued with respect to Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in connection with the
sale, exchange, substitution, purchase, transfer and other dealings with
Securities and assets of the Fund.
3.9 Registration and Transfer of Securities. All Securities held for a
Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Book-Entry System if eligible therefor. All other Securities held for the Fund
may be registered in the name of the Fund, the Custodian, or any Sub-Custodian
appointed pursuant to Section 3.3 above, or in the name of any nominee of any of
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them, or in the name of a Book-Entry System, Securities Depository or any
nominee of either thereof. The Trust shall furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of any of the nominees hereinabove referred
to or in the name of a Book-Entry System or Securities Depository, any
Securities registered in the name of the Fund.
3.10 Records. (a) The Custodian shall maintain, by Fund, complete and
accurate records with respect to Securities, cash or other property held for the
Funds, including (i) journals or other records of original entry containing an
itemized daily record in detail of all receipts and deliveries of Securities and
all receipts and disbursements of cash; (ii) ledgers (or other records)
reflecting (A) Securities in transfer, (B) Securities in physical possession,
(C) monies and Securities borrowed and monies and Securities loaned (together
with a record of the collateral therefor and substitutions of such collateral),
(D) dividends and interest received, and (E) dividends receivable and interest
receivable; and (iii) canceled checks and bank records related thereto. The
Custodian shall keep such other books and records of the Funds as the Trust
shall reasonably request, or as may be required by the 1940 Act, including, but
not limited to, Section 31 of the 1940 Act and Rule 31a-2 promulgated
thereunder.
(b) All such books and records maintained by the Custodian shall (i) be
maintained in a form acceptable to the Trust and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Trust and at all times during the regular business hours of the Custodian be
made available upon request for inspection by duly authorized officers,
employees or agents of the Trust and employees or agents of the Securities
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and Exchange Commission, and (iii) if required to be maintained by Rule 31a-1
under the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under
the 1940 Act.
3.11 Fund Reports by Custodian. The Custodian shall furnish the Trust
with a daily activity statement and a summary of all transfers to or from each
Fund Custody Account on the day following such transfers. At least monthly and
from time to time, the Custodian shall furnish the Trust with a detailed
statement of the Securities and moneys held by the Custodian and the
Sub-Custodians for each Fund under this Agreement.
3.12 Other Reports by Custodian. The Custodian shall provide the Trust
with such reports, as the Trust may reasonably request from time to time, on the
internal accounting controls and procedures for safeguarding Securities, which
are employed by the Custodian or any Sub-Custodian appointed pursuant to Section
3.3 above.
3.13 Proxies and Other Materials. The Custodian shall cause all proxies
relating to Securities which are not registered in the name of the Funds, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Trust such proxies, all proxy soliciting materials and
all notices relating to such Securities.
3.14 Information on Corporate Actions. The Custodian shall promptly
deliver to the Trust all information received by the Custodian and pertaining to
Securities being held by the Funds with respect to optional tender or exchange
offers, calls for redemption or purchase, or expiration of rights as described
in the Standards of Service Guide attached as Exhibit B. If the Trust desires to
take action with respect to any tender offer,
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exchange offer or other similar transaction, the Trust shall notify the
Custodian at least five Business Days prior to the date on which the Custodian
is to take such action. The Trust will provide or cause to be provided to the
Custodian all relevant information for any Security which has unique put/option
provisions at least five Business Days prior to the beginning date of the tender
period.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUNDS
4.1 Purchase of Securities. Promptly upon each purchase of Securities
for a Fund, Written Instructions shall be delivered to the Custodian, specifying
(a) the name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any) or other units purchased, (c) the date of purchase and
settlement, (d) the purchase price per unit, (e) the total amount payable upon
such purchase, and (f) the name of the person to whom such amount is payable.
The Custodian shall upon receipt of such Securities purchased by such Fund pay
out of the moneys held for the account of a Fund the total amount specified in
such Written Instructions to the person named therein. The Custodian shall not
be under any obligation to pay out moneys to cover the cost of a purchase of
Securities for the Fund, if in the Fund Custody Account there is insufficient
cash available to the Fund for which such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for the purchase of
Securities for a Fund is made by the Custodian in
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advance of receipt of the Securities purchased but in the absence of specified
Written Instructions to so pay in advance, the Custodian shall be liable to the
Fund for such Securities to the same extent as if the Securities had been
received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of Securities by the
Fund, Written Instructions shall be delivered to the Custodian, specifying (a)
the name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Fund as specified in such Written Instructions, the
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, the Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3 above or
any other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment, shall be entitled, if in accordance with generally
accepted market practice, to deliver such Securities prior to actual receipt of
final payment therefor. In any such case, the applicable Fund shall bear the
risk that final payment for such Securities may not be made or that such
Securities may be returned or otherwise held or disposed of by or through the
person to whom they were delivered, and the Custodian shall have no liability
for any for the foregoing.
4.5 Payment for Securities Sold, etc. In its sole discretion and from
time to time, the
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Custodian may credit a Fund Custody Account, prior to actual receipt of final
payment thereof, with (i) proceeds from the sale of Securities which it has been
instructed to deliver against payment, (ii) proceeds from the redemption of
Securities or other assets of the Fund, and (iii) income from cash, Securities
or other assets of the Fund. Any such credit shall be conditional upon actual
receipt by Custodian of final payment and may be reversed if final payment is
not actually received in full. The Custodian may, in its sole discretion and
from time to time, permit the Fund to use funds so credited to the Fund Custody
Account in anticipation of actual receipt of final payment. Any such funds shall
be repayable immediately upon demand made by the Custodian at any time prior to
the actual receipt of all final payments in anticipation of which funds were
credited to the Fund Custody Account.
4.6 Advances by Custodian for Settlement. The Custodian may, in its
sole discretion and from time to time, advance funds to the Trust to facilitate
the settlement of a Fund's transactions in its Fund Custody Account. Any such
advance shall be repayable immediately upon demand made by Custodian.
ARTICLE V
REDEMPTION OF FUND SHARES
5.1 Transfer of Funds. From such funds as may be available for the
purpose in the relevant Fund Custody Account, and upon receipt of Proper
Instructions specifying that the funds are required to redeem Shares of the
Fund, the Custodian shall wire each amount specified in such Proper Instructions
to or through such bank as the Trust may designate with respect to such amount
in such Proper Instructions.
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5.2 No Duty Regarding Paying Banks. The Custodian shall not be under
any obligation to effect payment or distribution by any bank designated in
Proper Instructions given pursuant to Section 5.1 above of any amount paid by
the Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among the Trust,
the Custodian and a broker-dealer registered under the 1934 Act and a member of
the NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options Clearing
Trust and of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund,
(b) for purposes of segregating cash or Securities in connection with
securities options purchased or written by the Fund or in connection with
financial futures contracts (or options thereon) purchased or sold by the Fund,
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(c) which constitute collateral for loans of Securities made by the
Fund,
(d) for purposes of compliance by the Fund with requirements under the
1940 Act for the maintenance of segregated accounts by registered investment
companies in connection with reverse repurchase agreements and when-issued,
delayed delivery and firm commitment transactions, and
(e) for other proper corporate purposes, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of the Board
of Trustees, certified by an Officer, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper corporate
purposes.
Each segregated account established under this Article VI shall be
established and maintained for a single Fund only. All Proper Instructions
relating to a segregated account shall specify the Fund involved.
ARTICLE VIII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to the exercise of
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Trust or any Fund for any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim unless
such loss, damage, cost, expense, liability or claim arises from negligence, bad
faith or willful misconduct on its part or on the part of any Sub-Custodian
appointed pursuant to Section 3.3 above. The Custodian shall be entitled to rely
on and may act
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upon advice of counsel on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice. The Custodian shall
promptly notify the Trust of any action taken or omitted by the Custodian
pursuant to advice of counsel. The Custodian shall not be under any obligation
at any time to ascertain whether the Trust or the Fund is in compliance with the
1940 Act, the regulations thereunder, the provisions of the Trust's charter
documents or by-laws, or its investment objectives and policies as then in
effect.
7.2 Actual Collection Required. The Custodian shall not be liable for,
or considered to be the custodian of, any cash belonging to a Fund or any money
represented by a check, draft or other instrument for the payment of money,
until the Custodian or its agents actually receive such cash or collect on such
instrument.
7.3 No Responsibility for Title, etc. So long as and to the extent that
it is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities held for a Fund if such Securities are in
default or payment is not made after due demand or presentation.
7.5 Reliance Upon Documents and Instructions. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Oral Instructions
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and any Written Instructions actually received by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties or
obligations whatsoever except such duties and obligations as are specifically
set forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Custodian.
7.7 Co-operation. The Custodian shall cooperate with and supply
necessary information to the entity or entities appointed by the Trust to keep
the books of account of the Funds and/or compute the value of the assets of the
Funds. The Custodian shall take all such reasonable actions as the Trust may
from time to time request to enable the Trust to obtain, from year to year,
favorable opinions from the Trust's independent accountants with respect to the
Custodian's activities hereunder in connection with (a) the preparation of the
Trust's reports on Form N-IA and Form N-SAR and any other reports required by
the Securities and Exchange Commission, and (b) the fulfillment by the Trust of
any other requirements of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Trust. The Trust shall indemnify and hold
harmless the Custodian and any Sub-Custodian appointed pursuant to Section 3.3
above, and any nominee of the Custodian or of such Sub-Custodian, from and
against any loss, damage, cost, expense (including attorneys' fees and
disbursements), liability (including, without limitation, liability arising
under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any state or
foreign
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securities and/or banking laws) or claim arising directly or indirectly (a) from
the fact that Securities are registered in the name of any such nominee, or (b)
from any action or inaction by the Custodian or such Sub-Custodian (i) at the
request or direction of or in reliance on the advice of the Trust, or (ii) upon
Proper Instructions, or (c) generally, from the performance of its obligations
under this Agreement or any sub-custody agreement with a Sub-Custodian appointed
pursuant to Section 3.3 above, provided that neither the Custodian nor any such
Sub-Custodian shall be indemnified and held harmless from and against any such
loss, damage, cost, expense, liability or claim arising from the Custodian or
such Sub-Custodian's negligence, bad faith or willful misconduct.
8.2 Indemnification by Custodian. The Custodian shall indemnify and
hold harmless the Trust from and against any loss, damage, cost, expense
(including attorneys' fees and disbursements), liability (including without
limitation, liability arising under the Securities Act of 1933, the 1934 Act,
the 1940 Act, and any state or foreign securities and/or banking laws) or claim
arising from the negligence, bad faith or willful misconduct of the Custodian or
any Sub-Custodian appointed pursuant to Section 3.3 above, or any nominee of the
Custodian or of such Sub-Custodian.
8.3 Indemnity to be Provided. If the Trust requests the Custodian to
take any action with respect to Securities, which may, in the opinion of the
Custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Trust shall have provided
indemnity therefor to the Custodian in an amount and form satisfactory to the
Custodian.
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8.4 Security. If the Custodian advances cash or Securities to a Fund
for any purpose, either at the Trust's request or as otherwise contemplated in
this Agreement, or in the event that the Custodian or its nominee incurs, in
connection with its performance under this Agreement, any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim
(except such as may arise from its or its nominee's negligence, bad faith or
willful misconduct), then, in any such event, any property at any time held for
the account of such Fund shall be security therefor, and should the Fund fail
promptly to repay or indemnify the Custodian, the Custodian shall be entitled to
utilize available cash of the Fund and to dispose of other assets of the Fund to
the extent necessary to obtain reimbursement or indemnification.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian in the event of a failure
or delay (i) shall
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not discriminate against the Funds in favor of any other customer of the
Custodian in making computer time and personnel available to input or process
the transactions contemplated by this Agreement and (ii) shall use its best
efforts to ameliorate the effects of any such failure or delay.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 Effective Period. This Agreement shall become effective as of its
execution and shall continue in full force and effect until terminated as
hereinafter provided.
10.2 Termination. Either party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than sixty (60) days after the date of the
giving of such notice. If a successor custodian shall have been appointed by the
Board of Trustees, the Custodian shall, upon receipt of a notice of acceptance
by the successor custodian, on such specified date of termination (a) deliver
directly to the successor custodian all Securities (other than Securities held
in a Book-Entry System or Securities Depository) and cash then owned by the
Funds and held by the Custodian as custodian, and (b) transfer any Securities
held in a Book-Entry System or Securities Depository to an account of or for the
benefit of the Funds at the successor custodian, provided that the Trust shall
have paid to the Custodian all fees, expenses and other amounts to the payment
or reimbursement of which it shall then be entitled. Upon such delivery and
transfer, the Custodian shall be relieved of all obligations under this
Agreement. The Trust may at any time immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the Custodian by
regulatory authorities or upon the happening of a like event at the
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direction of an appropriate regulatory agency or court of competent
jurisdiction.
10.3 Failure to Appoint Successor Custodian. If a successor custodian
is not designated by the Trust on or before the date of termination specified
pursuant to Section 10.1 above, then the Custodian shall have the right to
deliver to a bank or corporation company of its own selection, which (a) is a
"bank" as defined in the 1940 Act and (b) has aggregate capital, surplus and
undivided profits as shown on its then most recent published report of not less
than $25 million, all Securities, cash and other property held by Custodian
under this Agreement and to transfer to an account of or for each Fund at such
bank or trust company all Securities of the Funds held in a Book-Entry System or
Securities Depository. Upon such delivery and transfer, such bank or trust
company shall be the successor custodian under this Agreement and the Custodian
shall be relieved of all obligations under this Agreement.
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon from
time to time by the Trust and the Custodian. The fees and other charges in
effect on the date hereof and applicable to the Fund are set forth in Exhibit C
attached hereto.
ARTICLE XII
LIMITATION OF LIABILITY
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the property of
the Trust as provided in the Trust's Agreement
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and Declaration of Trust, as from time to time amended. The execution and
delivery of this Agreement have been authorized by the Trustees, and this
Agreement has been signed and delivered by an authorized officer of the Trust,
acting as such, and neither such authorization by the Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the corporation property of the Trust as provided in the
above-mentioned Agreement and Declaration of Trust.
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions,
and other communications to be given hereunder shall be in writing and shall be
sent or delivered to the recipient at the address set forth after its name
hereinbelow:
To the Trust:
Westport Funds
c/o Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Telephone (513) 629-2000
Facsimile (513) 629-2041
To Custodian:
Star Bank, N.A.
425 Walnut Street, M.L. 6118
Cincinnati, Ohio 45202
Attention: Mutual Fund Custody Services
Telephone: (513) 632-3016
Facsimile: (513) 632-4448
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or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XIII. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio.
14.2 References to Custodian. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for the Funds and such other printed matter
as merely identifies Custodian as custodian for the Funds. The Trust shall
submit printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
14.3 No Waiver. No failure by either party hereto to exercise, and no
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
14.4 Amendments. This Agreement cannot be changed orally and no
amendment to this
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Agreement shall be effective unless evidenced by an instrument in writing
executed by the parties thereto.
14.5 Counterparts. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
14.6 Severability. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
14.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties thereto and their respective successors and
assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
14.8 Headings. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
- 32 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered in its name and on its behalf by its
representatives thereunto, duly authorized, all as of the day and year first
above written.
ATTEST:
WESTPORT FUNDS
________________________ By:________________________
Secretary Chairman
ATTEST: STAR BANK, N.A.
________________________ By:________________________
- 33 -
<PAGE>
EXHIBIT A
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons
authorized Trust to administer the Fund Custody Accounts.
Name Signature
- ---- ---------
John F. Splain __________________________
Robert G. Dorsey __________________________
Mark J. Seger __________________________
M. Kathleen Leugers __________________________
- 34 -
<PAGE>
APPENDIX B
Star Bank, N.A.
Standards of Service Guide
- 35 -
<PAGE>
Standards of Service Guide
STAR BANK, N.A.
MAIL LOCATION #6118,
425 WALNUT STREET,
CINCINNATI, OH 45202
October, 1997
<PAGE>
Star Bank, N.A.
Standards of Service Guide
Star Bank, N.A. is committed to providing superior quality service to
all customers and their agents at all times. We have compiled this guide as a
tool for our clients to determine our standards for the processing of security
settlements, payment collection, and capital change transactions. Deadlines
recited in this guide represent the times required for Star Bank to guarantee
processing. Failure to meet these deadlines will result in settlement at our
client's risk. In all cases, Star Bank will make every effort to complete all
processing on a timely basis.
Star Bank is a direct participant of the Depository Trust Company, a
direct member of the Federal Reserve Bank of Cleveland, and utilizes the Bankers
Trust Company as its agent for ineligible and foreign securities.
For corporate reorganizations, Star Bank utilizes SEI's Reorg Source,
Financial Information, Inc., XCITEK, DTC Important Notices, and the Wall Street
Journal.
For bond calls and mandatory puts, Star Bank utilizes SEI's Bond
Source, Kenny Information Systems, Standard & Poor's Corporation, and DTC
Important Notices. Star Bank will not notify clients of optional put
opportunities.
Any securities delivered free to Star Bank or its agents must be
received three (3) business days prior to any payment or settlement in order for
the Star Bank standards of service to apply.
Should you have any questions regarding the information contained in
this guide, please feel free to contact your account representative.
The information contained in this Standards of
Service Guide is subject to change. Should any
changes be made Star Bank will provide you with an
updated copy of its Standards of Service Guide.
<PAGE>
<TABLE>
<CAPTION>
Star Bank Security Settlement Standards
<S> <C> <C>
Transaction Type Instructions Deadlines* Delivery Instructions
DTC 1:30 P.M. on Settlement Date DTC Participant #2219
Agent Bank ID 27895
Institutional# ___________________
For Account# ____________________
Federal Reserve Book Entry 12:30 P.M. on Settlement Date Federal Reserve Bank of Cinti/Trust
for Star Bank, N.A. ABA# 042000013
For Account # ____________________
Federal Reserve Book Entry 1:00 P.M. on Settlement Date Federal Reserve Bank of Cinti/Spec
(Repurchase Agreement for Star Bank, N.A. ABA# 042000013
Collateral Only) For Account # ____________________
PTC Securities 12:00 P.M. on Settlement Date PTC For Account BTRST/CUST
(GNMA Book Entry) Sub Account: Star Bank, N.A. #090334
Physical Securities 9:30 A.M. EST on Settlement Date Bankers Trust Company
(for Deliveries, by 4:00 P.M. on 16 Wall Street, 4th Floor, Window 43
Settlement Date minus 1) for Star Bank Account #090334
CEDEL/EURO-CLEAR 11:00 A..M. on Settlement Date Euroclear Via Cedel Bridge
minus 2 In favor of Bankers Trust Comp
Cedel 53355
For Star Bank Account #501526354
Cash Wire Transfer 3:00 P.M. Star Bank,N.A. Cinti/Trust ABA#042000013
Credit Account #9901877
Further Credit to ____________________
Account# _______________________
</TABLE>
* All times listed are Eastern Standard Time.
<PAGE>
Star Bank Payment Standards
Security Type Income Principal
Equities Payable Date
Municipal Bonds* Payable Date Payable Date
Corporate Bonds* Payable Date Payable Date
Federal Reserve Bank Book Entry* Payable Date Payable Date
PTC GNMA's (P&I) Payable Date + 1 Payable Date + 1
CMOs *
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
SBA Loan Certificates When Received When Received
Unit Investment Trust Certificates* Payable Date Payable Date
Certificates of Deposit* Payable Date + 1 Payable Date + 1
Limited Partnerships When Received When Received
Foreign Securities When Received When Received
*Variable Rate Securities
Federal Reserve Bank Book Entry Payable Date Payable Date
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
NOTE: If a payable date falls on a weekend or bank holiday, payment will be
made on the immediately following business day.
<PAGE>
<TABLE>
<CAPTION>
Star Bank Corporate Reorganization Standards
<S> <C> <C> <C>
Type of Action Notification to Client Deadline for Client Instructions Transaction
to Star Bank Posting
Rights, Warrants, Later of 10 business days 5 business days prior to expiration Upon receipt
and Optional Mergers prior to expiration or
receipt of notice
Mandatory Puts with Later of 10 business days 5 business days prior to expiration Upon receipt
Option to Retain prior to expiration
or receipt of notice
Class Actions 10 business days prior to 5 business days prior to expiration Upon receipt
expiration date
Voluntary Tenders, Later of 10 business days 5 business days prior to expiration Upon receipt
Exchanges, prior to expiration or
and Conversions receipt of notice
Mandatory Puts, At posting of funds or None Upon receipt
Defaults, Liquidations, securities received
Bankruptcies, Stock
Splits, Mandatory
Exchanges
Full and Partial Calls Later of 10 business days None Upon receipt
prior to expiration or
receipt of notice
NOTE: Fractional shares/par amounts resulting from any of the above will be sold.
</TABLE>
<PAGE>
APPENDIX C
Star Bank, N.A.
Domestic Custody Fee Schedule
<PAGE>
Star Bank, N.A.
Domestic Custody Fee Schedule for Westport Asset Management
Star Bank, N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following Schedule:
I. Portfolio Transaction Fees:
(a) For each repurchase agreement transaction $ 7.00
(b) For each portfolio transaction processed through
DTC or Federal Reserve $ 9.00
(c) For each portfolio transaction processed through
our New York custodian $25.00
(d) For each GNMA/Amortized Security Purchase $16.00
(e) For each GNMA Prin/Int Paydown, GNMA Sales $ 8.00
(f) For each option/future contract written,
exercised or expired $40.00
(g) For each Cedel/Euro clear transaction $80.00
(h) For each Disbursement (Fund expenses only) $ 5.00
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversion), maturity, tender or exchange:
II. Market Value Fee
Based upon an annual rate of: Million
.0003 (3 Basis Points) on First $20
.0002 (2 Basis Points) on Next $20
.0001 (1 Basis Point) on Next $20
.000075 (3/4 Basis Point ) on Balance
III. Monthly Minimum Fee-Per Fund $275.00
IV. Out-of-Pocket Expenses
The only out-of-pocket expenses charged to your account will be
shipping fees or transfer fees.
V. Earnings Credits
On a monthly basis any earnings credits generated from uninvested
custody balances will be applied against any cash management service
fees generated. Earnings credits are based on a Cost of Funds Tiered
Earnings Credit Rate.
<PAGE>
Star Bank
Cash Management Fee Schedule for Westport Asset Management
<TABLE>
<CAPTION>
Services Unit Cost($) Monthly Cost ($)
<S> <C> <C>
D.D.A. Account Maintenance 14.00
Deposits .399
Deposited Items .109
Checks Paid .159
Balance Reporting - P.C. Access 50.00 1st Acct
35.00 each add'l
ACH Transaction .105
ACH Monthly Maintenance 40.00
ACH Additions, Deletions, Changes 3.50
ACH Debits .12
Controlled Disbursement (1st account) 110.00
Each additional account 25.00
Deposited Items Returned 6.00
International Items Returned 10.00
NSF Returned Checks 25.00
Stop Payments 22.00
Data Transmission per account 110.00
Data Capture* .10
Drafts Cleared .179
Lockbox Maintenance** 55.00
Lockbox items Processed
with copy of check .32
without copy of check .26
Checks Printed .20
Positive Pay .06
Issued Items .015
ARP Tape/Transmission/Diskette 25.00
Special Statements 6.00
Invoicing for Service Charge 15.00
Wires Incoming
Domestic 10.00
International 10.00
Wires Outgoing
Domestic International
Repetitive 12.00 Repetitive 35.00
Non-Repetitive 13.00 Non-Repetitive 40.00
PC-Initiated Wires:
Domestic International
Repetitive 9.00 Repetitive 25.00
Non-Repetitive 9.00 Non-Repetitive 25.00
</TABLE>
*** Uncollected Charge Star Bank Prime Rate as of first of month plus 4%
** Price can vary depending upon what information needs to be captured With
the use of lockbox, the collected balance in the demand deposit account
will be significantly increased and therefore earnings to offset cash
management service fees will be maximized
*** Fees for uncollected balances are figured on the monthly average of all
combined accounts.
**** Other available cash management services are priced separately.
Revised October, 1997
TRANSFER, DIVIDEND DISBURSING, SHAREHOLDER SERVICE
AND PLAN AGENCY AGREEMENT
AGREEMENT dated as of ___________, 1997 between The Westport Funds, a
Delaware business trust (the "Trust"), and Countrywide Fund Services, Inc.
("Countrywide"), an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust wishes to employ the services of Countrywide to
serve as its transfer, dividend disbursing, shareholder service and plan agent;
and
WHEREAS, Countrywide wishes to provide such services under the
conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and Countrywide agree as follows:
1. APPOINTMENT.
The Trust hereby appoints and employs Countrywide as agent to
perform those services described in this Agreement for the Trust. Countrywide
shall act under such appointment and perform the obligations thereof upon the
terms and conditions hereinafter set forth.
2. DOCUMENTATION.
The Trust will furnish from time to time the following
documents: A. Each resolution of the Board of Trustees of the Trust authorizing
the original issue of its shares;
B. Each Registration Statement filed with the Securities and
Exchange Commission (the "SEC") and amendments thereof;
C. A certified copy of each amendment to the Agreement and
Declaration of Trust and the Bylaws of the Trust;
D. Certified copies of each resolution of the Board of
Trustees authorizing officers to give instructions to Countrywide;
E. Specimens of all new forms of share certificates
accompanied by Board of Trustees' resolutions approving such forms;
<PAGE>
F. Such other certificates, documents or opinions which
Countrywide may, in its discretion, deem necessary or appropriate in the proper
performance of its duties;
G. Copies of all Underwriting and Dealer Agreements in effect;
H. Copies of all Investment Advisory Agreements in effect; and
I. Copies of all documents relating to special investment or
withdrawal plans which are offered or may be offered in the future by the Trust
and for which Countrywide is to act as plan agent.
3. COUNTRYWIDE TO RECORD SHARES.
Countrywide shall record the issuance of shares of the Trust
and maintain pursuant to applicable rules of the SEC a record of the total
number of shares of the Trust which are authorized, issued and outstanding,
based upon data provided to it by the Trust. Countrywide shall also provide the
Trust on a regular basis or upon reasonable request the total number of shares
which are authorized, issued and outstanding, but shall have no obligation when
recording the issuance of the Trust's shares, except as otherwise set forth
herein, to monitor the issuance of such shares or to take cognizance of any laws
relating to the issue or sale of such shares, which functions shall be the sole
responsibility of the Trust.
4. COUNTRYWIDE TO VALIDATE TRANSFERS.
Upon receipt of a proper request for transfer and upon
surrender to Countrywide of certificates, if any, in proper form for transfer,
Countrywide shall approve such transfer and shall take all necessary steps to
effectuate the transfer as indicated in the transfer request. Upon approval of
the transfer, Countrywide shall notify the Trust in writing of each such
transaction and shall make appropriate entries on the shareholder records
maintained by Countrywide.
5. SHARE CERTIFICATES.
If the Trust authorizes the issuance of share certificates and
an investor requests a share certificate, Countrywide will countersign and mail,
by insured first class mail, a share certificate to the investor at his address
as set forth on the transfer books of the Trust, subject to any other
instructions for delivery of certificates representing newly purchased shares
and subject to the limitation that no certificates representing newly purchased
shares shall be mailed to the investor until the cash purchase price of such
shares has
- 2 -
<PAGE>
been collected and credited to the account of the Trust maintained by the
Custodian. The Trust shall supply Countrywide with a sufficient supply of blank
share certificates and from time to time shall renew such supply upon request of
Countrywide. Such blank share certificates shall be properly signed, manually
or, if authorized by the Trust, by facsimile; and notwithstanding the death,
resignation or removal of any officers of the Trust authorized to sign share
certificates, Countrywide may continue to countersign certificates which bear
the manual or facsimile signature of such officer until otherwise directed by
the Trust. In case of the alleged loss or destruction of any share certificate,
no new certificates shall be issued in lieu thereof, unless there shall first be
furnished an appropriate bond satisfactory to Countrywide and the Trust, and
issued by a surety company satisfactory to Countrywide and the Trust.
6. RECEIPT OF FUNDS.
Upon receipt of any check or other instrument drawn or
endorsed to it as agent for, or identified as being for the account of, the
Trust or the principal underwriter of the Trust (the "Underwriter"), Countrywide
shall stamp the check or instrument with the date of receipt, determine the
amount thereof due the Trust and shall forthwith process the same for
collection. Upon receipt of notification of receipt of funds eligible for share
purchases in accordance with the Trust's then current prospectus and statement
of additional information, Countrywide shall notify the Trust, at the close of
each business day, in writing of the amount of said funds credited to the Trust
and deposited in its account with the Custodian, and shall similarly notify the
Underwriter of the amount of said funds credited to the Underwriter and
deposited in its account with its designated bank.
7. PURCHASE ORDERS.
Upon receipt of an order for the purchase of shares of the
Trust, accompanied by sufficient information to enable Countrywide to establish
a shareholder account, Countrywide shall, as of the next determination of net
asset value after receipt of such order in accordance with the Trust's then
current prospectus and statement of additional information, compute the number
of shares due to the shareholder, credit the share account of the shareholder,
subject to collection of the funds, with the number of shares so purchased,
shall notify the Trust in writing or by computer report at the close of each
business day of such transactions and shall mail to the shareholder and/or
dealer of record a notice of such credit when requested to do so by the Trust.
- 3 -
<PAGE>
8. RETURNED CHECKS.
In the event that Countrywide is notified by the Trust's
Custodian that any check or other order for the payment of money is returned
unpaid for any reason, Countrywide will:
A. Give prompt notification to,the Trust and the Underwriter
of the non-payment of said check;
B. In the absence of other instructions from the Trust or the
Underwriter, take such steps as may be necessary to redeem any shares purchased
on the basis of such returned check and cause the proceeds of such redemption
plus any dividends declared with respect to such shares to be credited to the
account of the Trust and to request the Trust's Custodian to forward such
returned check to the person who originally submitted the check; and
C. Notify the Trust of such actions and correct the Trust's
records maintained by Countrywide pursuant to this Agreement.
9. SALES CHARGE.
In computing the number of shares to credit to the account of
a shareholder, Countrywide will calculate the total of the applicable sales
charges with respect to each purchase as set forth in the Trust's current
prospectus and statement of additional information and in accordance with any
notification filed with respect to combined and accumulated purchases.
Countrywide will also determine the portion of each sales charge payable by the
Underwriter to the dealer of record participating in the sale in accordance with
such schedules as are from time to time delivered by the Underwriter to
Countrywide; provided, however, Countrywide shall have no liability hereunder
arising from the incorrect selection by Countrywide of the gross rate of sales
charges except that this exculpation shall not apply in the event the rate is
specified by the Underwriter or the Trust and Countrywide fails to select the
rate specified.
10. DIVIDENDS AND DISTRIBUTIONS.
The Trust shall furnish Countrywide with appropriate evidence
of trustee action authorizing the declaration of dividends and other
distributions. Countrywide shall establish procedures in accordance with the
Trust's then current prospectus and statement of additional information and with
other authorized actions of the Trust's Board of Trustees under which it will
have available from the Custodian or the Trust any required information for each
dividend and other distribution. After deducting any amount required to be
withheld by any applicable laws, Countrywide shall, as agent for each
shareholder who so
- 4 -
<PAGE>
requests, invest the dividends and other distributions in full and fractional
shares in accordance with the Trust's then current prospectus and statement of
additional information. If a shareholder has elected to receive dividends or
other distributions in cash, then Countrywide shall disburse dividends to
shareholders of record in accordance with the Trust's then current prospectus
and statement of additional information. Countrywide shall, on or before the
mailing date of such checks, notify the Trust and the Custodian of the estimated
amount of cash required to pay such dividend or distribution, and the Trust
shall instruct the Custodian to make available sufficient funds therefor in the
appropriate account of the Trust. Countrywide shall mail to the shareholders
periodic statements, as requested by the Trust, showing the number of full and
fractional shares and the net asset value per share of shares so credited. When
requested by the Trust, Countrywide shall prepare and file with the Internal
Revenue Service, and when required, shall address and mail to shareholders, such
returns and information relating to dividends and distributions paid by the
Trust as are required to be so prepared, filed and mailed by applicable laws,
rules and regulations.
11. UNCLAIMED DIVIDENDS AND UNCLAIMED REDEMPTION PROCEEDS.
Countrywide shall, at least annually, furnish in writing to
the Trust the names and addresses, as shown in the shareholder accounts
maintained by Countrywide, of all shareholders for which there are, as of the
end of the calendar year, dividends, distributions or redemption proceeds for
which checks or share certificates mailed in payment of distributions have been
returned. Countrywide shall use its best efforts to contact the shareholders
affected and to follow any other written instructions received from the Trust
concerning the disposition of any such unclaimed dividends, distributions or
redemption proceeds.
12. REDEMPTIONS AND EXCHANGES.
A. Countrywide shall process, in accordance with the Trust's
then current prospectus and statement of additional information, each order for
the redemption of shares accepted by Countrywide. Upon its approval of such
redemption transactions, Countrywide, if requested by the Trust, shall mail to
the shareholder and/or dealer of record a confirmation showing trade date,
number of full and fractional shares redeemed, the price per share and the total
redemption proceeds. For each such redemption, Countrywide shall either: (a)
prepare checks in the appropriate amounts for approval and verification by the
Trust and signature by an authorized officer of Countrywide and mail the checks
to the appropriate person, or (b) in the event redemption proceeds are to be
wired through the Federal Reserve Wire System or by bank wire, cause such
proceeds to be wired in
- 5 -
<PAGE>
federal funds to the bank account designated by the shareholder, or (c)
effectuate such other redemption procedures which are authorized by the Trust's
Board of Trustees or its then current prospectus and statement of additional
information. The requirements as to instruments of transfer and other
documentation, the applicable redemption price and the time of payment shall be
as provided in the then current prospectus and statement of additional
information, subject to such supplemental instructions as may be furnished by
the Trust and accepted by Countrywide. If Countrywide or the Trust determines
that a request for redemption does not comply with the requirements for
redemptions, Countrywide shall promptly notify the shareholder indicating the
reason therefor.
B. If shares of the Trust are eligible for exchange with
shares of any other investment company, Countrywide, in accordance with the then
current prospectus and statement of additional information and exchange rules of
the Trust and such other investment company, or such other investment company's
transfer agent, shall review and approve all exchange requests and shall, on
behalf of the Trust's shareholders, process such approved exchange requests.
C. Countrywide shall notify the Trust, the Custodian and the
Underwriter on each business day of the amount of cash required to meet payments
made pursuant to the provisions of this Paragraph 12, and, on the basis of such
notice, the Trust shall instruct the Custodian to make available from time to
time sufficient funds therefor in the appropriate account of the Trust.
Procedures for effecting redemption orders accepted from shareholders or dealers
of record by telephone or other methods shall be established by mutual agreement
between Countrywide and the Trust consistent with the Trust's then current
prospectus and statement of additional information.
D. The authority of Countrywide to perform its
responsibilities under Paragraph 7, Paragraph 10, and this Paragraph 12 shall be
suspended with respect to any series of the Trust upon receipt of notification
by it of the suspension of the determination of such series' net asset value.
13. AUTOMATIC WITHDRAWAL PLANS.
Countrywide will process automatic withdrawal orders pursuant
to the provisions of the withdrawal plans duly executed by shareholders and the
current prospectus and statement of additional information of the Trust.
Payments upon such withdrawal order shall be made by Countrywide from the
appropriate account maintained by the Trust with the Custodian on approximately
the last business day of each month in which a payment has been requested, and
Countrywide will withdraw from a shareholder's account and present for
repurchase or redemption as
- 6 -
<PAGE>
many shares as shall be sufficient to make such withdrawal payment pursuant to
the provisions of the shareholder's withdrawal plan and the current prospectus
and statement of additional information of the Trust. From time to time on new
automatic withdrawal plans a check for payment date already past may be issued
upon request by the shareholder.
14. LETTERS OF INTENT.
Countrywide will process such letters of intent for investing
in shares of the Trust as are provided for in the Trust's current prospectus and
statement of additional information. Countrywide will make appropriate deposits
to the account of the Underwriter for the adjustment of sales charges as therein
provided and will currently report the same to the Underwriter.
15. WIRE-ORDER PURCHASES.
Countrywide will send written confirmations to the dealers of
record containing all details of the wire-order purchases placed by each such
dealer by the close of business on the business day following receipt of such
orders by Countrywide or the Underwriter, with copies to the Underwriter. Upon
receipt of any check drawn or endorsed to the Trust (or Countrywide, as agent)
or otherwise identified as being payment of an outstanding wire-order,
Countrywide will stamp said check with the date of its receipt and deposit the
amount represented by such check to Countrywide's deposit accounts maintained
with the Custodian. Countrywide will compute the respective portions of such
deposit which represent the sales charge and the net asset value of the shares
so purchased, will cause the Custodian to transfer federal funds in an amount
equal to the net asset value of the shares so purchased to the Trust's account
with the Custodian, and will notify the Trust and the Underwriter before noon of
each business day of the total amount deposited in the Trust's deposit accounts,
and in the event that payment for a purchase order is not received by
Countrywide or the Custodian on the tenth business day following receipt of the
order, prepare an NASD "notice of failure of dealer to make payment" and forward
such notification to the Underwriter.
16. OTHER PLANS.
Countrywide will process such accumulation plans, group
programs and other plans or programs for investing in shares of the Trust as are
now provided for in the Trust's current prospectus and statement of additional
information and will act as plan agent for shareholders pursuant to the terms of
such plans and programs duly executed by such shareholders.
- 7 -
<PAGE>
17. RECORDKEEPING AND OTHER INFORMATION.
Countrywide shall create and maintain all records required by
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act and the rules thereunder, as the same
may be amended from time to time, pertaining to the various functions performed
by it and not otherwise created and maintained by another party pursuant to
contract with the Trust. All such records shall be the property of the Trust at
all times and shall be available for inspection and use by the Trust. Where
applicable, such records shall be maintained by Countrywide for the periods and
in the places required by Rule 31a-2 under the 1940 Act. The retention of such
records shall be at the expense of the Trust. Countrywide shall make available
during regular business hours all records and other data created and maintained
pursuant to this Agreement for reasonable audit and inspection by the Trust, any
person retained by the Trust, or any regulatory agency having authority over the
Trust.
18. SHAREHOLDER RECORDS.
Countrywide shall maintain records for each shareholder
account showing the following:
A. Names, addresses and tax identifying numbers;
B. Name of the dealer of record, if any;
C. Number of shares held of each series;
D. Historical information regarding the account of each
shareholder, including dividends and distributions in cash or invested in
shares;
E. Information with respect to the source of all dividends and
distributions allocated among income, realized short-term gains and realized
long-term gains;
F. Any instructions from a shareholder including all forms
furnished by the Trust and executed by a shareholder with respect to (i)
dividend or distribution elections and (ii) elections with respect to payment
options in connection with the redemption of shares;
G. Any correspondence relating to the current maintenance of a
shareholder's account;
H. Certificate numbers and denominations for any shareholder
holding certificates;
- 8 -
<PAGE>
I. Any stop or restraining order placed against a
shareholder's account;
J. Information with respect to withholding in the case of a
foreign account or any other account for which withholding is required by the
Internal Revenue Code of 1986, as amended; and
K. Any information required in order for Countrywide to
perform the calculations contemplated under this Agreement.
19. TAX RETURNS AND REPORTS.
Countrywide will prepare in the appropriate form, file with
the Internal Revenue Service and appropriate state agencies and, if required,
mail to shareholders of the Trust such returns for reporting dividends and
distributions paid by the Trust as are required to be so prepared, filed and
mailed and shall withhold such sums as are required to be withheld under
applicable federal and state income tax laws, rules and regulations.
20. OTHER INFORMATION TO THE TRUST.
Subject to such instructions, verification and approval of the
Custodian and the Trust as shall be required by any agreement or applicable law,
Countrywide will also maintain such records as shall be necessary to furnish to
the Trust the following: annual shareholder meeting lists, proxy lists and
mailing materials, shareholder reports and confirmations and checks for
disbursing redemption proceeds, dividends and other distributions or expense
disbursements.
21. ACCESS TO SHAREHOLDER INFORMATION.
Upon request, Countrywide shall arrange for the Trust's
investment advisor to have direct access to shareholder information contained in
Countrywide's computer system, including account balances, performance
information and such other information which is available to Countrywide with
respect to shareholder accounts.
22. COOPERATION WITH ACCOUNTANTS.
Countrywide shall cooperate with the Trust's independent
public accountants and shall take all reasonable action in the performance of
its obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
- 9 -
<PAGE>
23. SHAREHOLDER SERVICE AND CORRESPONDENCE.
Countrywide will provide and maintain adequate personnel,
records and equipment to receive and answer all shareholder and dealer inquiries
relating to account status, share purchases, redemptions and exchanges and other
investment plans available to Trust shareholders. Countrywide will answer
written correspondence from shareholders relating to their share accounts and
such other written or oral inquiries as may from time to time be mutually agreed
upon, and Countrywide will notify the Trust of any correspondence or inquiries
which may require an answer from the Trust.
24. PROXIES.
Countrywide shall assist the Trust in the mailing of proxy
cards and other material in connection with shareholder meetings of the Trust,
shall receive, examine and tabulate returned proxies and shall, if requested by
the Trust, provide at least one inspector of election to attend and participate
as required by law in shareholder meetings of the Trust.
25. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
26. COMPENSATION.
For the performance of Countrywide's obligations under this
Agreement, each series of the Trust shall pay Countrywide, on the first business
day following the end of each month, a monthly fee in accordance with the
schedule attached hereto as Schedule A. The Trust shall promptly reimburse
Countrywide for any out-of-pocket expenses and advances which are to be paid by
the Trust in accordance with Paragraph 27.
27. EXPENSES.
Countrywide shall furnish, at its expense and without cost to
the Trust (i) the services of its personnel to the extent that such services are
required to carry out its obligations under this Agreement and (ii) use of data
processing equipment. All costs and expenses not expressly assumed by
Countrywide under this Paragraph 27 shall be paid by the Trust, including, but
not limited to, costs and expenses of officers and employees of Countrywide in
attending meetings of the Board of Trustees and shareholders of the Trust, as
well as costs and expenses for postage, envelopes, checks, drafts, continuous
forms, reports, communications, statements and other materials, telephone,
telegraph and remote transmission lines, use of outside pricing
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<PAGE>
services, use of outside mailing firms, necessary outside record storage, media
for storage of records (e.g., microfilm, microfiche, computer tapes), printing,
confirmations and any other shareholder correspondence and any and all
assessments, taxes or levies assessed on Countrywide for services provided under
this Agreement. Postage for mailings of dividends, proxies, reports and other
mailings to all shareholders shall be advanced to Countrywide three business
days prior to the mailing date of such materials.
28. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
The parties hereto acknowledge and agree that nothing
contained herein shall be construed to require Countrywide to perform any
services for the Trust which services could cause Countrywide to be deemed an
"investment adviser" of the Trust within the meaning of Section 2(a)(20) of the
1940 Act or to supersede or contravene the Trust's prospectus or statement of
additional information or any provisions of the 1940 Act and the rules
thereunder. Except as otherwise provided in this Agreement and except for the
accuracy of information furnished to it by Countrywide, the Trust assumes full
responsibility for complying with all applicable requirements of the 1940 Act,
the Securities Act of 1933, as amended, and any other laws, rules and
regulations of governmental authorities having jurisdiction.
29. REFERENCES TO COUNTRYWIDE.
The Trust shall not circulate any printed matter which
contains any reference to Countrywide without the prior written approval of
Countrywide, excepting solely such printed matter as merely identifies
Countrywide as Administrative Services Agent, Transfer, Shareholder Servicing
and Dividend Disbursing Agent and Accounting Services Agent. The Trust will
submit printed matter requiring approval to Countrywide in draft form, allowing
sufficient time for review by Countrywide and its counsel prior to any deadline
for printing.
30. EQUIPMENT FAILURES.
Countrywide shall take all steps necessary to minimize or
avoid service interruptions, and has entered into one or more agreements making
provision for emergency use of electronic data processing equipment. Countrywide
shall have no liability with respect to equipment failures beyond its control.
31. INDEMNIFICATION OF COUNTRYWIDE.
A. Countrywide may rely on information reasonably believed by
it to be accurate and reliable. Except as may otherwise be required by the 1940
Act and the rules thereunder, neither Countrywide nor its shareholders,
officers, directors, employees, agents, control persons or affiliates of any
thereof shall be subject to any liability for, or any damages, expenses or
losses incurred by the Trust in connection with, any error of judgment,
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<PAGE>
mistake of law, any act or omission connected with or arising out of any
services rendered under or payments made pursuant to this Agreement or any other
matter to which this Agreement relates, except by reason of willful misfeasance,
bad faith or negligence on the part of any such persons in the performance of
the duties of Countrywide under this Agreement or by reason of reckless
disregard by any of such persons of the obligations and duties of Countrywide
under this Agreement.
B. Any person, even though also a director, officer, employee,
shareholder or agent of Countrywide, or any of its affiliates, who may be or
become an officer, trustee, employee or agent of the Trust, shall be deemed,
when rendering services to the Trust or acting on any business of the Trust, to
be rendering such services to or acting solely as an officer, trustee, employee
or agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of Countrywide or any of its
affiliates, even though paid by one of these entities.
C. The Trust shall indemnify and hold harmless Countrywide, its directors,
officers, employees, shareholders, agents, control persons and affiliates from
and against any and all claims, demands, expenses and liabilities (whether with
or without basis in fact or law) of any and every nature which Countrywide may
sustain or incur or which may be asserted against Countrywide by any person by
reason of, or as a result of: (i) any action taken or omitted to be taken by
Countrywide in good faith in reliance upon any certificate, instrument, order or
share certificate reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized person, upon the oral
instructions or written instructions of an authorized person of the Trust or
upon the opinion of legal counsel for the Trust or its own counsel; or (ii) any
action taken or omitted to be taken by Countrywide in connection with its
appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended or repealed. However, indemnification under this
subparagraph shall not apply to actions or omissions of Countrywide or its
directors, officers, employees, shareholders or agents in cases of its or their
own negligence, willful misconduct, bad faith, or reckless disregard of its or
their own duties hereunder.
32. TERMINATION
A. The provisions of this Agreement shall be effective on the
date first above written, shall continue in effect for two years from that date
and shall continue in force from year to year thereafter, but only so long as
such continuance is approved (1) by Countrywide, (2) by vote, cast in person at
a meeting called for the purpose, of a majority of the
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<PAGE>
Trust's trustees who are not parties to this Agreement or interested persons (as
defined in the 1940 Act) of any such party, and (3) by vote of a majority of the
Trust's Board of Trustees or a majority of the Trust's outstanding voting
securities.
B. Either party may terminate this Agreement on any date by
giving the other party at least sixty (60) days' prior written notice of such
termination specifying the date fixed therefor. Upon termination of this
Agreement, the Trust shall pay to Countrywide such compensation as may be due as
of the date of such termination, and shall likewise reimburse Countrywide for
any out-of-pocket expenses and disbursements reasonably incurred by Countrywide
to such date.
C. In the event that in connection with the termination of
this Agreement a successor to any of Countrywide's duties or responsibilities
under this Agreement is designated by the Trust by written notice to
Countrywide, Countrywide shall, promptly upon such termination and at the
expense of the Trust, transfer all records maintained by Countrywide under this
Agreement and shall cooperate in the transfer of such duties and
responsibilities, including provision for assistance from Countrywide's
cognizant personnel in the establishment of books, records and other data by
such successor.
33. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent Countrywide or any
affiliated person (as defined in the 1940 Act) of Countrywide from providing
services for any other person, firm or corporation (including other investment
companies); provided, however, that Countrywide expressly represents that it
will undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
34. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an officer of the, Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust.
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<PAGE>
35. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
36. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of
Ohio. Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
1940 Act shall be resolved by reference to such term or provision of the 1940
Act and to interpretations thereof, if any, by the United States Courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the SEC issued pursuant to said 1940 Act. In addition, where the
effect of a requirement of the 1940 Act, reflected in any provision of this
Agreement, is revised by rule, regulation or order of the SEC, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
37. NOTICES.
All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, telecommunicated,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
To the Trust: The Westport Funds
253 Riverside Avenue
Westport, Connecticut 06880
Attention: Edmund H. Nicklin, Jr.
To Countrywide: Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
or to such other address as any party may designate by notice complying with the
terms of this Section 37. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
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<PAGE>
38. AMENDMENT.
This Agreement may not be amended or modified except by a
written agreement executed by both parties.
39. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
40. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
41. FORCE MAJEURE.
If Countrywide shall be delayed in its performance of services
or prevented entirely or in part from performing services due to causes or
events beyond its control, including and without limitation, acts of God,
interruption of power or other utility, transportation or communication
services, acts of civil or military authority, sabotages, national emergencies,
explosion, flood, accident, earthquake or other catastrophe, fire, strike or
other labor problems, legal action, present or future law, governmental order,
rule or regulation, or shortages of suitable parts, materials, labor or
transportation, such delay or non-performance shall be excused and a reasonable
time for performance in connection with this Agreement shall be extended to
include the period of such delay or non-performance.
42. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
The Westport Funds
By: ___________________________
Its:
COUNTRYWIDE FUND SERVICES, INC.
By: ____________________________
Its: President
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<PAGE>
Schedule A
COMPENSATION
SERVICES FEE
- -------- ---
As Transfer Agent and Shareholder (Per Account)
Servicing Agent:
Westport Fund Payable monthly at a
rate of $20.00/year
on the first 5,000
accounts, $18.50/
year on the next
5,000 accounts and
$17.00/year on
accounts greater
than 10,000; subject
to a minimum of
$1,200 per month*
Westport Small Cap Fund Payable monthly at
rate of $20.00/year
an the first 5,000
accounts, $18.50/
year on the next
5,000 accounts and
$17.00/year on
accounts greater
than 10,000; subject
to a minimum of
$1,200 per month*
* With respect to series having multiple classes of shares, the monthly
minimum will be $1,000 per month for each class.
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THE WESTPORT FUNDS
SHAREHOLDER SERVICE PLAN
November 25, 1997
This Shareholder Service Plan (the "Plan") is adopted by The Westport
Funds (the "Trust") with respect to the Class A shares of beneficial interest of
each Series of the Trust.
SECTION 1. ADMINISTRATOR
The Trust has entered into an Administration Agreement (the
"Agreement") with Countrywide Fund Services, Inc. ("Countrywide") whereby
Countrywide provides certain administrative services for the Trust.
SECTION 2. SERVICE AGREEMENTS; PAYMENTS
(a) Countrywide is authorized to enter into Shareholder Service
Agreements (the "Agreements"), the form of which shall be approved by the Board
of Trustees of the Trust (the "Board"), with financial institutions and other
persons who provide services for and maintain shareholder accounts ("Service
Providers") as set forth in this Plan.
(b) Pursuant to the Agreements, as compensation for the services
described in Section 4 below, Countrywide may pay the Service Provider, on
behalf of the Class A shares of each Series of the Trust, a fee at an annual
rate of up to 0.25% of the average daily net assets of the Class A shares of
each Series of the Trust represented by the Class A shareholder accounts for
which the Service Provider maintains a service relationship.
Provided, however, that the Trust shall not directly or indirectly pay
any amounts, whether Payments (as defined in the Agreements) or otherwise, that
exceed any applicable limits imposed by law or the National Association of
Securities Dealers, Inc.
(c) Each Agreement shall contain a representation by the Service
Provider that any compensation payable to the Service Provider in connection
with an investment in the Class A shares of a Series of the assets of its
customers (i) will be disclosed by the Service Provider to its customers, (ii)
will be authorized by its customers, and (iii) will not result in an excessive
fee to the Service Provider.
SECTION 3. SHAREHOLDER SERVICE FEE
Pursuant to this Plan, the Trust shall daily accrue and monthly pay
Countrywide a Shareholder Service Fee not to exceed the lessor of (i) 0.25% per
annum of the average daily net assets of the Class A shares of each Series of
the Trust or (ii) the combined Payments made by Countrywide with respect to the
Class A shares of each Series of the Trust for the month.
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<PAGE>
SECTION 4. SERVICE ACTIVITIES
Service activities include (a) establishing and maintaining accounts
and records relating to clients of Service Provider; (b) answering shareholder
inquiries regarding the manner in which purchases, exchanges and redemptions of
Class A shares of the Trust may be effected and other matters pertaining to the
Trust's services; (c) providing necessary personnel and facilities to establish
and maintain shareholder accounts and records; (d) assisting shareholders in
arranging for processing purchase, exchange and redemption transactions; (e)
arranging for the wiring of funds; (f) guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder-designated accounts; (g) integrating periodic statements with other
shareholder transactions; and (h) providing such other related services as the
shareholder may request.
SECTION 5. AMENDMENT AND TERMINATION
(a) Any material amendment to the Plan shall be effective only upon
approval of the Board, including a majority of the trustees who are not
interested persons of the Trust as defined in the Investment Company Act of 1940
(the "Disinterested Trustees"), pursuant to a vote cast in person at a meeting
called for the purpose of voting on the amendment to the Plan.
(b) The Plan may be terminated without penalty at any time by a vote of
a majority of the Disinterested Trustees.
2
THE WESTPORT FUNDS
SHAREHOLDER SERVICE AGREEMENT
AGREEMENT made this _ day of _________, 199_, between Countrywide Fund
Services, Inc. ("Countrywide"), a corporation organized under the laws of State
of [Delaware] with its principal place of business at [ ] and the institution
executing this document below (the "Institution").
WHEREAS, Countrywide acts as administrator of The Westport Funds (the
"Trust"), a Delaware business trust registered under the Investment Company Act
of 1940, as amended (the "Act") as an open-end management investment company,
which may issue its shares of beneficial interest in separate series; and
WHEREAS, the Trust has adopted a Shareholder Service Plan with respect
to the Class A shares of each Series of the Trust (the "Service Plan") that
authorizes Countrywide to pay fees to qualified financial institutions for
maintaining and providing services to shareholder accounts of such Series; and
WHEREAS, Countrywide desires that Institution perform certain service
activities on behalf of Countrywide and the Trust with respect to the Trust and
Institution is willing to perform those services on the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, for and in consideration of the representations,
covenants and agreements contained herein and other valuable consideration, the
undersigned parties do hereby agree as follows:
SECTION 1. SERVICE ACTIVITIES
In connection with providing services and maintaining shareholder
accounts of the Class A shares of each Series of the Trust with respect to its
various customers, Institution may provide services including: (a) establishing
and maintaining accounts and records relating to clients of Institution; (b)
answering shareholder inquiries regarding the manner in which purchases,
exchanges and redemptions of Class A shares of the Trust may be effected and
other matters pertaining to the Trust's services; (c) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records; (d) assisting shareholders in arranging for processing purchase,
exchange and redemption transactions; (e) arranging for the wiring of funds; (f)
guaranteeing shareholder signatures in connection with redemption orders and
transfers and changes in shareholder-designated accounts; (g) integrating
periodic statements with other shareholder transactions; and (h) providing such
other related services as the shareholder may request. Institution shall not be
obligated to perform any specific service for its clients. Institution's
appointment shall be nonexclusive and Countrywide may enter into similar
agreements with other persons.
SECTION 2. COMPENSATION
(a) As compensation for Institution's service activities with respect
to the Trust, Countrywide shall pay Institution fees in the amounts listed on
Schedule A to this Agreement (the "Payments"); provided, however, that in no
event will Countrywide be required to make any payments for service activities
in an amount greater than that which Countrywide is paid by the Trust for such
services.
1
<PAGE>
(b) The Payments shall be accrued daily and paid monthly or at such
other interval as Countrywide and Institution shall agree.
(c) On behalf of the Class A shares of each Series of the Trust,
Institution may spend such amounts and incur such expenses as it deems
appropriate or necessary on any service activities. Such expenses may include
compensation to employees and expenses, including overhead and telephone and
other communication expenses, of Institution. Institution shall be solely liable
for any expenses it incurs.
SECTION 3. REPRESENTATIONS OF INSTITUTION
Institution represents that:
(a) the compensation payable to it under this Agreement in connection
with the investment in the Class A shares of each Series of the Trust of the
assets of its customers (i) will be disclosed by the Institution to its
customers, (ii) will be authorized by its customers, and (iii) will not result
in an excessive fee to Institution;
(b) if it is a member of the National Association of Securities
Dealers, Inc. ("NASD"), it shall abide by the Rules of Conduct of the NASD;
(c) it will, in connection with sales and offers to sell shares,
furnish to or otherwise insure that each person to whom any such sale or offer
is made receives a copy of the Trust's then current prospectus;*
(d) it will purchase shares only as agent of the Trust and that it will
purchase shares only for the purpose of covering purchase orders already
received or for its own bona fide investment purposes;*
(e) the performance of all its obligations hereunder will comply with
all applicable laws and regulations, including any applicable Federal securities
laws and any requirements to deliver confirmations to its customers, the
provisions of its charter documents and bylaws and all material contractual
obligations binding upon the Institution; and
(f) it will promptly inform the Trust of any change in applicable laws
or regulations (or interpretations thereof) or in its charter or bylaws or
material contracts which would prevent or impair full performance of any of its
obligations hereunder.
SECTION 4. FUND LITERATURE*
Institution is not authorized to make any representations concerning
shares of the Trust except those contained in the Trust's then current
prospectus and statement of additional information ("SAI") and printed
information issued by the Trust or by Countrywide as information supplemental to
the prospectus. Countrywide will supply Institution upon its request with
prospectuses, SAIs, reasonable quantities of supplemental sales literature and
additional information. Institution agrees not to use other advertising or sales
material relating to the Trust unless approved in writing by Countrywide in
advance of such use. Any
____________________
* [To be included only in Agreements with dealers with whom the Trust's
Distributor has entered into an agreement.]
2
<PAGE>
printed information furnished by Countrywide other than the then current
prospectus and SAI, periodic reports and proxy solicitation materials are
Countrywide's sole responsibility and are not the responsibility of the Trust
and the Trust shall have no liability or responsibility to Institution in these
respects unless expressly assumed in connection therewith. Institution shall
have no responsibility with regard to the accuracy or completeness of any of the
printed information furnished by the Trust and shall be held harmless by the
Trust from and against any cost or loss arising therefrom.
SECTION 5. REPORTS
Institution shall prepare and furnish to Countrywide, at Countrywide's
request, written reports setting forth all amounts expended by Institution and
identifying the activities for which the expenditures were made.
SECTION 6. INDEMNIFICATION
Institution agrees to indemnify and hold harmless Countrywide and the
Trust from any claims, expenses, or liabilities incurred by Countrywide or the
Trust as a result of any act or omission of the Institution in connection with
its services under this Agreement.
SECTION 7. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective on the date hereof and, upon
its effectiveness, shall supersede all previous agreements between the parties
covering the subject matter hereof.
(b) This Agreement may be terminated as follows:
(i) at any time, without the payment of any penalty, by the
vote of a majority of the Trustees of the Trust;
(ii) automatically in the event of the termination of the
Administration agreement between the Trust and Countrywide or the
Service Plan;
(iii) automatically in the event of the assignment of this
Agreement as defined in the Act; and
(iv) by either party to the Agreement without cause by giving
the other party at least sixty (60) days' written notice of its
intention to terminate.
SECTION 8. NOTICES
Any notice under this Agreement shall be in writing and shall be
addressed and delivered, or mailed postage prepaid, to the other party's
principal place of business, or to such other place as shall have been
previously specified by written notice given to the other party.
3
<PAGE>
SECTION 9. AMENDMENTS
Subject to approval of material amendments to the form of this
Agreement by the Trust's Board of Trustees, this Agreement may be amended by the
parties at any time. In addition, this Agreement may be amended by Countrywide
from time to time by the following procedure: Countrywide will mail a copy of
the amendment to Institution at its principal place of business or such other
address as Institution shall in writing provide to Countrywide. If Institution
does not object to the amendment within thirty (30) days after its receipt, the
amendment will become part of the Agreement. The Institution's objection must be
in writing and be received by Countrywide within the thirty (30) days.
SECTION 10. USE OF THE TRUST'S NAME
Institution shall not use the name of the Trust on any checks, bank
drafts, bank statements or forms for other than internal use in a manner not
approved by the Trust prior thereto in writing; provided, however, that the
approval of the Trust shall not be required for the use of the Trust's name
which merely refers in accurate and factual terms to the Trust in connection
with the Institution's role hereunder or which is required by any appropriate
regulatory, governmental or judicial authority; and further provided that in no
event shall such approval be unreasonably withheld or delayed.
SECTION 11. MISCELLANEOUS
(a) This Agreement shall be construed in accordance with the laws of
the State of New York.
(b) If any provision of this Agreement shall be held invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall not
be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
INSTITUTION:
_______________________________________
Name of Institution
By:____________________________________
COUNTRYWIDE FUND SERVICES, INC.
By:_________________________________
Name:
Title:
4
<PAGE>
THE WESTPORT FUNDS
SHAREHOLDER SERVICE AGREEMENT
Schedule A
PAYMENTS PURSUANT TO THE SERVICE PLAN
up to 0.25% of the average annual daily net assets of the Westport Fund
represented by shares owned by investors for which Institution provides services
pursuant to this Agreement.
up to 0.25% of the average annual daily net assets of the Westport Small Cap
Fund represented by shares owned by investors for which Institution provides
services pursuant to this Agreement.
5
ADMINISTRATION AGREEMENT
AGREEMENT dated as of ________________, 1997 between The Westport
Funds, a Delaware business trust (the "Trust"), and Countrywide Fund Services,
Inc. ("Countrywide"), an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust wishes to employ the services of Countrywide to
serve as its administrative agent; and
WHEREAS, Countrywide wishes to provide such services under the
conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and Countrywide agree as follows:
1. APPOINTMENT.
The Trust hereby appoints and employs Countrywide as agent to
perform those services described in this Agreement for the Trust. Countrywide
shall act under such appointment and perform the obligations thereof upon the
terms and conditions hereinafter set forth.
2. DOCUMENTATION.
The Trust, will furnish from time to time the following
documents:
A. Each resolution of the Board of Trustees of the Trust
authorizing the original issue of its shares;
B. Each Registration Statement filed with the Securities
and Exchange Commission (the "SEC") and amendments
thereof;
C. A certified copy of each amendment to the Agreement and
Declaration of Trust and the Bylaws of the Trust;
D. Certified copies of each resolution of the Board of
Trustees authorizing officers to give instructions to
Countrywide;
E. Specimens of all new forms of share certificates
accompanied by Board of Trustees' resolutions approving
such forms;
<PAGE>
F. Such other certificates, documents or opinions which
Countrywide may, in its discretion, deem necessary or
appropriate in the proper performance of its duties;
G. Copies of all Underwriting and Dealer Agreements in
effect;
H. Copies of all Advisory Agreements in effect; and
I. Copies of all documents relating to special investment
or withdrawal plans which are offered or may be offered
in the future by the Trust and for which Countrywide is
to act as plan agent.
3. TRUST ADMINISTRATION.
Subjectto the direction and control of the Trustees of the
Trust, Countrywide shall supervise the Trust's business affairs not otherwise
supervised by other agents of the Trust. To the extent not otherwise the primary
responsibility of, or provided by, other agents of the Trust, Countrywide shall
supply (i) office facilities, (ii) internal auditing and regulatory services,
and (iii) executive and administrative services. Countrywide shall coordinate
the preparation of (i) tax returns, (ii) reports to shareholders of the Trust,
(iii) reports to and filings with the SEC and state securities authorities
including preliminary and definitive proxy materials, post-effective amendments
to the Trust's registration statement, and the Trust's Form N-SAR, and (iv)
necessary materials for Board of Trustees' meetings unless prepared by other
parties under agreement with the Trust. Countrywide shall provide personnel to
serve as officers of the Trust if so elected by the Board of Trustees; provided,
however, that the Trust shall reimburse Countrywide for the reasonable
out-of-pocket expenses incurred by such personnel in attending Board of
Trustees' meetings and shareholders' meetings of the Trust.
4. RECORDKEEPING AND OTHER INFORMATION.
Countrywide shall create and maintain all records required by
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act and the rules thereunder, as the same
may be amended from time to time, pertaining to the various functions performed
by it and not otherwise created and maintained by another party pursuant to
contract with the Trust. All such records shall be the property of the Trust at
all times and shall be available for inspection and use by the Trust. Where
applicable, such records shall be maintained by Countrywide for the periods and
in the places required by Rule 31a-2 under the 1940 Act. The retention of such
records shall be at the expense of the Trust. Countrywide shall make available
during regular business hours all records and
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<PAGE>
other data created and maintained pursuant to this Agreement for reasonable
audit and inspection by the Trust, any person retained by the Trust, or any
regulatory agency having authority over the Trust.
5. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
6. COMPENSATION.
For the performance of Countrywide's obligations under this
Agreement, each series of the Trust shall pay Countrywide, on the first business
day following the end of each month, a monthly fee at the annual rate of .125%
of such series, average daily net assets up to $50 million; .10% of such assets
from $50 to $100 million; .075% of such assets from $100 to $150 million; and
.05% of such assets in excess of $150 million; provided, however, that the
minimum fee shall be $1,000 per month for each series.
7. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
The parties hereto acknowledge and agree that nothing
contained herein shall be construed to require Countrywide to perform any
services for the Trust which services could cause Countrywide to be deemed an
"investment advisor" of the Trust within the meaning of Section 2(a)(20) of the
1940 Act or to supersede or contravene the Trust's prospectus or statement of
additional information or any provisions of the 1940 Act and the rules
thereunder. Except as otherwise provided in this Agreement and except for the
accuracy of information furnished to it by Countrywide, the Trust assumes full
responsibility for complying with all applicable requirements of the 1940 Act,
the Securities Act of 1933, as amended, and any other laws, rules and
regulations of governmental authorities having jurisdiction.
8. REFERENCES TO COUNTRYWIDE.
The Trust shall not circulate any printed matter which
contains any reference to Countrywide without the prior written approval of
Countrywide, excepting solely such printed matter as merely identifies
Countrywide as Administrative Services Agent, Transfer, Shareholder Servicing
and Dividend Disbursing Agent and Accounting Services Agent. The Trust will
submit printed matter requiring approval to Countrywide in draft form, allowing
sufficient time for review by Countrywide and its counsel prior to any deadline
for printing.
- 3 -
<PAGE>
9. INDEMNIFICATION OF COUNTRYWIDE.
A. Countrywide may rely on information reasonably believed by
it to be accurate and reliable. Except as may otherwise be required by the 1940
Act and the rules thereunder, neither Countrywide nor its shareholders,
officers, directors, employees, agents, control persons or affiliates of any
thereof shall be subject to any liability for, or any damages, expenses or
losses incurred by the Trust in connection with, any error of judgment, mistake
of law, any act or omission connected with or arising out of any services
rendered under or payments made pursuant to this Agreement or any other matter
to which this Agreement relates, except by reason of willful misfeasance, bad
faith or negligence on the part of any such persons in the performance of the
duties of Countrywide under this Agreement or by reason of reckless disregard by
any of such persons of the obligations and duties of Countrywide under this
Agreement.
B. Any person, even though also a director, officer, employee,
shareholder or agent of Countrywide, or any of its affiliates, who may be or
become an officer, trustee, employee or agent of the Trust, shall be deemed,
when rendering services to the Trust or acting on any business of the Trust, to
be rendering such services to or acting solely as an officer, trustee, employee
or agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of Countrywide or any of its
affiliates, even though paid by one of these entities.
C. Notwithstanding any other provision of this Agreement, the Trust shall
indemnify and hold harmless Countrywide, its directors, officers, employees,
shareholders, agents, control persons and affiliates from and against any and
all claims, demands, expenses and liabilities (whether with or without basis in
fact or law) of any and every nature which Countrywide may sustain or incur or
which may be asserted against Countrywide by any person by reason of, or as a
result of: (i) any action taken or omitted to be taken by Countrywide in good
faith in reliance upon any certificate, instrument, order or share certificate
reasonably believed by it to be genuine and to be signed, countersigned or
executed by any duly authorized person, upon the oral instructions or written
instructions of an authorized person of the Trust or upon the opinion of legal
counsel for the Trust or its own counsel; or (ii) any action taken or omitted to
be taken by Countrywide in connection with its appointment in good faith in
reliance upon any law, act, regulation or interpretation of the same even though
the same may thereafter have been altered, changed, amended or repealed.
However, indemnification under this subparagraph shall not apply to actions or
omissions of Countrywide or its directors, officers, employees, shareholders or
agents in cases of its or their own negligence, willful misconduct, bad faith,
or reckless disregard of its or their own duties hereunder.
- 4 -
<PAGE>
10. TERMINATION
A. The provisions of this Agreement shall be effective on the
date first above written, shall continue in effect for two years from that date
and shall continue in force from year to year thereafter, but only so long as
such continuance is approved (1) by Countrywide, (2) by vote, cast in person at
a meeting called for the purpose, of a majority of the Trust's trustees who are
not parties to this Agreement or interested persons (as defined in the 1940 Act)
of any such party, and (3) by vote of a majority of the Trust's Board of
Trustees or a majority of the Trust's outstanding voting securities.
B. Either party may terminate this Agreement on any date by
giving the other party at least sixty (60) days' prior written notice of such
specifying the date fixed therefor. Upon termination of this Agreement, the
Trust shall pay to Countrywide such compensation as may be due as of the date of
such termination, and shall likewise reimburse Countrywide for any out-of-pocket
expenses and disbursements reasonably incurred by Countrywide to such date.
C. In the event that in connection with the termination of
this Agreement a successor to any of Countrywide's duties or responsibilities
under this Agreement is designated by the Trust by written notice to
Countrywide, Countrywide shall, promptly upon such termination and at the
expense of the Trust, transfer all records maintained by Countrywide under this
Agreement and shall cooperate in the transfer of such duties and
responsibilities, including provision for assistance from Countrywide's
cognizant personnel in the establishment of books, records and other data by
such successor.
11. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent Countrywide or any
affiliated person (as defined in the 1940 Act) of Countrywide from providing
services for any other person, firm or corporation (including other investment
companies); provided, however, that Countrywide expressly represents that it
will undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
12. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an officer of the
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<PAGE>
Trust, acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust.
13. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
14. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of
Ohio. Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
1940 Act shall be resolved by reference to such term or provision of the 1940
Act and to interpretations thereof, if any, by the United States Courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the SEC issued pursuant to said 1940 Act. In addition, where the
effect of a requirement of the 1940 Act, reflected in any provision of this
Agreement, is revised by rule, regulation or order of the SEC, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
15. NOTICES.
All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, telecommunicated,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
To the Trust: The Westport Funds
253 Riverside Avenue
Westport, Connecticut 06880
Attention: Edmund H. Nicklin, Jr.
To Countrywide: Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
or to such other address as any party may designate by notice complying with the
terms of this Section 15. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
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<PAGE>
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
16. AMENDMENT.
This Agreement may not be amended or modified except by a
written agreement executed by both parties.
17. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
18. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
19. FORCE MAJEURE.
If Countrywide shall be delayed in its performance of services
or prevented entirely or in part from performing services due to causes or
events beyond its control, including and without limitation, acts of God,
interruption of power or other utility, transportation or communication
services, acts of civil or military authority, sabotages, national emergencies,
explosion, flood, accident, earthquake or other catastrophe, fire, strike or
other labor problems, legal action, present or future law, governmental order,
rule or regulation, or shortages of suitable parts, materials, labor or
transportation, such delay or non-performance shall be excused and a reasonable
time for performance in connection with this Agreement shall be extended to
include the period of such delay or non-performance.
20. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
THE WESTPORT FUNDS
By:_______________________________
Its:
COUNTRYWIDE FUND SERVICES, INC.
By:_______________________________
Its: President
- 8 -
ACCOUNTING SERVICES AGREEMENT
AGREEMENT dated as of ______________, 1997 between The Westport Funds,
a Delaware business trust (the "Trust"), and Countrywide Fund Services, Inc.
("Countrywide"), an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust wishes to employ the services of Countrywide to
provide the Trust with certain accounting and pricing services; and
WHEREAS, Countrywide wishes to provide such services under the
conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and Countrywide agree as follows:
1. APPOINTMENT.
The Trust hereby appoints and employs Countrywide as agent to
perform those services described in this Agreement for the Trust. Countrywide
shall act under such appointment and perform the obligations thereof upon the
terms and conditions hereinafter set forth.
2. CALCULATION OF NET ASSET VALUE.
Countrywide will calculate the net asset value of each series
of the Trust and the per share net asset value of each series of the Trust, in
accordance with the Trust's current prospectus and statement of additional
information, once daily as of the time selected by the Trust's Board of
Trustees. Countrywide will prepare and maintain a daily valuation of all
securities and other assets of the Trust in accordance with instructions from a
designated officer of the Trust or its investment advisor and in the manner set
forth in the Trust's current prospectus and statement of additional information.
In valuing securities of the Trust, Countrywide may contract with, and rely upon
market quotations provided by, outside services.
3. BOOKS AND RECORDS.
Countrywide will maintain and keep current the general ledger
for each series of the Trust, recording all income and expenses, capital share
activity and security transactions of the Trust. Countrywide will maintain such
further books and records as are necessary
<PAGE>
to enable it to perform its duties under this Agreement, and will periodically
provide reports to the Trust and its authorized agents regarding share purchases
and redemptions and trial balances of each series of the Trust. Countrywide will
prepare and maintain complete, accurate and current all records with respect to
the Trust required to be maintained by the Trust under the Internal Revenue Code
of 1986, as amended, and under the rules and regulations of the 1940 Act, and
will preserve said records in the manner and for the periods prescribed in the
Code and the 1940 Act. The retention of such records shall be at the expense of
the Trust.
All of the records prepared and maintained by Countrywide
pursuant to this Section 3 which are required to be maintained by the Trust
under the Code and the 1940 Act will be the property of the Trust. In the event
this Agreement is terminated, all such records shall be delivered to the Trust
at the Trust's expense, and Countrywide shall be relieved of responsibility for
the preparation and maintenance of any such records delivered to the Trust.
4. PAYMENT OF TRUST EXPENSES.
Countrywide shall process each request received from the Trust
or its authorized agents for payment of the Trust's expenses. Upon receipt of
written instructions signed by an officer or other authorized agent of the
Trust, Countrywide shall prepare checks in the appropriate amounts which shall
be signed by an authorized officer of Countrywide and mailed to the appropriate
party.
5. FORM N-SAR.
Countrywide shall maintain such records within its control and
shall be requested by the Trust to assist the Trust in fulfilling the
requirements of Form N-SAR.
6. COOPERATION WITH ACCOUNTANTS.
Countrywide shall cooperate with the Trust's independent
public accountants and shall take all reasonable action in the performance of
its obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
7. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
- 2 -
<PAGE>
8. FEES.
For the performance of the services under this Agreement, each
series of the Trust shall pay Countrywide a monthly fee in accordance with the
schedule attached hereto as Schedule A. The fees with respect to any month shall
be paid to Countrywide on the last business day of such month. The Trust shall
also promptly reimburse Countrywide for the cost of external pricing services
utilized by Countrywide.
9. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
The parties hereto acknowledge and agree that nothing
contained herein shall be construed to require Countrywide to perform any
services for the Trust which services could cause Countrywide to be deemed an
"investment advisor" of the Trust within the meaning of Section 2(a)(20) of the
1940 Act or to supersede or contravene the Trust's prospectus or statement of
additional information or any provisions of the 1940 Act and the rules
thereunder. Except as otherwise provided in this Agreement and except for the
accuracy of information furnished to it by Countrywide, the Trust assumes full
responsibility for complying with all applicable requirements of the 1940 Act,
the Securities Act of 1933, as amended, and any other laws, rules and
regulations of governmental authorities having jurisdiction.
10. REFERENCES TO COUNTRYWIDE.
The Trust shall not circulate any printed matter which
contains any reference to Countrywide without the prior written approval of
Countrywide, excepting solely such printed matter as merely identifies
Countrywide as Administrative Services Agent, Transfer, Shareholder Servicing
and Dividend Disbursing Agent and Accounting Services Agent. The Trust will
submit printed matter requiring approval to Countrywide in draft form, allowing
sufficient time for review by Countrywide and its counsel prior to any deadline
for printing.
11. EQUIPMENT FAILURES.
Countrywide shall take all steps necessary to minimize or
avoid service interruptions, and has entered into one or more agreements making
provision for emergency use of electronic data processing equipment. Countrywide
shall have no liability with respect to equipment failures beyond its control.
12. INDEMNIFICATION OF COUNTRYWIDE.
A. Countrywide may rely on information reasonably believed by
it to be accurate and reliable. Except as may otherwise be required by the 1940
Act and the rules thereunder, neither Countrywide nor its shareholders,
officers, directors, employees, agents, control persons or affiliates of any
thereof shall be subject to any liability for, or any damages, expenses or
losses incurred by the Trust in connection with, any error of judgment,
- 3 -
<PAGE>
mistake of law, any act or omission connected with or arising out of any
services rendered under or payments made pursuant to this Agreement or any other
matter to which this Agreement relates, except by reason of willful misfeasance,
bad faith or negligence on the part of any such persons in the performance of
the duties of Countrywide under this Agreement or by reason of reckless
disregard by any of such persons of the obligations and duties of Countrywide
under this Agreement.
B. Any person, even though also a director, officer, employee,
shareholder, or agent of Countrywide, or any of its affiliates, who may be or
become an officer, trustee, employee or agent of the Trust, shall be deemed,
when rendering services to the Trust or acting on any business of the Trust, to
be rendering such services to or acting solely as an officer, trustee, employee
or agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of Countrywide or any of its
affiliates, even though paid by one of those entities.
C. Notwithstanding any other provision of this Agreement, the
Trust shall indemnify and hold harmless Countrywide, its directors, officers,
employees, shareholders, agents, control persons and affiliates from and against
any and all claims, demands, expenses and liabilities (whether with or without
basis in fact or law) of any and every nature which Countrywide may sustain or
incur or which may be asserted against Countrywide by any person by reason of,
or as a result of: (i) any action taken or omitted to be taken by Countrywide in
good faith in reliance upon any certificate, instrument, order or share
certificate reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized person, upon the oral
instructions or written instructions of an authorized person of the Trust or
upon the opinion of legal counsel for the Trust or its own counsel; or (ii) any
action taken or omitted to be taken by Countrywide in connection with its
appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended or repealed. However, indemnification under this
subparagraph shall not apply to actions or omissions of Countrywide or its
directors, officers, employees, shareholders or agents in cases of its or their
own negligence, willful misconduct, bad faith, or reckless disregard of its or
their own duties hereunder.
13. TERMINATION.
A. The provisions of this Agreement shall be effective on the
date first above written, shall continue in effect for two years from that date
and shall continue in force from year to year thereafter, but only so long as
such continuance is approved (1) by Countrywide, (2) by vote, cast in
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<PAGE>
person at a meeting called for the purpose, of a majority of the Trust's
trustees who are not parties to this Agreement or interested persons (as defined
in the 1940 Act) of any such party, and (3) by vote of a majority of the Trust's
Board of Trustees or a majority of the Trust's outstanding voting securities.
B. Either party may terminate this Agreement on any date by
giving the other party at least sixty (60) days' prior written notice of such
termination specifying the date fixed therefor. Upon termination of this
Agreement, the Trust shall pay to Countrywide such compensation as may be due as
of the date of such termination, and shall likewise reimburse Countrywide for
any out-of-pocket expenses and disbursements reasonably incurred by Countrywide
to such date.
C. In the event that in connection with the termination of
this Agreement a successor to any of Countrywide's duties or responsibilities
under this Agreement is designated by the Trust by written notice to
Countrywide, Countrywide shall, promptly upon such termination and at the
expense of the Trust, transfer all records maintained by Countrywide under this
Agreement and shall cooperate in the transfer of such duties and
responsibilities, including provision for assistance from Countrywide's
cognizant personnel in the establishment of books, records and other data by
such successor.
14. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent Countrywide or any
affiliated person (as defined in the 1940 Act) of Countrywide from providing
services for any other person, firm or corporation (including other investment
companies); provided, however, that Countrywide expressly represents that it
will undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
15. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an officer of the Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust.
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<PAGE>
16. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
17. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of
Ohio. Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
1940 Act shall be resolved by reference to such term or provision of the 1940
Act and to interpretations thereof, if any, by the United States Courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the Securities and Exchange Commission issued pursuant to said 1940
Act. In addition, where the effect of a requirement of the 1940 Act, reflected
in any provision of this Agreement, is revised by rule, regulation or order of
the Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
18. NOTICES.
All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, telecommunicated,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
To the Trust: The Westport Funds
253 Riverside Avenue
Westport, Connecticut 06880
Attn: Edmund H. Nicklin, Jr.
To Countrywide: Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
or to such other address as any party may designate by notice complying with the
terms of this Section 18. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
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<PAGE>
19. AMENDMENT.
This Agreement may not be amended or modified except by a
written agreement executed by both parties.
20. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
21. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
22. FORCE MAJEURE.
If Countrywide shall be delayed in its performance of services
or prevented entirely or in part from performing services due to causes or
events beyond its control, including and without limitation, acts of God,
interruption of power or other utility, transportation or communication
services, acts of civil or military authority, sabotages, national emergencies,
explosion, flood, accident, earthquake or other catastrophe, fire, strike or
other labor problems, legal action, present or future law, governmental order,
rule or regulation, or shortages of suitable parts, materials, labor or
transportation, such delay or non-performance shall be excused and a reasonable
time for performance in connection with this Agreement shall be extended to
include the period of such delay or non-performance.
23. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
The Westport Funds
By: ___________________________
Its:
COUNTRYWIDE FUND SERVICES, INC.
By: ___________________________
Its: President
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<PAGE>
Schedule A
COMPENSATION
Each series of the Trust will pay Countrywide a monthly fee, according
to the average net assets of such series during such month, as follows;
Monthly Fee Average Monthly Net Assets
------------------ ----------------------------
$2,000 $ 0 - $ 50,000,000
$2,500 $ 50,000,000 - $100,000,000
$3,000 $100,000,000 - $200,000,000
$4,000 $200,000,000 - $300,000,000
$5,000* Over $300,000,000
With respect to series having multiple classes of shares, a surcharge of $500
per month will be charged for each additional class.
* Plus an additional fee at the rate of .001% per annum of such series'
average net assets in excess of $300,000,000.
- 9 -
[DP&R Letterhead]
December 19, 1997
The Westport Funds
253 Riverside Avenue
Westport, Connecticut 06880
Ladies and Gentlemen:
We have acted as counsel to The Westport Funds, a Delaware business
trust ("Westport"), in connection with the preparation and filing of its
Registration Statement on Form N-1A (the "Registration Statement") covering
shares of beneficial interest, $.001 par value per share, of Westport.
We have examined copies of the Declaration of Trust and By-Laws of
Westport, the Registration Statement, and such other records, proceedings and
documents as we have deemed necessary for the purpose of this opinion. We have
also examined such other documents, papers, statutes and authorities as we
deemed necessary to form a basis for the opinion hereinafter expressed. In our
examination of such material, we have assumed the genuineness of all signatures
and the conformity to original documents of all copies submitted to us.
Based upon the foregoing, we are of the opinion that the shares of
beneficial interest, $.001 par value per share, of Westport to be issued in
accordance with the terms of the offering, as set forth in the Registration
Statement, when so issued and paid for will constitute validly authorized and
legally issued shares of beneficial interest, fully paid and non-assessable by
Westport.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm as set forth under the
caption "Legal Counsel" in the above-referenced Registration Statement. In
giving such consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
Very truly yours,
/s/ Dechert Price & Rhoads
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated December 19, 1997 on the
statements of assets and liabilities of the Westport Fund and the Westport
SmallCap Fund, each a series of shares of the Westport Funds. Such financial
statements are included in the Pre-Effective Amendment No. 2 to the Registration
Statement on Form N-1A of the Westport Funds. We also consent to the references
to our Firm in the Registration Statement and Prospectus.
/s/ Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
Decmeber 19, 1997
The Westport Funds
253 Riverside Avenue
Westport, Connecticut 06880
December 15, 1997
Edmund H. Nicklin, Jr.
Westport Advisers, LLC
253 Riverside Avenue
Westport, Connecticut 06880
Dear Sirs:
The Westport Funds (the "Trust"), on behalf of its series -- the
Westport Fund and the Westport Small Cap Fund -- hereby accepts your offer to
purchase 2,500 Class A shares of the Westport Fund shares at a price of $10.00
per share for an aggregate purchase price of $25,000 and 2,500 Class A shares of
the Westport Small Cap Fund at a price of $10.00 per share for an aggregate
purchase price of $25,000. This agreement is subject to the understanding that
you have no present intention of selling or redeeming the shares so acquired.
Any redemption of these shares of either series by you will be reduced
by a pro rata portion of any then unamortized organization expenses of such
series. This proration will be calculated by dividing the number of shares of
such series to be redeemed by the aggregate number of shares of such series held
which represent the initial capital of the Series.
Sincerely,
THE WESTPORT FUNDS
By: /s/ Ronald H. Oliver
-------------------------------
Name: Ronald H. Oliver
Title: Executive Vice President,
Secretary and Treasurer
Accepted:
By: /s/ Edmund H. Nicklin, Jr.
--------------------------------
Edmund H. Nicklin, Jr.
<PAGE>
The Westport Funds
253 Riverside Avenue
Westport, Connecticut 06880
December 15, 1997
Andrew J. Knuth
Westport Advisers, LLC
253 Riverside Avenue
Westport, Connecticut 06880
Dear Sirs:
The Westport Funds (the "Trust"), on behalf of its series -- the
Westport Fund and the Westport Small Cap Fund -- hereby accepts your offer to
purchase 2,500 Class A shares of the Westport Fund shares at a price of $10.00
per share for an aggregate purchase price of $25,000 and 2,500 Class A shares of
the Westport Small Cap Fund at a price of $10.00 per share for an aggregate
purchase price of $25,000. This agreement is subject to the understanding that
you have no present intention of selling or redeeming the shares so acquired.
Any redemption of these shares of either series by you will be reduced
by a pro rata portion of any then unamortized organization expenses of such
series. This proration will be calculated by dividing the number of shares of
such series to be redeemed by the aggregate number of shares of such series held
which represent the initial capital of the Series.
Sincerely,
THE WESTPORT FUNDS
By: /s/ Edmund H. Nicklin, Jr.
------------------------------
Name: Edmund H. Nicklin, Jr.
Title: President
Accepted:
By: /s/ Andrew J. Knuth
---------------------------------
Andrew J. Knuth
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
FOR
THE WESTPORT FUNDS
Westport Fund
Westport Small Cap Fund
WHEREAS, The Westport Funds (the "Trust") engages in business as an
open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of beneficial interest of the Trust are currently
divided into two series: the Westport Fund ("Westport Fund") and the Westport
Small Cap Fund ("Small Cap Fund") (the "Funds");
WHEREAS, the Trust desires to adopt, on behalf of each of the Funds, a
Multiple Class Plan pursuant to Rule 18f-3 under the Act (the "Plan") with
respect to each of the Funds; and
WHEREAS, the Trust employs Westport Advisers, LLC (the "Adviser") as
its investment manager and adviser and Countrywide Funds Services, Inc.
("Distributor"), as distributor of the securities of which it is the issuer.
NOW, THEREFORE, the Trust hereby adopts, on behalf of the Funds, the
Plan, in accordance with Rule 18f-3 under the Act on the following terms and
conditions:
1. Features of the Classes. Each of the Funds issues its shares of
beneficial interest in two classes: "Class A Shares" and "Class B Shares."
Shares of each class of a Fund shall represent an equal pro rata interest in
such Fund and, generally, shall have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations,
qualifications, and terms and conditions, except that: (a) each class shall have
a different designation; (b) each class of shares shall bear any Class Expenses,
as defined in Section 3 below; and (c) each class shall have exclusive voting
rights on any matter submitted to shareholders that relates solely to its
distribution arrangement and each class shall have separate voting rights on any
matter submitted to shareholders in which the interests of one class differ from
the interests of any other class. In addition, shares of each Class of a Fund
shall have the features described in Sections 2, 3 and 4 below.
2. Service Plan. The Trust has adopted a Service Plan with respect to
the Class A shares of each Fund, which provides that the Trust may pay a service
fee at an annual rate of up to 0.25% of the average net asset value of qualified
accounts of each such Class to brokers or other financial intermediaries as
compensation for service activities. The Class B shares of each fund do not
participate in the Service Plan.
1
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As used herein, the term "service activities" shall mean activities in
connection with the provision of personal, continuing services to investors in
each Fund, excluding transfer agent services for beneficial owners of shares of
a Fund, aggregating and processing purchase and redemption orders, providing
beneficial owners with account statements, processing dividend payments,
providing sub-accounting services for Fund shares held beneficially, forwarding
shareholder communications to beneficial owners and receiving, tabulating and
transmitting proxies executed by beneficial owners; provided, however, that if
the National Association of Securities Dealers Inc. ("NASD") adopts a definition
of "service fee" for purposes of Section 2830 of the Rules of Conduct of the
NASD that differs from the definition of "service activities" hereunder, or if
the NASD adopts a related definition intended to define the same concept, the
definition of "service activities" in this Paragraph shall be automatically
amended, without further action of the Board of Trustees, to conform to such
NASD definition. Overhead and other expenses of Distributor related to its
"service activities," including telephone and other communications expenses, may
be included in the information regarding amounts expended for such activities.
3. Allocation of Income and Expenses. (a) The gross income of each Fund
shall, generally, be allocated to each class on the basis of net assets. To the
extent practicable, certain expenses (other than Class Expenses as defined below
which shall be allocated more specifically) shall be subtracted from the gross
income on the basis of the net assets of each class of the Fund. These expenses
include:
(1) Expenses incurred by the Trust (for example, fees of
Trustees, auditors and legal counsel) not attributable to a particular
Fund or to a particular class of shares of a Fund ("Trust Level
Expenses"); and
(2) Expenses incurred by a Fund not attributable to any
particular class of the Fund's shares (for example, advisory fees,
custodial fees, or other expenses relating to the management of the
Fund's assets) ("Fund Expenses").
(b) Expenses attributable to a particular class ("Class Expenses")
shall be limited to: (i) payments made pursuant to a distribution plan and/or a
service plan; (ii) transfer agent fees attributable to a specific class; (iii)
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders of
a specific class; (iv) Blue Sky registration fees incurred by a class; (v) SEC
registration fees incurred by a class; (vi) the expense of administrative
personnel and services to support the shareholders of a specific class; (vii)
litigation or other legal expenses relating solely to one class; and (viii)
directors' fees incurred as a result of issues relating to one class. Expenses
in category (i) above must be allocated to the class for which such expenses are
incurred. All other "Class Expenses" listed in categories (ii)-(viii) above may
be allocated to a class but only if the President and Chief Financial Officer
have determined, subject to Board approval or ratification, which of such
categories of expenses will be treated as Class Expenses consistent with
applicable legal principles under the Act and the Internal Revenue Code of 1986,
as amended.
2
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Therefore, expenses of a Fund shall be apportioned to each class of
shares depending on the nature of the expense item. Trust Level Expenses and
Fund Expenses will be allocated among the classes of shares based on their
relative net asset values. Approved Class Expenses shall be allocated to the
particular class to which they are attributable. In addition, certain expenses
may be allocated differently if their method of imposition changes. Thus, if a
Class Expense can no longer be attributed to a class, it shall be charged to a
Fund for allocation among classes, as determined by the Board of Trustees. Any
additional Class Expenses not specifically identified above which are
subsequently identified and determined to be properly allocated to one class of
shares shall not be so allocated until approved by the Board of Trustees of the
Company in light of the requirements of the Act and the Internal Revenue code of
1986, as amended.
4. Conversion Features. There shall be no conversion features
associated with any of the classes of shares of any Fund.
5. Waiver or Reimbursement of Expenses. Expenses may be waived or
reimbursed by any adviser to the Trust or any other provider of services to the
Trust without the prior approval of the Trust's Board of Trustees.
6. Effectiveness of Plan. The Plan shall not take effect until it has
been approved by votes of a majority of both (a) the Trustees of the Trust and
(b) those Trustees of the Trust who are not "interested persons" of the Trust
(as defined in the Act) and who have no direct or indirect financial interest in
the operation of this Plan, cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan.
7. Material Modifications. This Plan may not be amended to modify
materially its terms unless such amendment is approved in the manner provided
for initial approval in Paragraph 6 hereof.
8. Limitation of Liability. The Trustees of the Trust and the
shareholders of each Fund shall not be liable for any obligations of the Trust
or any Fund under this Plan, and Distributor or any other person, in asserting
any rights or claims under this Plan, shall look only to the assets and property
of the Trust or such Funds in settlement of such right or claim, and not to such
Trustees or shareholders.
IN WITNESS WHEREOF, the Trust, on behalf of the Funds, has adopted this
Multiple Class Plan as of the 25th day of November, 1997, to be effective
November 26, 1997.
THE WESTPORT FUNDS
By:_________________________________
Name:
Title:
3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Edmund H. Nicklin Jr. and Ronald H. Oliver and each of them, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to The Westport Funds and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
November 25, 1997 \s\ Raymond J. Armstrong
--------------------------
Raymond J. Armstrong
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Edmund H. Nicklin Jr. and Ronald H. Oliver and each of them, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to The Westport Funds and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
November 25, 1997 \s\ Stephen E. Milman
------------------------
Stephen E. Milman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Edmund H. Nicklin Jr. and Ronald H. Oliver and each of them, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to The Westport Funds and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
November 25, 1997 \s\ D. Bruce Smith, II
-------------------------
D. Bruce Smith, II
