PROSPECTUS
Dated July 3, 2000
THE QUAKER(TM) INVESTMENT TRUST
1288 Valley Forge Road, Suite 76
Valley Forge, PA 19482
1-800-220-8888
The Quaker(TM) Investment Trust (the "Trust") is a registered management
investment company currently offering the following portfolios (each a "Fund",
and collectively, the Funds"):
QUAKER CORE EQUITY FUND
QUAKER AGGRESSIVE GROWTH FUND
QUAKER LARGE-CAP VALUE FUND
QUAKER MID-CAP VALUE FUND
QUAKER SMALL-CAP VALUE FUND
QUAKER SMALL-CAP GROWTH FUND
QUAKER FIXED INCOME FUND
QUAKER HIGH YIELD FUND
QUAKER GOVERNMENT MONEY MARKET FUND
The Trust is offering four Classes of Shares by this Prospectus. Each Class
differs as to sales charges and ongoing expenses. However, each Class represents
an undivided interest in the same portfolio of securities.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this Prospectus is truthful or complete. Any
representation to the contrary is a crime.
1
<PAGE>
TABLE OF CONTENTS
THE BASICS ABOUT EACH FUND
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Quaker Core Equity Fund ..................................... 3
--
Quaker Aggressive Growth Fund ............................... 4
--
Quaker Large-Cap Value Fund ................................. 5
--
Quaker Mid-Cap Value Fund ................................... 7
--
Quaker Small-Cap Value Fund ................................. 8
--
Quaker Small-Cap Growth Fund ................................ 9
--
Quaker Fixed Income Fund .................................... 10
--
Quaker High Yield Fund ...................................... 12
--
Quaker Government Money Market Fund ......................... 13
--
FEES AND EXPENSES 13
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ADDITIONAL INFORMATION ABOUT RISKS 16
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ADDITIONAL INVESTMENT INFORMATION 17
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THE FUNDS' SPONSOR AND INVESTMENT ADVISORS 19
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HOW TO BUY AND SELL SHARES 22
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DIVIDENDS AND DISTRIBUTIONS 32
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TAX CONSIDERATIONS 32
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GENERAL INFORMATION 32
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FINANCIAL HIGHLIGHTS 32
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FOR MORE INFORMATION 38
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2
<PAGE>
THE BASICS ABOUT EACH FUND
--------------------------
QUAKER CORE EQUITY FUND
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS:
long-term growth of capital. Current income is not a significant investment
consideration and any such income realized will be considered incidental to the
Fund's investment objective.
--------------------------------------------------------------------------------
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES ARE:
o normally investing at least 65% of the Fund's total assets in US common
stocks of companies with large market capitalizations (over $6 billion);
o holding from 60 to 200 stocks in the Fund's investment portfolio;
o maintaining an investment portfolio that has, on average, a higher
price/earnings ratio and lower yield than the S&P 500 Index;
o investing in companies with strong fundamentals, increasing sales and
earnings, a conservative balance sheet and reasonable expectations of
continuing earnings increases; and
o reducing capital gains taxes by controlling portfolio turnover.
--------------------------------------------------------------------------------
THE PRINCIPAL RISKS OF INVESTING IN THE FUND ARE:
o GENERAL RISK- Like with most investments, you may lose money by investing
in the Fund.
o STOCK MARKET RISK- The Fund is exposed to the risks of investing in common
stocks, including price risk and credit risk.
o GROWTH RISKS- The Fund invests in companies that appear to be
growth-oriented companies. If the Fund's perceptions of a company's growth
potential are wrong, the securities purchased may not perform as expected,
reducing the Fund's return.
--------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED IN THE PAST?(1)
The bar chart and table set out below help show the returns and risks of
investing in the Fund. They show changes in the Fund's yearly performance over
the lifetime of the Fund. They also compare the Fund's performance to the
performance of the S&P 500 Index** during each period. You should be aware that
the Fund's past performance may not be an indication of how the Fund will
perform in the future.
PERFORMANCE BAR CHART
35% 32.51% 30.62%
30% 29.63%
25%
20%
15%
10%
05%
==============================================
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/98 12/31/99
Best Quarter: 4th Qtr 1998 35.71%
Worst Quarter: 3rd Qtr 1998 -14.27%
PERFORMANCE TABLE
==============================================
Average Annual Total Returns
----------------------------
(For Periods ending on December 31, 1999)
The Fund S&P 500 Index**
----------------------------------------------
One Year 30.62% 21.04%
Inception 26.95% 25.78%
(11/25/96)
==============================================
For the Period 1/1/00 through 6/30/00, the
Fund's annualized total return was -3.74%
==============================================
(1) The Fund's shareholders approved the conversion of the Fund's No-Load Share
Class to Class A shares on June 23, 2000. The returns shown above are for
the former No-Load Class, now Class A. Since all the Fund's share classes
are invested in the same portfolio of securities, investment returns for
each share class will differ only to the extent that each share class has
different ongoing expenses and sales charges.
** The S&P 500 Index is a widely recognized, unmanaged index of the
approximately 500 largest companies in the United States as measured by
market capitalization. The Index assumes reinvestment of all dividends and
distributions and does not reflect any asset-based charges for investment
management or other expenses.
3
<PAGE>
================================================================================
QUAKER AGGRESSIVE GROWTH FUND
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS:
long-term growth of capital. Current income is not a significant investment
consideration and any such income realized will be considered incidental to the
Fund's investment objective.
--------------------------------------------------------------------------------
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES ARE:
o normally investing at least 65% of the Fund's total assets in US common
stocks;
o investing in common stocks of companies without regard to market
capitalizations;
o investing its assets in a limited number of equity securities of companies
which the Fund's Advisor believes show a high probability for superior
growth;
o investing up to 25% of its total assets in "special situation" securities
when the Fund's Advisor believes such investments will benefit the Fund. A
special situation arises when, in the Advisor's opinion, the securities of
a company will experience an unusual gain or loss solely by reason of a
development particularly or uniquely applicable to that company. Such
situations include but are not limited to: spin-offs, corporate
restructurings, liquidations, reorganizations, recapitalizations or
mergers, material litigation, technological breakthroughs and new
management or management policies.;
o seeking a balance between investments in "special situation" investments
and investments in large to mid-capitalization equities (in excess of $3
billion in market capitalization) with high or accelerating profitability;
and
o utilizing a strategy of short selling securities to reduce volatility and
enhance potential investment gain. The Fund limits short sales to not more
than 25% of the Fund's total assets. The Fund may engage in two types of
short sales. Securities may be sold " against the box" or outright. A short
sale "against the box" means that securities the Fund already owns are
sold, but not delivered. Instead, these securities are segregated and
pledged against the short position. When the short sale is closed out, the
securities owned are released. Outright short selling involves the sale of
securities not presently owned by the Fund. If the Fund does not purchase
that security on the same day as the sale, the security must be borrowed.
At the time an outright short sale is effected, the Fund incurs an
obligation to replace the security borrowed at whatever its price may be at
the time the Fund purchases the security for delivery to the lender. Any
gain or loss on the transaction is taxable as a short term capital gain or
loss.
--------------------------------------------------------------------------------
THE PRINCIPAL RISKS OF INVESTING IN THE FUND ARE:
o GENERAL RISK- Like with most investments, you may lose money by investing
in the Fund.
o STOCK MARKET RISK- The Fund is exposed to the risks of investing in common
stocks, including price risk and credit risk.
o SHORT SELLING RISKS- The Fund engages in short selling, which involves
special risks and requires special investment expertise.
o SPECIAL SITUATION RISKS-The Fund invests in "special situation" securities,
a practice which involves special risks and requires special investment
expertise.
o GROWTH RISKS- The Fund invests in companies that appear to be
growth-oriented companies. If the Fund's perceptions of a company's growth
potential are wrong, the securities purchased may not perform as expected,
reducing the Fund's return.
--------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED IN THE PAST?(1)
The bar chart and table set out below help show the returns and risks of
investing in the Fund. They show changes in the Fund's yearly performance over
the lifetime of the Fund. They also compare the Fund's performance to the
performance of the S&P 500 Index** during each period. You should be aware that
the Fund's past performance may not be an indication of how the Fund will
perform in the future.
4
<PAGE>
PERFORMANCE BAR CHART
96.98%
95%
90%
85%
80%
75%
70%
65%
60%
55%
50%
45%
40%
35%
30% 30.16%
25% 20.32%
20%
15%
10%
05%
==============================================
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/98 12/31/99
Best Quarter: 4th Qtr 1999 35.82%
Worst Quarter: 3rd Qtr 1998 -5.34%
==============================================
PERFORMANCE TABLE
Average Annual Total Returns
----------------------------
(For Periods ending on December 31, 1999)
The Fund S&P 500 Index**
----------------------------------------------
One Year 96.98% 21.04%
Inception 45.42% 25.78%
(11/25/96)
==============================================
For the Period 1/1/00 through 6/30/00, the
Fund's annualized total return was 34.79%
==============================================
1. The Fund's shareholders approved the conversion of the Fund's No-Load Share
Class to Class A shares on June 23, 2000. The returns shown above are for
the former No-Load Class, now Class A. Since all the Fund's share classes
are invested in the same portfolio of securities, investment returns for
each share class will differ only to the extent that each share class has
different ongoing expenses and sales charges.
** The S&P 500 Index is a widely recognized, unmanaged index of the
approximately 500 largest companies in the United States as measured by
market capitalization. The Index assumes reinvestment of all dividends and
distributions and does not reflect any asset-based charges for investment
management or other expenses.
--------------------------------------------------------------------------------
QUAKER LARGE-CAP VALUE FUND
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS:
long-term growth of capital. Current income is not a significant investment
consideration and any such income realized will be considered incidental to the
Fund's investment objective.
--------------------------------------------------------------------------------
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES ARE:
o normally investing at least 65% of the Fund's total assets in US common
stocks;
o investing the Fund's assets mostly (65%) in large capitalization (greater
than $6 billion) companies;
o investing in companies considered by the Fund's Advisor to have substantial
core assets and consistently above-average earnings over time, selling at
relatively low market valuations with attractive growth and momentum
characteristics; and
o minimizing portfolio turnover so as to avoid realizing capital gains; such
a policy tends to minimize adverse tax consequences to Fund shareholders.
--------------------------------------------------------------------------------
5
<PAGE>
--------------------------------------------------------------------------------
THE PRINCIPAL RISKS OF INVESTING IN THE FUND ARE:
o GENERAL RISK- Like with most investments, you may lose money by investing
in the Fund.
o STOCK MARKET RISK- The Fund is exposed to the risks of investing in common
stocks, including price risk and credit risk.
o VALUE RISK- The Fund invests in companies that appear to be "undervalued"
in the marketplace (i.e. trading at prices below the company's true worth).
If the Fund's perceptions of value are wrong, the securities purchased may
not perform as expected, reducing the Fund's return.
--------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED IN THE PAST?(1)
The bar chart and table set out below help show the returns and risks of
investing in the Fund. They show changes in the Fund's yearly performance over
the lifetime of the Fund. They also compare the Fund's performance to the
performance of the S&P 500 Index** during each period. You should be aware that
the Fund's past performance may not be an indication of how the Fund will
perform in the future.
PERFORMANCE BAR CHART
35%
30% 30.28%
25% 21.81%
20%
15%
10% 4.22%
05%
==============================================
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/98 12/31/99
Best Quarter: 4th Qtr 1998 20.11%
Worst Quarter: 3rd Qtr 1998 -12.18%
PERFORMANCE TABLE
==============================================
Average Annual Total Returns
----------------------------
(For Periods ending on December 31, 1999)
The Fund S&P 500 Index**
----------------------------------------------
One Year 4.22% 21.04%
Inception 16.21% 25.78%
(11/25/96)
==============================================
For the Period 1/1/00 through 6/30/00, the
Fund's annualized total return was -16.68%
==============================================
1. The Fund's shareholders approved the conversion of the Fund's No-Load Share
Class to Class A shares on June 23, 2000. The returns shown above are for
the former No-Load Class, now Class A. Since all the Fund's share classes
are invested in the same portfolio of securities, investment returns for
each share class will differ only to the extent that each share class has
different ongoing expenses and sales charges.
** The S&P 500 Index is a widely recognized, unmanaged index of the
approximately 500 largest companies in the United States as measured by
market capitalization. The Index assumes reinvestment of all dividends and
distributions and does not reflect any asset-based charges for investment
management or other expenses.
--------------------------------------------------------------------------------
6
<PAGE>
QUAKER MID-CAP VALUE FUND
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS:
long-term growth of capital. Current income is not a significant investment
consideration and any such income realized will be considered incidental to the
Fund's investment objective.
--------------------------------------------------------------------------------
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES ARE:
o normally investing at least 65% of the Fund's total assets in US common
stocks;
o investing primarily in equity securities with market capitalizations
similar to the market capitalizations of the companies included in the S&P
400 Mid-Cap Index;
o generally maintaining an ultimate selection of 25-75 stocks for investment
by the Fund;
o investing in companies considered by the Fund's Advisor to have consistent
earnings and above-average core assets, selling at relatively low market
valuations, with attractive growth and momentum characteristics; and
o minimizing portfolio turnover so as to avoid realizing capital gains; such
a policy tends to minimize adverse tax consequences to Fund shareholders.
--------------------------------------------------------------------------------
THE PRINCIPAL RISKS OF INVESTING IN THE FUND ARE:
o GENERAL RISK- Like with most investments, you may lose money by investing
in the Fund.
o STOCK MARKET RISK- The Fund is exposed to the risks of investing in common
stocks, including price risk and credit risk.
o VALUE RISK- The Fund invests in companies that appear to be "undervalued"
in the marketplace (i.e. trading at prices below the company's true worth).
If the Fund's perceptions of value are wrong, the securities purchased may
not perform as expected, reducing the Fund's return.
o MEDIUM-CAP STOCK RISKS- The Fund invests in companies with medium market
capitalizations (generally from $1.5 to $6 billion). Their stock prices
often react more strongly to changes in the marketplace and can be more
volatile.
--------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED IN THE PAST?(1)
The bar chart and table set out below help show the returns and risks of
investing in the Fund. They show changes in the Fund's yearly performance over
the lifetime of the Fund. They also compare the Fund's performance to the
performance of the S&P 400 Mid-Cap Index** during each period. You should be
aware that the Fund's past performance may not be an indication of how the Fund
will perform in the future.
PERFORMANCE BAR CHART
35%
30%
25%
20%
15%
10% 7.84%
05%
----------------------------------------------
05% 2.73%
==============================================
YEAR ENDED YEAR ENDED
12/31/98 12/31/99
Best Quarter: 2nd Qtr 1999 15.91%
Worst Quarter: 3rd Qtr 1998 -13.18%
PERFORMANCE TABLE
==============================================
Average Annual Total Returns
----------------------------
(For Periods ending on December 31, 1999)
The Fund S&P 400 Mid-Cap
Index**
----------------------------------------------
One Year -2.73% 13.35%
Inception 2.42% 15.49%
(12/31/97)
==============================================
For the Period 1/1/00 through 6/30/00, the
Fund's annualized total return was 9.17%
==============================================
7
<PAGE>
1. The Fund's shareholders approved the conversion of the Fund's No-Load Share
Class to Class A shares on June 23, 2000. The returns shown above are for
the former No-Load Class, now Class A. Since all the Fund's share classes
are invested in the same portfolio of securities, investment returns for
each share class will differ only to the extent that each share class has
different ongoing expenses and sales charges.
** The S&P 400 Mid-Cap Index is a widely recognized, unmanaged index of
approximately 400 companies in the United States with market capitalization
between $1.5 billion and $6 billion. The Index assumes reinvestment of all
dividends and distributions and does not reflect any asset-based charges
for investment management or other expenses.
--------------------------------------------------------------------------------
QUAKER SMALL-CAP VALUE FUND
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS:
long-term growth of capital. Current income is not a significant investment
consideration and any such income realized will be considered incidental to the
Fund's investment objective.
--------------------------------------------------------------------------------
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES ARE:
o normally investing at least 65% of the Fund's total assets in US common
stocks;
o primarily investing in equity securities with market capitalizations
similar to the market capitalizations of companies included in the Russell
2000 and Russell 2500 Indices, with an ultimate selection of 140-160
stocks; and
o investing in companies considered by the Fund's Advisor to have consistent
earnings and above-average core assets, selling at relatively low market
valuations, with attractive growth and momentum characteristics.
--------------------------------------------------------------------------------
THE PRINCIPAL RISKS OF INVESTING IN THE FUND ARE:
o GENERAL RISK- Like with most investments, you may lose money by investing
in the Fund.
o STOCK MARKET RISK- The Fund is exposed to the risks of investing in common
stocks, including price risk and credit risk.
o VALUE RISK- The Fund invests in companies that appear to be "undervalued"
in the marketplace (i.e. trading at prices below the company's true worth).
If the Fund's perceptions of value are wrong, the securities purchased may
not perform as expected, reducing the Fund's return.
o SMALL-CAP STOCK RISKS- The Fund invests in smaller companies (less than
$1.5 billion market capitalization). Smaller companies can be riskier
investments than larger companies.
--------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED IN THE PAST?(1)
The bar chart and table set out below help show the returns and risks of
investing in the Fund. They show changes in the Fund's yearly performance over
the lifetime of the Fund. They also compare the Fund's performance to the
performance of the Russell 2000 Index** during each period. You should be aware
that the Fund's past performance may not be an indication of how the Fund will
perform in the future.
8
<PAGE>
PERFORMANCE BAR CHART
45% 41.47%
40%
35%
30%
25%
20%
15%
10% 5.15%
05% 1.30%
==============================================
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/98 12/31/99
Best Quarter: 2nd Qtr 1997 20.14%
Worst Quarter: 3rd Qtr 1998 -18.19%
PERFORMANCE TABLE
==============================================
Average Annual Total Returns
----------------------------
(For Periods ending on December 31, 1999)
The Fund Russell 2000
Index**
----------------------------------------------
One Year 1.30% 19.62%
Inception 13.99% 13.27%
(11/25/96)
==============================================
For the Period 1/1/00 through 6/30/00, the
Fund's annualized total return was 0.48%
==============================================
1. The returns shown above are for a Class of shares not offered by this
Prospectus (No-Load Class). The Trust anticipates obtaining shareholder
approval of the conversion of the Fund's No-Load Share Class to Class A
shares on August 5, 2000. Since all the Fund's share classes are invested
in the same portfolio of securities, investment returns for each share
class will differ only to the extent that each share class has different
ongoing expenses and sales charges.
** The Russell 2000 Index is a widely recognized, unmanaged index of
approximately 2000 companies in the United States. The Index is generally
considered to represent approximately 90% of the publicly traded companies
in the United States as measured by market capitalization. The Index
assumes reinvestment of all dividends and distributions and does not
reflect any asset-based charges for investment management or other
expenses.
--------------------------------------------------------------------------------
QUAKER SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS:
long-term growth of capital. Current income is not a significant investment
consideration and any such income realized will be considered incidental to the
Fund's investment objective.
--------------------------------------------------------------------------------
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES ARE:
o normally investing at least 65% of the Fund's total assets in US common
stocks;
o primarily investing in equity securities with market capitalizations, as
such market capitalization is defined by the Russell 2000 Index (less than
$1.5 billion);
o investing in a portfolio of securities which includes a broadly diversified
number of U.S. equity securities which the Fund's Advisor believes show a
high probability of superior prospects for above average growth. The
Advisor chooses these securities using a "bottoms up" approach of
extensively analyzing the financial, management and overall economic
conditions of each potential investment.
--------------------------------------------------------------------------------
9
<PAGE>
--------------------------------------------------------------------------------
THE PRINCIPAL RISKS OF INVESTING IN THE FUND ARE:
o GENERAL RISK- Like with most investments, you may lose money by investing
in the Fund.
o STOCK MARKET RISK- The Fund is exposed to the risks of investing in common
stocks, including price risk and credit risk.
o GROWTH RISK- The Fund invests in companies that appear to be
growth-oriented companies. If the Fund's perceptions of a company's growth
potential are wrong, the securities purchased may not perform as expected,
reducing the Fund's return.
o SMALL-CAP STOCK RISKS- The Fund invests in smaller companies (generally
less than $1.5 billion market capitalization). Smaller companies can be
riskier investments than larger companies.
--------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED IN THE PAST?
The Fund is being offered for the first time by this Prospectus. Accordingly, a
bar chart and performance table for the Fund are not yet available.
--------------------------------------------------------------------------------
QUAKER FIXED INCOME FUND
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS:
to generate current income, preserve capital and maximize total returns through
active management of predominately investment grade fixed income securities.
Total Return is derived by combining the total changes in the principal value of
all the Fund's investments with the total dividends and interest paid to the
Fund.
--------------------------------------------------------------------------------
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES ARE:
o normally investing at least 65% of the Fund's total assets in a variety of
debt securities, including US Government notes and bonds, corporate notes
and bonds, collateralized mortgage obligations, asset-backed securities and
floating rate notes;
o lengthening the duration* of the Fund's portfolio when yields appear
abnormally high and shortening duration when yields appear abnormally low;
o changing the average maturity structure of the Fund to take advantage of
shifts in the general interest rate environment;
o structuring the Fund's portfolio to take advantage of differences in the
relative valuation of U.S. Treasury securities versus mortgage backed
securities, asset backed securities, corporate bonds and U.S. agency
securities; and
o investing predominately in "investment grade" securities as defined by
Moody's Investors Service, Inc. ("Moodys") or other similar service, or if
no rating exists, of equivalent quality as determined by the Advisor under
the Supervision of the Board of Trustees. For a more complete description
of the various bond ratings for Moody's, and other nationally rated
services, see Appendix A to the Statement of Additional Information.
* DURATION. "Duration" is not the same thing as "maturity". Duration weighs
all potential cash flows - principal, interest and reinvestment income - on
an expected present value basis, to determine the "effective maturity" of
the security as opposed to the stated maturity. Using such an analysis, a
security with a maturity of ten years may only have a duration of six
years.
--------------------------------------------------------------------------------
10
<PAGE>
THE PRINCIPAL RISKS OF INVESTING IN THE FUND ARE:
o GENERAL RISK- Like with most investments, you may lose money by investing
in the Fund.
o INTEREST RATE RISK- The Fund invests in debt instruments. Generally, as
interest rates rise, the price value of debt securities falls.
o CREDIT RISK- The Fund invests in debt securities of non-guaranteed
entities. Adverse changes in the creditworthiness of an issuer can have an
adverse effect on the value of the issuer's securities.
o TIME RISK- The Fund invests according to certain duration targets, which
may change from time to time. The longer the portfolio's overall duration,
the greater the risk of adverse price changes. Also, portfolios with
greater duration periods tend to experience more volatile price movements.
--------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED IN THE PAST?(1)
The bar chart and table set out below help show the returns and risks of
investing in the Fund. They show changes in the Fund's yearly performance over
the lifetime of the Fund. They also compare the Fund's performance to the
performance of the Solomon Broad Investment Grade Index** during each period.
You should be aware that the Fund's past performance may not be an indication of
how the Fund will perform in the future.
PERFORMANCE BAR CHART
45%
40%
35%
30%
25%
20%
15%
10% 8.11% 8.52%
05%
----------------------------------------------
05% 3.00%
==============================================
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/98 12/31/99
Best Quarter: 3rd Qtr 1998 4.91%
Worst Quarter: 2nd Qtr 1999 -1.65%
PERFORMANCE TABLE
==============================================
Average Annual Total Returns
----------------------------
(For Periods ending on December 31, 1999)
Solomon Broad
The Fund Investment
Grade Index**
==============================================
One Year -3.00% -0.84%
Inception 4.13% 5.38%
(11/25/96)
==============================================
For the Period 1/1/00 through 6/30/00, the
Fund's annualized total return was 5.00%
==============================================
1. The returns shown above are for a Class of shares not offered by this
Prospectus (No-Load Class). The Trust anticipates obtaining shareholder
approval of the conversion of the Fund's No-Load Share Class to Class A
shares on August 5, 2000. Since all the Fund's share classes are invested
in the same portfolio of securities, investment returns for each share
class will differ only to the extent that each share class has different
ongoing expenses and sales charges.
** The Solomon Broad Investment Grade Index is an unmanaged index composed of
a broad variety of investment grade bonds. The Index assumes reinvestment
of all dividends and distributions and does not reflect any asset-based
charges for investment management or other expenses.
--------------------------------------------------------------------------------
11
<PAGE>
QUAKER HIGH YIELD FUND
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS:
to generate current income and maximize total returns through active management
of non-investment grade fixed income securities. Total Return is derived by
combining the total changes in the principal value of all the Fund's investments
with the total dividends and interest paid to the Fund.
--------------------------------------------------------------------------------
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES ARE:
o normally investing at least 65% of the Fund's total assets in a variety of
high yield debt securities, including corporate notes and bonds,
collateralized mortgage obligations, asset-backed securities and floating
rate notes;
o lengthening the duration of the Fund's portfolio when yields appear
abnormally high and shortening duration when yields appear abnormally low;
o changing the average maturity structure of the Fund to take advantage of
shifts in the general interest rate environment;
o generally investing in securities considered to be non-investment (BB or
lower) grade quality as determined by Moody or other similar service, or if
no rating exists, of equivalent quality as determined by the Advisor under
the Supervision of the Board of Trustees. For a more complete description
of the various bond ratings for Moody's and other nationally recognized
rating services, see Appendix A to the Statement of Additional Information.
Non-investment grade securities are commonly called "junk bonds". By
investing in predominately non-investment grade securities with exceptional
current income payment potential, the Fund hopes to maximize its investment
objective of providing a high level of current income.
DURATION. The Adviser to the Fund employs the same duration analysis for
this Fund as is used in the Fixed Income Fund.
--------------------------------------------------------------------------------
THE PRINCIPAL RISKS OF INVESTING IN THE FUND ARE:
o GENERAL RISK- Like with most investments, you may lose money by investing
in the Fund.
o INTEREST RATE RISK- The Fund invests in debt securities. Generally, as
interest rates rise, the price value of debt securities falls.
o CREDIT RISK- The Fund invests in debt securities of non-guaranteed
entities. Adverse changes in the creditworthiness of an issuer can have an
adverse effect on the value of the issuer's securities. The Fund invests in
non-investment grade securities, sometimes known as "junk bonds". Although
the potential interest earnings and capital appreciation on junk bonds are
often higher than on investment grade securities, these securities are more
likely to experience price declines due to changes in the issuers' credit
standing, including the risk of default.
o TIME RISK- the Fund invests according to certain duration targets, which
may change from time to time. The longer the portfolio's overall duration,
the greater the risk of adverse price changes. Also, portfolios with
greater duration periods tend to experience more volatile price movements.
--------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED IN THE PAST?
The Fund is being offered for the first time by this Prospectus. Accordingly, a
bar chart and performance table for the Fund are not yet available.
--------------------------------------------------------------------------------
12
<PAGE>
QUAKER GOVERNMENT MONEY MARKET FUND
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS:
to maximize current income while preserving capital and maintaining liquidity.
The Fund seeks to maintain a stable net asset value at $1.00 per share.
--------------------------------------------------------------------------------
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES ARE:
normally investing at least 85% of the Fund's total assets exclusively in
securities issued by the U.S. Government or its agencies and instrumentalities.
Under normal circumstances, the Fund will not invest in any security with a
maturity in excess of 397 days.
--------------------------------------------------------------------------------
THE PRINCIPAL RISKS OF INVESTING IN THE FUND ARE:
o MONEY MARKET RISK- An investment in the Fund is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
o INTEREST RATE RISK- The Fund invests in debt instruments. Generally, as
interest rates rise, the price value of debt securities falls.
o CREDIT RISK- Adverse changes in the creditworthiness of an issuer can have
an adverse effect on the value of the issuer's securities, which may
negatively affect the Fund. Because the Fund invests a majority of its
assets in US Government or Government Agency guaranteed securities, credit
risk is minimal.
--------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED IN THE PAST?
The Fund is being offered for the first time by this Prospectus. Accordingly, a
bar chart and performance table for the Fund are not yet available.
--------------------------------------------------------------------------------
FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF EACH FUND.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
FUND SHAREHOLDER FEES ANNUAL FUND OPERATING EXPENSES
(CLASS A) (Fees Paid Directly From (Expenses That Are Deducted From Fund Assets)
Your Investment)
----------------------------------------------------------------------------------------------------------
Maximum
Maximum Sales Deferred Distribution Total Annual
Charge (Load) Sales & Servicing Fund
Imposed on Charge Management (12b-1) Other Operating
Purchases (Load) Fees (1) Fees(2) Expenses(3) Expenses
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Core Equity 5.50% None 1.05% 0.25% 0.25% 1.55%
----------------------------------------------------------------------------------------------------------
Aggressive Growth 5.50% None 1.30% 0.25% 0.25% 1.80%
----------------------------------------------------------------------------------------------------------
Large-Cap Value 5.50% None 1.05% 0.25% 0.25% 1.55%
----------------------------------------------------------------------------------------------------------
Mid-Cap Value 5.50% None 1.05% 0.25% 0.25% 1.55%
----------------------------------------------------------------------------------------------------------
Small-Cap Value 5.50% None 1.20% 0.25% 0.25% 1.70%
----------------------------------------------------------------------------------------------------------
Small-Cap Growth 5.50% None 1.05% 0.25% 0.25% 1.55%
----------------------------------------------------------------------------------------------------------
Fixed Income 4.25% None 1.00% 0.25% 0.25% 1.50%
----------------------------------------------------------------------------------------------------------
High Yield 4.25% None 1.05% 0.25% 0.25% 1.55%
----------------------------------------------------------------------------------------------------------
Money Market NA NA NA NA NA NA
----------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
FUND SHAREHOLDER FEES ANNUAL FUND OPERATING EXPENSES
(CLASS B) (Fees Paid Directly From (Expenses That Are Deducted From Fund Assets)
Your Investment)
----------------------------------------------------------------------------------------------------------
Maximum
Maximum Sales Deferred Distribution Total Annual
Charge (Load) Sales & Servicing Fund
Imposed on Charge Management (12b-1) Other Operating
Purchases (Load)(4) Fees (1) Fees(2) Expenses(3) Expenses
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Core Equity None 5.00% 1.05% 1.00% 0.25% 2.30%
----------------------------------------------------------------------------------------------------------
Aggressive Growth None 5.00% 1.30% 1.00% 0.25% 2.55%
----------------------------------------------------------------------------------------------------------
Large-Cap Value None 5.00% 1.05% 1.00% 0.25% 2.30%
----------------------------------------------------------------------------------------------------------
Mid-Cap Value None 5.00% 1.05% 1.00% 0.25% 2.30%
----------------------------------------------------------------------------------------------------------
Small-Cap Value None 5.00% 1.20% 1.00% 0.25% 2.45%
----------------------------------------------------------------------------------------------------------
Small-Cap Growth None 5.00% 1.05% 1.00% 0.25% 2.30%
----------------------------------------------------------------------------------------------------------
Fixed Income None 500% 1.00% 1.00% 0.25% 2.25%
----------------------------------------------------------------------------------------------------------
High Yield None 5.00% 1.05% 1.00% 0.25% 2.30%
----------------------------------------------------------------------------------------------------------
Money Market NA NA NA NA NA NA
----------------------------------------------------------------------------------------------------------
<CAPTION>
----------------------------------------------------------------------------------------------------------
FUND SHAREHOLDER FEES ANNUAL FUND OPERATING EXPENSES
(CLASS C) (Fees Paid Directly From (Expenses That Are Deducted From Fund Assets)
Your Investment)
----------------------------------------------------------------------------------------------------------
Maximum
Maximum Sales Deferred Distribution Total Annual
Charge (Load) Sales & Servicing Fund
Imposed on Charge Management (12b-1) Other Operating
Purchases (Load)(5) Fees (1) Fees(2) Expenses(3) Expenses
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Core Equity None 1.00% 1.05% 1.00% 0.25% 2.30%
----------------------------------------------------------------------------------------------------------
Aggressive Growth None 1.00% 1.30% 1.00% 0.25% 2.55%
----------------------------------------------------------------------------------------------------------
Large-Cap Value None 1.00% 1.05% 1.00% 0.25% 2.30%
----------------------------------------------------------------------------------------------------------
Mid-Cap Value None 1.00% 1.05% 1.00% 0.25% 2.30%
----------------------------------------------------------------------------------------------------------
Small-Cap Value None 1.00% 1.20% 1.00% 0.25% 2.45%
----------------------------------------------------------------------------------------------------------
Small-Cap Growth None 1.00% 1.05% 1.00% 0.25% 2.30%
----------------------------------------------------------------------------------------------------------
Fixed Income None 1.00% 1.00% 1.00% 0.25% 2.25%
----------------------------------------------------------------------------------------------------------
High Yield None 1.00% 1.05% 1.00% 0.25% 2.30%
----------------------------------------------------------------------------------------------------------
Money Market NA NA NA NA NA NA
----------------------------------------------------------------------------------------------------------
<CAPTION>
----------------------------------------------------------------------------------------------------------
FUND SHAREHOLDER FEES ANNUAL FUND OPERATING EXPENSES
(INSTITUTIONAL) (Fees Paid Directly From (Expenses That Are Deducted From Fund Assets)
Your Investment)
----------------------------------------------------------------------------------------------------------
Maximum
Maximum Sales Deferred Distribution Total Annual
Charge (Load) Sales & Servicing Fund
Imposed on Charge Management (12b-1) Other Operating
Purchases (Load) Fees (1) Fees(2) Expenses(3) Expenses
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Core Equity None None 1.05% 0.00% 0.25% 1.30%
----------------------------------------------------------------------------------------------------------
Aggressive Growth None None 1.30% 0.00% 0.25% 1.55%
----------------------------------------------------------------------------------------------------------
Large-Cap Value None None 1.05% 0.00% 0.25% 1.30%
----------------------------------------------------------------------------------------------------------
Mid-Cap Value None None 1.05% 0.00% 0.25% 1.30%
----------------------------------------------------------------------------------------------------------
Small-Cap Value None None 1.20% 0.00% 0.25% 1.45%
----------------------------------------------------------------------------------------------------------
Small-Cap Growth None None 1.05% 0.00% 0.25% 1.30%
----------------------------------------------------------------------------------------------------------
Fixed Income None None 1.00% 0.00% 0.25% 1.25%
----------------------------------------------------------------------------------------------------------
High Yield None None 1.05% 0.00% 0.25% 1.30%
----------------------------------------------------------------------------------------------------------
Money Market None None 0.80% 0.25% 0.00% 1.00%
----------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
1. Management fees include fees paid to each Fund's Investment Advisor and a
Sponsor fee of 0.25%.
2. Because 12b-1 fees are paid out of the Fund's assets on an ongoing basis,
over time these fees will increase the cost of your investment and may cost
you more than paying other types of sales charges.
3. Other Expenses include fees paid to the Fund's transfer agent,
administrator and other service providers. Because each Fund is offering
these share classes for the first time, these fees are estimated.
4. The maximum deferred sales charge shown in the table is charged to shares
redeemed within the first year of purchase. These deferred sales charges
decline to 0.00% over time. Please see, "How to Buy and Sell Shares" and
"Variable Pricing System" in this Prospectus.
5. If you redeem your shares within thirteen months of purchase, you will be
charged a fee of 1.00% of the redemption proceeds. Please see "How to Buy &
Sell Shares" and "Variable Pricing System" in this Prospectus.
EXAMPLE OF FUND EXPENSES OVER TIME
----------------------------------
The tables set out below are intended to help you compare the costs of investing
in each Fund with the costs of investing in other mutual funds. The Example
assumes that you invest $10,000 in a Fund for the time periods indicated, then
redeem all your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that each Fund's Total Annual
Operating Expenses remain the same as stated in the tables above. Although your
costs may be higher or lower, based on these assumptions your costs would be:
The tables set out below are intended to help you compare the costs of investing
in each Fund with the costs of investing in other mutual funds. The Example
assumes that you invest $10,000 in a Fund for the time periods indicated, then
redeem all your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that each Fund's Total Annual
Operating Expenses remain the same as stated in the tables above. Although your
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C INSTITUTIONAL
-----------------------------------------------------------------------------------------------
FUND 1 Year 3 Years 1 Year 3 Years 1 Year 3 Years 1 Year 3 Years
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Core Equity $710 $1046 $735 $1145 $334 $721 $133 $413
-----------------------------------------------------------------------------------------------
Aggressive Growth $723 $1087 $761 $1218 $359 $796 $158 $491
-----------------------------------------------------------------------------------------------
Large-Cap Value $710 $1046 $735 $1145 $334 $721 $133 $413
-----------------------------------------------------------------------------------------------
Mid-Cap Value $710 $1046 $735 $1145 $334 $721 $133 $413
-----------------------------------------------------------------------------------------------
Small-Cap Value $714 $1056 $751 $1189 $349 $766 $148 $460
-----------------------------------------------------------------------------------------------
Small-Cap Growth $710 $1046 $735 $1145 $334 $721 $133 $413
-----------------------------------------------------------------------------------------------
Fixed Income $695 $1000 $731 $1130 $229 $706 $128 $398
-----------------------------------------------------------------------------------------------
High Yield $710 $1046 $735 $1145 $334 $721 $133 $413
-----------------------------------------------------------------------------------------------
Money Market NA NA NA NA NA NA $102 $319
-----------------------------------------------------------------------------------------------
</TABLE>
IF YOU DID NOT REDEEM YOUR SHARES, YOUR EXPENSES WOULD BE:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C INSTITUTIONAL
-----------------------------------------------------------------------------------------------
FUND 1 Year 3 Years 1 Year 3 Years 1 Year 3 Years 1 Year 3 Years
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Core Equity $710 $1046 $234 $720 $234 $720 $133 $413
-----------------------------------------------------------------------------------------------
Aggressive Growth $723 $1087 $259 $796 $259 $796 $158 $491
-----------------------------------------------------------------------------------------------
Large-Cap Value $710 $1046 $234 $720 $234 $720 $133 $413
-----------------------------------------------------------------------------------------------
Mid-Cap Value $710 $1046 $234 $720 $234 $720 $133 $413
-----------------------------------------------------------------------------------------------
Small-Cap Value $714 $1056 $249 $766 $249 $766 $148 $460
-----------------------------------------------------------------------------------------------
Small-Cap Growth $710 $1046 $234 $720 $234 $720 $133 $413
-----------------------------------------------------------------------------------------------
Fixed Income $695 $1000 $229 $706 $229 $706 $128 $398
-----------------------------------------------------------------------------------------------
High Yield $710 $1046 $234 $720 $234 $720 $133 $413
-----------------------------------------------------------------------------------------------
Money Market NA NA NA NA NA NA $102 $319
-----------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
ADDITIONAL INFORMATION ABOUT RISKS
Each Fund bears certain risks of investment. The principal risks of investing in
each Fund are summarized in the "Basics About Each Fund" Section of this
Prospectus. What follows is a more detailed discussion of the risks associated
with an investment in each Fund.
GENERAL RISKS- As with most investments, all the Funds bear the risk that you
can lose money by investing in that Fund. Except for the Money Market Fund, the
value of your Fund shares will fluctuate from day to day based on the price
movements of the securities in which your Fund invests. When you sell your Fund
shares, they may be worth less than what you paid for them. An investment in the
Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency. Although the Money Market Fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund.
STOCK MARKET RISKS- The Core Equity, Aggressive Growth, Large, Mid and Small-Cap
Value, and the Small-Cap Growth Funds all invest primarily in common stock. The
stock market can be very volatile, with prices widely fluctuating from
day-to-day. Stocks can be influenced by general economic events, industry-wide
influences and company-specific concerns.
SMALL-CAP STOCK RISKS- The Aggressive Growth, Small-Cap Value and Small-Cap
Growth Funds invest in companies with small market capitalizations (generally
less than $1.5 billion). Because these companies are relatively small compared
to large-cap companies, may be engaged in business mostly within their own
geographic region and may be less well-known to the investment community, they
can have more volatile share prices. Also, small companies often have less
liquidity, less management depth, narrower market penetrations, less diverse
product lines and fewer resources than larger companies. As a result, their
stock prices often react more strongly to changes in the marketplace.
MEDIUM-CAP STOCK RISKS- The Core Equity, Aggressive Growth and Mid-Cap Value
Funds invest in companies with medium market capitalizations (from $1.5 to $6
billion). Because these companies are relatively small compared to large-cap
companies, may be engaged in business mostly within their own geographic region
and may be less well-known to the investment community, they can have more
volatile share prices. Also, these companies often have less liquidity, less
management depth, narrower market penetrations, less diverse product lines and
fewer resources than larger companies. As a result, their stock prices often
react more strongly to changes in the marketplace.
VALUE RISK- The Large-Cap Value, Mid-Cap Value and Small-Cap Value Funds'
Advisors seek to invest in companies that appear to be "undervalued" in the
marketplace (i.e. trading at prices below the company's true worth). The risk in
such an investment strategy is that the Advisor's analysis of a company's true
value may be incorrect and the securities purchased may not perform as expected,
reducing the Fund's return.
GROWTH RISK- The Core Equity, Aggressive Growth and Small-Cap Growth Funds seek
to invest in companies that appear to have substantial potential for
above-average price growth. The risk in such an investment strategy is that the
Advisor's analysis of a company's growth potential may be incorrect and the
securities purchased may not perform as expected, reducing the Fund's return.
SPECIAL SITUATION RISKS- The Aggressive Growth Fund invests in "special
situations". Special situations often involve much greater risk than is found in
the normal course of investing. These risks result from the subjective nature of
determining what a special situation is. Liquidations, reorganizations,
recapitalizations, material litigation, technological breakthroughs and new
management or management policies may not have the effect on a company's price
that the Fund's Advisor expects, which could negatively impact the
16
<PAGE>
Fund. To minimize these risks, the Fund will not invest in special situations
unless the target company has at least three years of continuous operations
(including predecessors) or unless the aggregate value of such investments is
not greater than 25% of the Fund's total net assets (valued at the time of
investment).
SHORT SELLING RISKS- The Aggressive Growth Fund engages in "short sales". Short
selling involves special risks, and the Fund could at any time suffer a loss if
the security sold short should increase in value. Funds that maintain short
positions are generally riskier than funds that do not engage in short sales.
When the Fund engages in short sales, the securities underlying the transaction
are repriced daily, and if the value of the underlying securities is not
sufficient to fully cover the short, the Fund will have to put up additional
cash or securities to make up any difference. This requirement may result in
additional loss to the Fund.
TEMPORARY DEFENSIVE POSITIONS- Under abnormal market or economic conditions,
each Fund's Advisor (except the Money Market Fund) may adopt a temporary
defensive investment position in the market. When the Advisor assumes such a
position, cash reserves may be a significant percentage (up to 100%) of the
Fund's total net assets. During times when the Fund holds a significant portion
of its net assets in cash, it will not be investing according to its investment
objectives and the Fund's performance may be negatively affected as a result.
ADDITIONAL INVESTMENT INFORMATION
The principal investment strategies of each Fund were set forth in the "Basics
About Each Fund" Section of this Prospectus. What follows is some additional
information that might be helpful to you concerning the investment strategies
employed by some of our Funds.
QUAKER LARGE-CAP VALUE FUND & QUAKER MID-CAP VALUE FUND
-------------------------------------------------------
The Funds' Advisor believes that each Fund's investment objective is best
achieved by investing in companies that exhibit the potential for significant
growth over the long term. The Advisor defines long-term as a time horizon of at
least three years. To identify companies that have significant growth potential,
the Advisor employs a value-oriented approach to stock selection. To choose the
securities in which the Funds will invest, the Advisor seeks to identify
companies which exhibit some or all of the following criteria:
o low price-to-earnings ratio ("P/E");
o low price-to-book value or tangible asset value;
o excellent prospects for growth;
o strong franchise;
o highly qualified management;
o consistent free cash flow; and
o high returns on invested capital.
In order to choose the securities in which each Fund invests, the Advisor
employs its own proprietary, cash-flow based dividend discount analytical model.
The Advisor selects 50-100 securities which it believes to be undervalued
relative to comparable alternate investments, then focuses on the fundamentals
of these companies to choose which companies will ultimately be included in the
Fund.
Each Fund will normally invest its remaining assets in cash and cash equivalents
such as U.S. government debt instruments, other unaffiliated mutual funds and
repurchase agreements.
Ordinarily, each Fund's portfolio will be invested primarily in common stocks.
However, the Funds are not required to be fully invested in common stocks and in
fact, usually maintain a small percentage of their assets in cash reserves.
Under abnormal market or economic conditions, the Trust has authorized the
Funds' Advisor to adopt a temporary defensive investment position in the market.
When the Advisor assumes such a position, cash reserves may be a significant
percentage (up to 100%) of a Fund's total net assets. When assuming a temporary
defensive position, the Fund usually invests its cash reserves in U.S.
Government debt instruments, other unaffiliated mutual funds (money market
funds) and repurchase agreements. The primary difference between these two Funds
is the size of the companies in which each Fund concentrates its investments.
17
<PAGE>
QUAKER SMALL-CAP VALUE FUND
---------------------------
In selecting portfolio companies, the Fund's Advisor focuses on companies with
consistently high earnings and above-average core assets, selling at relatively
low market valuations, with attractive growth and momentum characteristics. The
Fund will normally remain fully invested in these securities at all times,
subject to a minimum cash balance maintained for operational purposes.
The Fund's Advisor screens a broad universe of U.S. securities to identify a
subset of issuers with ample trading volume, a number of years of operating
history and market capitalizations similar to the companies in the Russell 2000
and Russell 2500 Indices. The resulting stocks are divided into 11 peer groups
or sectors. Within each group, the Advisor identifies the most attractive stocks
by considering a number of balance sheet and income statement criteria. The
Advisor then chooses securities so as to approximate the overall industry and
risk factor characteristics of the Russell 2500 Index.
The Fund may invest its remaining assets, if any, in equity securities of medium
and large capitalization companies, cash and cash equivalents, such as U.S.
government debt instruments, other unaffiliated mutual funds and repurchase
agreements.
Ordinarily, the Fund's portfolio will be invested primarily in common stocks.
However, the Fund is not required to be fully invested in common stocks and in
fact, usually maintains a small percentage of its assets in cash reserves. Under
abnormal market or economic conditions, the Trust has authorized the Fund's
Advisor to adopt a temporary defensive investment position in the market. When
the Advisor assumes such a position, cash reserves may be a significant
percentage (up to 100%) of the Fund's total net assets. When assuming a
temporary defensive position, the Fund usually invests its cash reserves in U.S.
Government debt instruments, other unaffiliated mutual funds (money market
funds) and repurchase agreements.
QUAKER GOVERNMENT MONEY MARKET FUND
-----------------------------------
The Fund will not invest in instruments maturing more than 397 days from the
date of investment and will maintain a dollar-weighted average portfolio
maturity of 90 days or less. The Fund is a "Money Market Fund", and as such, is
obligated to comply with the requirements of the Investment Company Act of 1940,
as amended (the "Act"), which governs the operations of money market funds.
The Fund will normally hold portfolio securities to maturity. As a result, the
Fund does not expect to realize capital gains on its securities holdings, nor
does it expect its net asset value to fluctuate above or below $1.00 per share.
The Fund will normally invest at least 85% of its net assets in the following
securities:
(1) U.S. Government Treasury Bills, Treasury Notes and Treasury bonds with
remaining maturities of less than 397 days;
(2) U.S. Government agency securities with remaining maturities of less than
397 days; and
(3) Repurchase Agreements collateralized by U.S. Government and Agency
securities.
U.S. GOVERNMENT TREASURY BILLS, TREASURY NOTES, AND TREASURY BONDS are direct
obligations of the U.S. Government. As such, these instruments are generally
considered to have the highest credit standing. Securities backed by the full
faith and credit of the United States Government (direct obligations) carry
minimal credit risk; shareholders are generally exposed only to interest rate
risk.
18
<PAGE>
U.S. GOVERNMENT AGENCY SECURITIES are securities issued by instrumentalities of
the U.S. Government. Some of these securities are direct obligations of the U.S.
Government, but those that are not still enjoy a very high degree of credit
safety.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements ("Repos")
with U.S. banks and authorized broker/dealers, provided that the Fund's
custodian always has possession of the securities serving as collateral for the
Repos or has proper evidence of book entry receipt of said securities.
In a Repo, the Fund purchases securities subject to the seller's simultaneous
agreement to repurchase those securities from the Fund at a specified time
(usually one day) and price. The repurchase price reflects an agreed-upon
interest rate during the time of investment. All Repos entered into by the Fund
must be collateralized by U.S. Government or Agency Securities, the market
values of which equal or exceed 102% of the principal amount of the money
invested by the Fund.
CASH RESERVES. The Fund may normally hold up to 15% of its net assets in cash to
meet liquidity needs.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued basis and it may purchase or sell securities for
delayed-delivery. These transactions occur when securities are purchased or sold
by the Fund with payment and delivery taking place at some future date. The Fund
may enter into such transactions when, in the Adviser's opinion, doing so may
secure an advantageous yield and/or price to the Fund that might otherwise be
unavailable. The Fund has not established any limit on the percentage of assets
it may commit to such transactions, but to minimize the risks of entering into
these transactions, the Fund will maintain a segregated account with its
Custodian consisting of cash, cash equivalents or U.S. Government Securities, in
an amount equal to the aggregate fair market value of its commitments to such
transactions.
THE FUNDS' SPONSOR AND INVESTMENT ADVISORS
THE FUNDS' SPONSOR
------------------
Pursuant to a Sponsorship Agreement adopted by the Trust for each Fund, Quaker
Funds, Inc. 1288 Valley Forge Road, Suite 76, Valley Forge, PA 19482, provides
shareholder servicing activities for each Fund not otherwise provided by each
Fund's Administrator or Custodian, for which it will receive a fee at an annual
rate of 0.25% of the average daily net assets of each Fund. Quaker Funds, Inc.
also provides oversight with respect to each Fund's Advisor, arranges for
payment of investment advisory and administrative fees, coordinates payments
under each Fund's Distribution Plan, develops communications with existing Fund
shareholders, assists in responding to shareholder inquiries and provides other
shareholder servicing tasks.
THE INVESTMENT ADVISOR
----------------------
On June 23, 2000, the shareholders of each Fund except the Quaker Small-Cap
Value Fund and the Quaker Fixed Income Fund elected Quaker Management Corp.
("QMC") to serve as Investment Advisor to each Fund. The shareholders of the
Quaker Small-Cap Value Fund and the Quaker Fixed Income Fund are expected to
approve the appointment of QMC as investment adviser to those Funds on August 5,
2000. QMC is a Pennsylvania corporation doing business and registered with the
Securities and Exchange Commission ("SEC") as an investment adviser.
QMC's address is 1288 Valley Forge Road, Suite 76, Valley Forge, PA 19482. QMC
is a new company formed specifically to act as Master Investment Adviser to each
Fund of the Trust. QMC is controlled by Jeffry H. King, who owns 100% of QMC's
outstanding shares. Mr. King currently is the sole director of QMC. Mr. King is
also a Trustee of the Trust and serves as Chairman of the Board.
19
<PAGE>
David C. Dameron is President of QMC and is responsible for the day-to-day
activities of QMC. Mr. Dameron has been an investment professional for more than
13 years. He currently holds NASD Series 7 (General Securities Representative),
Series 63 (State Securities Representative), Series 65 (Registered Investment
Adviser) and Series 24 (General Securities Principal) licenses. Mr. Dameron also
serves as an officer of the Trust in the capacity of President of each Fund and
as Chief Executive Officer of Quaker Financial Advisors, Inc., a Pennsylvania
investment advisory company. He is a registered representative with Quaker
Securities, Inc., a Pennsylvania broker/dealer company registered with the
Securities and Exchange Commission. Prior to joining the Quaker Group, Mr.
Dameron was Director of Marketing for the Killen Group, a Pennsylvania
registered investment adviser, Berwyn Financial Services and the Berwyn Fund of
Berwyn, Pennsylvania and was a registered representative with Securities America
of Omaha, Nebraska.
QMC will be responsible for the overall investment operations of all the Funds;
it provides or arranges to provide day-to-day investment advisory services to
each Fund and is primarily responsible to the Board for the conduct of each
Fund's investment activities. QMC will prepare quarterly reports to the Board
concerning the investment activities of each Fund (or more frequently if the
Board requires). QMC is responsible for ensuring that the Funds are managed in
accordance with their investment objectives and restrictions, is responsible for
reporting any deviations to the Board and for taking such corrective actions as
the Board may direct.
QMC is authorized to engage persons, subject to shareholder approval, to serve
one or more Funds as sub-advisers. These sub-advisers will provide day-to-day
investment advice and choose the securities in which one or more Funds will
invest. The sub-advisers will be paid fees by QMC, will report directly to QMC,
and QMC will be responsible to report to the Board for any errors or omissions
made by a sub-adviser.
THE SUB-ADVISORS
----------------
The Trust and Quaker Management Corp. have selected the following persons to
serve as sub-advisers to each Fund.
FOR THE QUAKER CORE EQUITY FUND AND QUAKER SMALL-CAP GROWTH FUND:
Geewax, Terker & Co. ("GTC"), 99 Starr Street, Phoenixville, Pennsylvania 19460,
serves as sub-adviser to the Core Equity Fund after being approved by
shareholders of the Fund on June 23, 2000. GTC previously served as the
investment adviser to the Core Equity Fund prior to June 23, 2000. As investment
adviser to the Core Equity Fund, GTC achieved outstanding investment results for
the Fund. GTC has been recognized as one of the leading equity management firms
in the nation. Both QMC and the Board have been very pleased with GTC's
performance as investment adviser to the Core Equity Fund, and both asked GTC to
stay on as sub-adviser in order to provide continuity of day-to-day investment
management for the Fund.
The Board of the Trust approved the appointment of GTC as sub-advisor to the
Small-Cap Growth Fund on April 12, 2000. The sole shareholder of the Fund, QMC,
approved the Board's choice on July 3, 2000.
GTC was established as a Pennsylvania partnership in 1982 and is registered as
an investment adviser under the Investment Advisers Act of 1940, as amended. GTC
currently serves as investment adviser to over $8.2 billion in assets. GTC
operates as an investment advisory firm and has been rendering investment
counsel, utilizing investment strategies substantially similar to that of the
Core Equity Fund, to individuals, pension and profit sharing plans, trusts,
estates, charitable organizations and corporations since 1987. GTC is controlled
by John J. Geewax and Bruce E. Terker.
John J. Geewax, general partner of GTC, has responsibility for the day-to-day
management of the Fund's portfolio. Prior to establishing Geewax, Terker & Co.
in 1982, Mr. Geewax served as a portfolio manager with Pennsylvania Asset
Services, beginning in 1980. He was also an instructor at the Wharton School of
the University of Pennsylvania from 1980 - 1982.
20
<PAGE>
Messrs. Geewax and Terker, under the aegis Geewax, Terker & Co., have provided
investment management services and counseling to a significant number of
individual clients, large institutional clients and other registered investment
companies, including the Noah Fund and Vanguard Trustees Equity Fund since
founding the company. GTC has served as investment adviser to the Fund since
November, 1998.
FOR THE QUAKER AGGRESSIVE GROWTH FUND:
Quaker Financial Advisors, Inc. ("QFA") serves as sub-advisor to the Fund after
being approved by shareholders of the Fund on June 23, 2000. DG Capital
Management, Inc. ("DGCM") the former investment adviser to the Fund, resigned as
investment adviser effective April 30, 2000. The Trust's Board appointed QFA to
serve as interim adviser and to then serve as sub-adviser upon shareholder
approval.
QFA was established as a Pennsylvania corporation in 1998 and is registered
under the Investment Advisors Act of 1940, as amended. QFA currently serves as
investment advisor to over $20 million in assets. QFA has been rendering
investment counsel to individuals, banks and thrift institutions, pension and
profit sharing plans, trusts, estates, charitable organizations and corporations
since 1998. QFA's address is 1288 Valley Forge Road, Suite 76, Valley Forge, PA
19482. QFA is controlled by Mr. Jeffry H. King, who is also a Trustee of the
Trust and Chairman of the Board. Mr. David C. Dameron is President of QFA and is
also an officer of the Trust, serving as President of each Fund. Mr. King is the
sole director of QFA.
Mr. Manu Daftary serves as Portfolio Manager for QFA and will have day-to-day
responsibility for choosing the investments of the Fund. Mr. Manu Daftary is
also the President of DGCM and the firm's sole shareholder. He was the Fund's
portfolio manager when DGCM served as investment advisor to the Fund and has
been responsible for the day-to-day management of the Fund's portfolio since its
inception. He has been with DGCM since July 1996. Previously Mr. Daftary was a
portfolio manager with Greenville Capital Management during 1995 and early 1996;
was Senior Vice President/Portfolio Manager with Hellman, Jordan Management
Company from 1993-1995; was co-manager of the institutional growth stock
portfolio with Geewax, Terker & Co. from 1988-1993.
FOR THE QUAKER LARGE-CAP VALUE AND MID-CAP VALUE FUNDS:
Compu-Val Investments, Inc. ("CVI") serves as sub-advisor to each Fund after
being approved by shareholders of the Funds on June 23, 2000. CVI previously
served as investment advisor to each Fund. CVI was established as a Delaware
corporation in 1974 and is registered under the Investment Advisers Act of 1940,
as amended. CVI currently serves as investment advisor to over $170 million in
assets. CVI has been rendering investment counsel, utilizing investment
strategies substantially similar to that of the Large-Cap Value And Mid-Cap
Value Funds, to individuals, banks and thrift institutions, pension and profit
sharing plans, trusts, estates, charitable organizations and corporations since
1974. CVI's address is 1702 Lovering Avenue, Wilmington, Delaware 19806. CVI is
controlled by James Kalil, Ph.D. and Donald J. Kalil.
Christopher O'Keefe, Director of Equity Research for CVI since 1995, is the
Funds' portfolio manager. Previously, Mr. O'Keefe was an investment analyst with
CoreStates Investment Advisors, Philadelphia, PA , since 1989.
FOR THE QUAKER SMALL-CAP VALUE FUND:
Aronson + Partners ("Aronson") currently serves as investment advisor to the
Fund, but will become sub-advisor to the Fund if the Fund's shareholders approve
QMC's appointment as Master Investment Advisor on August 5, 2000. Aronson was
established as a Pennsylvania partnership in 1984 and is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended.
Aronson currently serves as investment advisor to over $4.2 billion in assets.
Aronson has been rendering investment counsel utilizing investment strategies
substantially similar to that of the Small-Cap Value Fund, to individuals, banks
and thrift institutions, pension and profit sharing plans, trusts, estates,
charitable organizations and corporations
21
<PAGE>
since its inception in 1984. Aronson's address is 230 South Broad Street, 20th
Floor, Philadelphia, Pennsylvania 19012. Aronson is controlled by Theodore R.
Aronson.
Mr. Aronson has been responsible for day-to-day management of the Fund's
portfolio since its inception. He has been with Aronson since August 1984.
Previously Mr. Aronson was a partner with Addison Capital Management.
FOR THE QUAKER FIXED-INCOME FUND, QUAKER HIGH YIELD FUND AND QUAKER GOVERNMENT
MONEY MARKET FUND:
ALM Advisors, Inc. ("ALM") currently serves as interim investment advisor to the
Fund, but will become sub-advisor to the Fund if the Fund's shareholders approve
QMC's appointment as Master Investment Advisor on August 5, 2000. On April 12,
2000, the Trust's Board elected ALM to also serve as Sub-advisor to the Quaker
High Yield Fund and the Quaker Government Money Market Funds, both of which are
being offered for the first time by this Prospectus. The sole shareholder of
both new Funds, QMC, approved the board's selection on July 3, 2000.
ALM was established as a California corporation in 1995 and is registered under
the Investment Advisers Act of 1940, as amended. ALM currently serves as
investment advisor to over $287 million in assets. ALM has been rendering
investment counsel to individuals, banks and thrift institutions, pension and
profit sharing plans, trusts, estates, charitable organizations and corporations
since 1995. ALM 's address is 750 East Green Street, Suite 315, Pasadena, CA
91101. ALM is controlled by Mr. Jeffery G. Rollert.
Mr. Rollert will have day-to-day responsibility for choosing the investments of
each Fund. Mr. Rollert founded ALM in 1995 and has served as its Managing
Director and Senior Portfolio Manager since the firm's founding.
HOW TO BUY AND SELL SHARES
INVESTING IN THE FUND
Determining Share Prices
------------------------
Shares of each share class of each Fund are offered at the public offering price
("POP") for each share class. The public offering price is each share's next
calculated net asset value ("NAV"), plus the applicable sales charge, if any.
NAV per share is calculated by adding the value of Fund investments, cash and
other assets, subtracting Fund liabilities, and then dividing the result by the
number of shares outstanding. Each Fund generally determines the total value of
its shares by using market prices for the securities comprising its portfolio.
Securities for which quotations are not available and any other assets are
valued at fair market value as determined in good faith by each Fund's Advisor,
subject to the review and supervision of the Board of Trustees. Each Fund's per
share NAV and POP is computed on all days on which the New York Stock Exchange
("NYSE") is open for business, at the close of regular trading hours on the
exchange, currently 4:00 p.m. Eastern time. In the event that the NYSE closes
early, the share price will be determined as of the time of closing.
Variable Pricing System
-----------------------
Each Fund in the Quaker Family of Funds, except the Money Market Fund, offers
four classes of shares by this prospectus. The Quaker Government Money Market
Fund offers only Institutional Class Shares, at a reduced minimum investment
amount. The main differences between each class are sales charges, ongoing fees
and investment minimums. In choosing which class of shares to purchase, you
should consider which will be most beneficial to you, given the amount of your
purchase and the length of time you expect to hold your shares. Each share class
in any Fund represents interests in the same portfolio of investments in that
Fund.
22
<PAGE>
CLASS A SHARES.
Class A shares are offered at their POP, which is NAV share plus the applicable
sales charge. The sales charge varies depending on how much you invest. There
are no sales charges on reinvested distributions. The following sales charges
apply to your purchases of Class A shares of each Fund except the Quaker
Fixed-Income Fund and Quaker High Yield Fund:
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF DEALER
AMOUNT INVESTED OFFERING PRICE NET AMOUNT INVESTED REALLOWANCE
--------------- -------------- ------------------- -----------
Less than $ 49,999 5.50% 5.82% 5.00%
$50,000 to $ 99,999 4.75% 4.99% 4.25%
$100,000 to $249,999 3.75% 3.76% 3.25%
$250,000 to $499,999 2.75% 2.76% 2.50%
$500,000 to $999,999 2.00% 2.00% 1.75%
$1,000,000 or more* 0.00% 0.00% 0.00%
The following sales charges apply to your purchases of Class A shares of the
Quaker Fixed-Income Fund and the Quaker High Yield Fund:
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF DEALER
AMOUNT INVESTED OFFERING PRICE NET AMOUNT INVESTED REALLOWANCE
--------------- -------------- ------------------- -----------
Less than $ 99,999 4.25% 4.44% 4.00%
$100,000 to $249,999 3.75% 3.89% 3.50%
$250,000 to $499,999 2.75% 2.83% 2.50%
$500,000 to $999,999 2.00% 2.04% 1.75%
$1,000,000 or more* 0.00% 0.00% 0.00%
*Brokers who sell shares in single lots of $1 million or more will receive a
commission of 1% of the total purchase amount from the Sponsor. However, if the
purchasing shareholder redeems shares within thirteen months of purchase, the
shareholder will be charged a 1% contingent deferred sales charge on the
redemption proceeds. This charge will be paid to the Sponsor to offset the
expense of the commission previously paid.
Declaration Distributors, Inc., ("DDI") the Trust's principal underwriter, will
pay the appropriate dealer concession to those selected dealers who have entered
into an agreement with DDI to sell shares of the Funds. The dealer's concession
may be changed from time to time. DDI may from time to time offer incentive
compensation to dealers who sell shares of the Funds subject to sales charges,
allowing such dealers to retain an additional portion of the sales load. A
dealer who receives all of the sales load may be deemed to be an "underwriter"
under the Securities Act of 1933, as amended.
Exemptions From Sales Charges
-----------------------------
The Trust will waive sales charges for purchases by fee-based registered
investment advisers for their clients, broker/dealers with wrap fee accounts,
registered investment Advisers or brokers for their own accounts, employees and
employee related accounts of the Advisor and Sub-advisors, and for an
organization's qualified retirement plan that places either (i) 100 or more
participants or (ii) $300,000 or more of combined participant initial assets
into the Funds, in the aggregate. For purchasers that qualify for fee waiver,
shares will be purchased at NAV. On June 23, 2000, shareholders of each Fund
except the Small-Cap Value and Fixed Income Funds approved the conversion of
No-Load Class shares, previously the only share class offered by the Funds, to
Class A shares. As part of that approval, any shareholder of those Funds who
purchased shares prior to June 23, 2000 is exempt from sales charges on all
future
23
<PAGE>
purchases of Class A Funds in their account. This permanent exemption does not
apply to new accounts opened after June 23, 2000 or to accounts of an otherwise
exempt shareholder opened in another name. The Quaker Small-Cap Value and Fixed
Income Funds' shareholders are expected to approve the conversion to Class A
shares on August 5, 2000. The same exemptions from future sales charges for
shareholders of these two Funds will apply through August 5, 2000, but will not
apply to new accounts opened after August, 2000 or to accounts of an otherwise
exempt shareholder opened in another name. The Trust also reserves the right to
waive sales charges in other situations at its sole discretion.
Reduced Sales Charges
---------------------
You may qualify for a reduced sales charge by aggregating the net asset value of
all your load shares previously purchased in all Funds with the dollar amount of
shares to be purchased. For example, if you already owned Class A shares in the
Core Equity Fund with a combined aggregate net asset value of $450,000, and you
decided to purchase an additional $60,000 of Class A shares of the Aggressive
Growth Fund, there would be a sales charge of 2.00% on your $60,000 purchase
instead of the normal 4.75% on that purchase, because you had accumulated more
than $500,000 total in the Funds.
Letter of Intent
----------------
You can immediately qualify for a reduced or eliminated sales charge by signing
a non-binding letter of intent stating your intention to buy an amount of shares
in the Fund(s) during the next thirteen (13) months sufficient to qualify for
the reduction. Your letter will not apply to purchases made more than 90 days
prior to the letter. During the term of your letter of intent, the transfer
agent will hold in escrow shares representing the highest applicable sales load
for the Fund(s) each time you make a purchase. Any shares you redeem during that
period will count against your commitment. If, by the end of your commitment
term, you have purchased all the shares you committed to purchase, the escrowed
shares will be released to you. If you have not purchased the full amount of
your commitment, your escrowed shares will be redeemed in an amount equal to the
sales charge that would apply if you had purchased the actual amount in your
account all at once. Any escrowed shares not needed to satisfy that charge would
be released to you.
CLASS B SHARES
Unlike Class A shares, Class B shares are sold at NAV without an initial sales
charge. Instead, a Contingent Deferred Sales Charge ("CDSC") is imposed on
certain redemptions of Class B shares. This means that all of your initial
investment is invested in the Fund(s) of your choice, and you will only incur a
sales charge if you redeem shares within seven years. In that case, a CDSC may
be imposed on your redemption. If a CDSC is imposed, it will be calculated on an
amount equal to the lesser of the current market value or the original cost of
the shares redeemed. What this means is that no sales charge is imposed on
increases in the net asset value of your shares above their original purchase
price. Also, no charge is assessed on shares derived from reinvestment of
dividend or capital gains distributions.
The amount of the CDSC, if any, varies depending on the number of years you have
held your shares. To determine that time period, all purchases made in any month
are aggregated together and deemed to have been made on the last day of the
month. For Class B shares of all Funds, the following CDSC charges apply:
REDEMPTION WITHIN CDSC AS A PERCENTAGE
OF REDEMPTION PROCEEDS
---------------------------------------------------------------
1st Year ................................... 5.00%
2nd Year ................................... 4.00%
3rd Year ................................... 3.00%
4th Year ................................... 3.00%
5th Year ................................... 2.00%
6th Year ................................... 1.00%
7th Year and Thereafter .................... NONE
24
<PAGE>
When you send a redemption request to the Trust, unless you specify otherwise,
shares not subject to the CDSC are redeemed first, then shares that have been
held the longest, and so on. That way, you will be subject to the smallest
charge possible.
CDSC Waivers
------------
The CDSC is waived on redemptions of Class B shares (i) following the death or
disability (as defined in the Code) of a shareholder (ii) in connection with
certain distributions from an IRA or other retirement plan (iii) for annual
withdrawals up to 10% of the value of the account, and (iv) pursuant to the
right of the Trust to liquidate a shareholder's account.
Conversion Feature
------------------
Class B shares automatically convert to Class A shares once the economic
equivalent of a 5.00% sales charge is recovered by the Fund(s) for each
investment account, normally after 7 years. The sales charge is recoverable by
the Fund(s) through the distribution and servicing fees paid under each Fund's
Plan of Distribution for its Class B shares. Class B shares converting to Class
A shares are not subject to additional sales charges.
CLASS C SHARES
Class C Shares are sold at net asset value without an initial sales charge. This
means that 100% of your initial investment is placed into shares of the Fund(s)
of your choice. However, Class C shares pay an annual 12b-1 shareholder
servicing fee of 0.25% of average daily net assets and an additional
distribution fee of 0.75% per annum of average daily net assets.
In order to recover commissions paid to dealers on investments in Class C
Shares, you will be charged a contingent deferred sales charge ("CDSC") of 1.00%
of the value of your redemption if you redeem your shares within thirteen months
from the date of purchase. You will not be charged a CDSC on reinvested
dividends or capital gains, amounts purchased more than thirteen months prior to
the redemption and increases in the value of your shares.
INSTITUTIONAL CLASS SHARES
The Trust also offers Institutional Class Shares of all Funds. This share class
is sold without any sales loads or CDSCs. However, the minimum initial and
subsequent investment in institutional shares is $1 million. This share class is
designed for large institutions. The Government Money Market Fund offers this
share class only, but the minimum investment in the Government Money Market Fund
is $2,000.
FACTORS TO CONSIDER WHEN CHOOSING A SHARE CLASS
When deciding which class of shares to purchase, you should consider your
investment goals, present and future amounts you may invest in the Fund(s), and
the length of time you intend to hold your shares. You should consider, given
the length of time you may hold your shares, whether the ongoing expenses of
Class C or Class B shares will be greater than the front-end sales charge of
Class A shares and to what extent such differences may be offset by the lower
ongoing expenses on Class A shares. To help you make a determination as to which
class of shares to buy, please refer back to the examples of each Fund's
expenses over time in the "FEES AND EXPENSES" Section of this Prospectus.
Distribution Fees
-----------------
Quaker Investment Trust (the "Trust") has adopted distribution and shareholder
servicing plans (the "Distribution Plans"), pursuant to Rule 12b-1 under The
Investment Company Act of 1940, as amended (the "1940 Act"), by class of shares,
for each Fund. The Distribution Plans provide for fees to be deducted from the
average net assets of the Funds in order to compensate the Sponsor or others for
expenses relating to the promotion and sale of shares of each Fund.
25
<PAGE>
Under the Class A Plan, the Class A shares of each Fund compensate the Sponsor
and others for distribution expenses at a maximum annual rate of 0.25% (of
which, the full amount may be service fees), payable on a monthly basis, of each
Fund's average daily net assets attributable to Class A shares.
Under the Class B Plan, the Class B shares of the Fund compensate the Sponsor
and others for distribution and service fees at an annual rate of 1.00% (0.25%
of which is a service fee) payable on a monthly basis, of each Fund's average
daily net assets attributable to Class B shares. Amounts paid under the Class B
Plan are paid to the Sponsor and others to compensate them for services provided
and expenses incurred in the distribution of Class B shares, including the
paying of commissions for sales of Class B shares. The Class B Plan is designed
to allow investors to purchase Class B shares without incurring a front-end
sales load and to permit the distributor to compensate authorized dealers for
selling such shares. Accordingly, the Class B Plan combined with the CDSC for
Class B shares is to provide for the financing of the distribution of Class B
shares. 12b-1 fees payable on Class B shares will be paid to the Sponsor for the
first thirteen months after the shares are purchased.
Under the Class C Plan, Class C shares of each Fund compensate the Sponsor and
others for distribution and service fees at an annual rate of 1.00% (0.75% of
which is a distribution fee) payable on a monthly basis, of each Fund's average
daily net assets attributable to Class C shares. Amounts paid under the Class C
Plan are paid to the Sponsor and others to compensate it for services provided
and expenses incurred in the distribution of Class C shares, including the
paying of ongoing shareholder servicing fees to persons who have sold Class C
shares. The Class C Plan is designed to allow investors to purchase Class C
shares without incurring a front-end sales load or a CDSC charge and to permit
the distributor to compensate authorized dealers for selling such shares.
Accordingly, the Class C Plan's purpose is to provide for the financing of the
distribution of Class C shares. 12b-1 fees payable on Class C shares will be
paid to the Sponsor for the first thirteen months after the shares are
purchased.
The Distribution Plans provide that the Funds may finance activities which are
primarily intended to result in the sale of the Funds' shares, including but not
limited to, advertising, printing of prospectuses and reports for other than
existing shareholders, preparation and distribution of advertising materials and
sales literature and payments to dealers and shareholder servicing agents.
The Distribution Plans are reviewed annually by the Trust's Board of Trustees
and may be renewed only by majority vote of the shareholders of the Funds'
Classes or by majority vote of the Board, and in both cases also a majority vote
of the "disinterested" Trustees of the Trust, as that term is defined in the
1940 Act.
Minimum Investment Amounts
--------------------------
Payments for Fund shares must be in U.S. dollars, and in order to avoid fees and
delays, should be drawn on a U.S. bank. Fund management may reject any purchase
order for Fund shares and may waive the minimum investment amounts in its sole
discretion.
Your purchase of Class A, B and/or C Fund shares is subject to the following
minimum investment amounts:
MINIMUM MINIMUM
TYPE OF INVESTMENT SUBSEQUENT
ACCOUNT TO OPEN ACCOUNT INVESTMENTS
--------------------------------------------------------------------------------
REGULAR $2,000 $1000
IRAs $1,000 $ 100
--------------------------------------------------------------------------------
26
<PAGE>
AUTOMATIC INVESTMENT PLAN MEMBERS
MINIMUM MINIMUM
TYPE OF INVESTMENT SUBSEQUENT
ACCOUNT TO OPEN ACCOUNT INVESTMENTS
--------------------------------------------------------------------------------
REGULAR $2,000 $100 per month minimum
IRAs $2,000 $100 per month minimum
--------------------------------------------------------------------------------
The minimum initial and subsequent investment in Institutional Class Shares of
any Fund, except the Government Money Market Fund, is $1 million. The minimum
initial investment in the Government Money Market Fund is the same as set forth
above.
Opening and Adding To Your Account
----------------------------------
You can invest in the Funds by mail, wire transfer or through participating
financial service professionals. After you have established your account and
made your first purchase, you may also make subsequent purchases by telephone.
You may also invest in the Funds through an automatic payment plan. Any
questions you may have can be answered by calling the Trust at 1-800-220-8888.
Purchasing Shares by Mail
-------------------------
To make your initial investment in the Funds, simply complete the Account
Application included with this Prospectus, make a check payable to the Fund of
your choice and mail the Application and check to:
Quaker Investment Trust
c/o Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
To make subsequent purchases, simply make a check payable to the Fund of your
choice and mail the check to the above-mentioned address. Be sure to note your
Fund account number on the check.
Your purchase order, if accompanied by payment, will be processed upon receipt
by Declaration Service Company (the "Transfer Agent"). If the Transfer Agent
receives your order and payment by the close of regular trading on the NYSE
(currently 4:00 p.m. Eastern time), your shares will be purchased at the Fund's
POP calculated at the close of regular trading on that day. Otherwise, your
shares will be purchased at the POP determined as of the close of regular
trading on the next business day. If you do not indicate which share class you
wish to purchase, Class A shares will be purchased for your account.
Purchasing Shares by Wire Transfer
----------------------------------
To make an initial purchase of shares by wire transfer, you need to take the
following steps:
1. Fill out and mail or fax (# 610-832-1067) an Account Application to the
Transfer Agent;
2. Call 1-800-220-8888 to inform us that a wire is being sent;
3. Obtain an account number from the Transfer Agent; and
4. Ask your bank to wire funds to the account of:
First Union National Bank
Charlotte, North Carolina, ABA # 031201467
Credit Acct. #2014217164231
For further credit to (Your Name and Account #)
27
<PAGE>
Include your name(s), address and taxpayer identification number or Social
Security number on the wire transfer instructions. The wire should state that
you are opening a new Fund account and should indicate which share class you
wish to purchase. If you do not indicate which share class you wish to purchase,
Class A shares will be purchased for your account.
To make subsequent purchases by wire, ask your bank to wire funds using the
instructions listed above and be sure to include your account number, Fund and
share class on the wire transfer instructions.
If you purchase Fund shares by wire, you must complete and file an Account
Application with the Transfer Agent before any of the shares purchased can be
redeemed. Either fill out and mail the Application included with this
Prospectus, or call the transfer agent and they will send you an Application.
You should contact your bank (which will need to be a commercial bank that is a
member of the Federal Reserve System) for information on sending funds by wire,
including any charges that your bank may make for these services.
Purchases Through Financial Service Organizations
-------------------------------------------------
You may purchase shares of the Funds through participating brokers, dealers and
other financial professionals. Simply call your investment professional to make
your purchase. If you are a client of a securities broker or other financial
organization, such organizations may charge a separate fee for administrative
services in connection with investments in Fund shares and may impose account
minimums and other requirements. These fees and requirements would be in
addition to those imposed by the Funds. If you are investing through a
securities broker or other financial organization, please refer to its program
materials for any additional special provisions or conditions that may be
different from those described in this Prospectus (for example, some or all of
the services and privileges described may not be available to you). Securities
brokers and other financial organizations have the responsibility of
transmitting purchase orders and funds and of crediting their customers'
accounts following redemptions in a timely manner, in accordance with their
customer agreements and this Prospectus.
Purchasing Shares by Automatic Investment Plan
----------------------------------------------
You may purchase shares of the Funds through an Automatic Investment Plan
("Plan"). The Plan provides a convenient way for you to have money deducted
directly from your checking, savings, or other accounts for investment in shares
of the Funds. You can take advantage of the Plan by filling out the Automatic
Investment Plan Application included with this Prospectus. You may only select
this option if you have an account maintained at a domestic financial
institution which is an Automated Clearing House member for automatic
withdrawals under the Plan. The Trust may alter, modify, amend or terminate the
Plan at any time and will notify you at least 30 days in advance if it makes any
such alterations. For more information, call the Trust at 1-800-220-8888.
Purchasing Shares by Telephone
------------------------------
In order to be able to purchase shares by telephone, your account authorizing
such purchases must have been established prior to your call. Your initial
purchase of shares may not be made by telephone. Shares purchased by telephone
will be purchased at their per share POP determined at the close of business on
the day the Transfer Agent receives payment through the Automated Clearing
House, which could be as many as three days after you place your order for
shares. Call the Trust for details.
You may make purchases by telephone only if you have an account at a bank that
is a member of the Automated Clearing House. Most transfers are completed within
three business days of your call. To preserve flexibility, the Trust may revise
or eliminate the ability to purchase Fund shares by phone, or may charge a fee
for such service, although the Trust does not currently expect to charge such a
fee.
28
<PAGE>
The Transfer Agent employs certain procedures designed to confirm that
instructions communicated by telephone are genuine, both when you purchase and
redeem shares. Such procedures may include, but are not limited to, requiring
some form of personal identification prior to acting upon telephonic
instructions, providing written confirmations of all such transactions and/or
tape recording all telephonic instructions. Assuming procedures such as the
above have been followed, neither the Transfer Agent nor the applicable Fund
will be liable for any loss, cost or expense for acting upon telephone
instructions that are believed to be genuine. The Trust shall have authority, as
your agent, to redeem shares in your account to cover any such loss. As a result
of this policy, you will bear the risk of any loss unless the Trust and/or
Transfer Agent has failed to follow procedures such as the above. However, if
the Trust and/or Transfer Agent fails to follow procedures reasonably designed
to prevent fraud, it may be liable for such losses.
Miscellaneous Purchase Information
----------------------------------
All applications to purchase shares of the Fund are subject to acceptance or
rejection by authorized officers of the Trust and are not binding until
accepted. Applications will not be accepted unless they are accompanied by
payment in U.S. funds. Payment must be made by check, money order or wire
transfer drawn on a U.S. bank, savings and loan association or credit union. The
Fund's custodian may charge a fee against your account, in addition to any loss
sustained by the Fund, for any payment check returned to the custodian for
insufficient funds. The Fund reserves the right to refuse to accept applications
under circumstances or in amounts considered disadvantageous to current
shareholders. If you place an order for Fund shares through a securities broker
and you place your order in proper form before 4:00 p.m. Eastern time on any
business day (a day when the NYSE is open) in accordance with their procedures,
your purchase will be processed at the POP calculated at 4:00 p.m. on that day,
provided the securities broker transmits your order to the Transfer Agent before
5:00 p.m. Eastern time. The securities broker must send to the Transfer Agent
immediately available funds in the amount of the purchase price within three
business days of your order.
HOW TO SELL (REDEEM) YOUR SHARES
--------------------------------
You may sell your shares at any time. You may request the sale of your shares
either by mail, by telephone or by wire.
By Mail
-------
Sale requests should be mailed via U.S. mail or overnight courier service to:
Quaker Investment Trust
c/o Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
The redemption price you receive will be your Fund's per share NAV next
calculated after receipt of all required documents in good order, less any
applicable CDSC. Payment of redemption proceeds will be made no later than the
third business day after the valuation date unless otherwise expressly agreed by
the parties at the time of the transaction. If you purchase your shares by check
and then redeem your shares before your check has cleared, the Trust may hold
your redemption proceeds until your check clears or for 15 days, whichever comes
first. The Trust has reserved the right to redeem shares of the Fund for
securities instead of cash under certain circumstances.
"Good order" means that your redemption request must include:
1. Your account number;
2. The Fund from which you are redeeming shares;
3. The number of shares to be sold (redeemed) or the dollar value of the
amount to be redeemed;
29
<PAGE>
4. The signatures of all account owners exactly as they are registered on the
account;
5. Any required signature guarantees; and
6. Any supporting legal documentation that is required in the case of estates,
trusts, corporations or partnerships, and certain other types of accounts.
Signature Guarantees
--------------------
A signature guarantee of each owner is required to redeem shares in the
following situations, for all size transactions:
o if you change the ownership on your account;
o when you want the redemption proceeds sent to a different address than is
registered on the account;
o if the proceeds are to be made payable to someone other than the account's
owner(s);
o any redemption transmitted by federal wire transfer to your bank; and/or
o if a change of address request has been received by the Trust or the
Transfer Agent within 15 days previous to the request for redemption.
In addition, signature guarantees are required for all redemptions of $25,000 or
more from any Fund shareholder account except redemptions of Institutional Class
shares. A redemption will not be processed until the signature guarantee, if
required, is received by the Transfer Agent.
Signature guarantees are designed to protect both you and the Trust from fraud.
To obtain a signature guarantee, you should visit a bank, trust company, member
of a national securities exchange, other broker-dealer or other eligible
guarantor institution. Notaries public cannot provide signature guarantees.
Guarantees must be signed by an authorized person at one of these institutions
and be accompanied by the words, "Signature Guarantee."
The Trust may also rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 610-832-1067). The confirmation instructions must include:
1) Shareholder name, name of applicable Fund, and account number;
2) Number of shares or dollar amount to be redeemed;
3) Instructions for transmittal of redemption funds to the shareholder; and
4) Shareholder signature as it appears on the application then on file with
the Trust.
By Telephone
------------
You may redeem your shares by calling the Transfer Agent at 1-800-220-8888 if
you elected to use telephone redemption on your Account Application when you
initially purchased shares. Redemption proceeds must be transmitted directly to
you or to your pre-designated account at a domestic bank. You may not redeem by
telephone if a change of address request has been received by the Transfer Agent
within 15 days prior to the request for redemption. During periods of
substantial economic or market changes, telephone redemptions may be difficult
to implement. If you are unable to contact the Transfer Agent by telephone,
shares may be redeemed by delivering your redemption request in person or by
mail. In addition, interruptions in telephone service may mean that you will be
unable to effect a redemption by telephone exactly when desired.
By Wire
-------
You may request the redemption proceeds be wired to your designated bank if it
is a member bank or a correspondent of a member bank of the Federal Reserve
System. The Fund's Custodian may charge a fee for outgoing wires.
30
<PAGE>
Redemption at the Option of the Trust
-------------------------------------
If the value of the shares in your account falls to less than $2000, the Trust
may notify you that unless your account is increased to $2000 in value, it will
redeem all your shares and close the account by paying you the redemption
proceeds and any dividends and distributions declared and unpaid at the date of
redemption. You will have thirty days after notice to bring the account up to
$2000 before any action is taken. This right of redemption shall not apply if
the value of your account drops below $2000 as the result of market action. The
Trust reserves this right because of the expense to the Fund of maintaining
relatively small accounts.
Exchange Feature.
-----------------
You may exchange your shares of any Fund for the same share class of any other
Fund without incurring any additional sales charges. An exchange involves the
simultaneous redemption of shares of one Fund and purchase of shares of another
Fund at each Fund's respective closing NAV next determined after a request for
exchange has been received, and is a taxable transaction. You may direct the
Trust to exchange your shares by contacting the Transfer Agent. The request must
be signed exactly as your name appears on your account and it must also provide
your account number, number of shares to be exchanged, the names of the Funds to
which the exchange will take place and a statement as to whether the exchange is
a full or partial redemption of existing shares.
A pattern of frequent exchange transactions may be deemed by the Trust to be an
abusive practice that is not in the best interests of current shareholders of
the Funds. Such a pattern may, at the discretion of the Trust, be limited by
that Fund's refusal to accept further purchase and/or exchange orders, after
providing the investor with 60 days prior notice. The Trust will consider all
factors it deems relevant in determining whether a pattern of frequent
purchases, redemptions and/or exchanges by a particular investor is abusive and
not in the best interests of the Funds or its other shareholders. The Board of
Trustees of the Trust reserves the right to suspend or terminate, or amend the
terms of the exchange privilege upon 60 days written notice to shareholders.
Systematic Withdrawal Plan.
---------------------------
Shareholders owning shares with a value of $10,000 or more may establish a
Systematic Withdrawal Plan. A shareholder may receive monthly or quarterly
payments, in amounts of not less than $100 per payment, by authorizing the Funds
to redeem the necessary number of shares periodically (each month, or quarterly
in the months of March, June, September and December) in order to make the
payments requested. Each Fund has the capacity of electronically depositing the
proceeds of the systematic withdrawal directly to the shareholder's personal
bank account ($5,000 minimum per bank wire). Instructions for establishing this
service are included in the Account Application enclosed in this Prospectus, or
is available by calling the Trust. If you prefer to receive systematic
withdrawal proceeds in cash, or if such proceeds are less than the $5,000
minimum for a bank wire, checks will be made payable to the designated recipient
and mailed within 7 days of the valuation date. If the designated recipient is
other than the registered shareholder, the signature of each shareholder must be
guaranteed on the Application (see "Signature Guarantees"). A corporation (or
partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles and required number of signatures
authorized to act on its behalf. The Application must be signed by a duly
authorized officer(s) and the corporate seal affixed. No redemption fees are
charged to shareholders under this plan. Costs in conjunction with the
administration of the plan are borne by the Funds. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the
Trust upon sixty days written notice or by a shareholder upon written notice to
the Funds. Applications and further details may be obtained by calling the Trust
at 800-220-8888 or by writing to the Transfer Agent.
31
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Dividends paid by the Funds are derived from their net investment income. Net
investment income will be distributed at least annually. The Funds' net
investment income is made up of dividends received from the stocks and other
securities they hold, as well as interest accrued and paid on any other
obligations that might be held in their portfolios.
The Funds realize capital gains when they sell a security for more than they
paid for it. The Funds may make distributions of their net realized capital
gains (after any reductions for capital loss carry forwards), generally once a
year.
Unless you elect to have your dividends and/or distributions paid in cash, your
distributions will be reinvested in additional shares of the Fund(s). You may
change the manner in which your dividends are paid at any time by writing to the
Transfer Agent.
TAX CONSIDERATIONS
Each Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended, so as to be relieved of
federal income tax on its capital gains and net investment income currently
distributed to its shareholders.
Dividends from investment income and net short-term capital gains are generally
taxable to you as ordinary income. Distributions of long-term capital gains are
taxable as long-term capital gains regardless of the length of time shares in a
Fund have been held. Distributions are taxable, whether received in cash or
reinvested in shares of a Fund.
You will be advised annually of the source of distributions for federal income
tax purposes.
A redemption of shares is a taxable event and accordingly, a capital gain or
loss may be recognized. You should consult a tax adviser regarding the effect of
federal, state, local and foreign taxes on an investment in the Fund(s).
GENERAL INFORMATION
The Funds will not issue stock certificates evidencing shares. Instead, your
account will be credited with the number of shares purchased, relieving you of
responsibility for safekeeping of certificates and the need to deliver them upon
redemption. Written confirmations are issued for all share purchases.
In reports and other communications to investors or in advertising material, the
Funds may describe general economic and market conditions affecting them and may
compare their performance with other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar nationally recognized
rating services and financial publications that monitor mutual fund performance.
The Funds may also, from time to time, compare their performance to the one or
more appropriate indices.
32
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data included in the tables below for the fiscal year ended June
30 of each time period have been audited by Goldenberg Rosenthal Friedlander,
LLP, independent auditors. The information in the tables below should be read in
conjunction with each Fund's latest audited financial statements and notes
thereto, which may be obtained without charge by contacting the Trust. The
information contained below is for a class of shares not offered by this
prospectus. However, since all share classes of each Fund are invested in the
same portfolio of securities, the returns shown below will vary only to the
extent that the various share classes have different sales charges and ongoing
expenses.
THE CORE EQUITY FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM NOVEMBER
YEAR YEAR 25, 1996 (START OF
ENDED ENDED OPERATIONS) TO
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.42 $ 11.61 $ 10.00
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.06) 0.00 0.04
Net realized and unrealized gain
(loss) on investments 4.10 2.81 1.61
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 4.04 2.81 1.65
---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income 0.00 0.00 (0.04)
Net realized capital gains (0.68) 0.00 0.00
Distributions in excess of
Net realized gain 0.00 0.00 0.00
---------- ---------- ----------
TOTAL DISTRIBUTIONS (0.68) 0.00 (0.04)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 17.78 $ 14.42 $ 11.61
TOTAL RETURN 28.16% 24.20% 16.50%(B)
RATIOS/ SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(000'S OMITTED) $ 25,407 $ 4,777 $ 519
RATIO OF EXPENSES TO AVERAGE NET ASSETS
Before expense waivers and fee
Reimbursements 1.44% 3.48% 21.30%(a)
After expense waivers and fee
Reimbursements 1.29% 1.35% 1.35%(a)
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS:
Before expense waivers and fee
Reimbursements (0.73)% (2.10)% (19.47)%(a)
After expense waivers and fee
Reimbursements (0.58)% 0.03% 0.49%(a)
PORTFOLIO TURNOVER RATE 78.38% 64.36% 11.49%
</TABLE>
(a) annualized
(b) Aggregate Total Return, not annualized
--------------------------------------------------------------------------------
33
<PAGE>
THE AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM NOVEMBER
YEAR YEAR 25, 1996 (START OF
ENDED ENDED OPERATIONS) TO
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.01 $ 11.16 $ 10.00
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.12 0.00 0.04
Net realized and unrealized gain
(loss) on investments 5.54 2.69 1.23
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 5.66 2.69 1.27
---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.12) 0.00 (0.04)
Net realized capital gains (3.45) (1.38) (0.07)
Distributions in excess of
Net realized gain 0.00 (0.46) 0.00
---------- ---------- ----------
TOTAL DISTRIBUTIONS (3.57) (1.84) (0.11)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 14.10 $ 12.01 $ 11.16
TOTAL RETURN 49.44% 26.57% 12.68%(B)
RATIOS/ SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(000'S OMITTED) $ 3,865 $ 1,714 $ 1,121
RATIO OF EXPENSES TO AVERAGE NET ASSETS
Before expense waivers and fee
Reimbursements 2.84% 8.09% 13.44%(a)
After expense waivers and fee
Reimbursements 1.35% 1.35% 1.34%(a)
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS:
Before expense waivers and fee
Reimbursements (0.45)% (6.72)% (9.18)%(a)
After expense waivers and fee
Reimbursements 1.04% (0.04)% 0.64%(a)
PORTFOLIO TURNOVER RATE 1,675.49% 876.64% 778.01%
</TABLE>
(a) annualized
(b) Aggregate Total Return, not annualized
--------------------------------------------------------------------------------
34
<PAGE>
THE LARGE-CAP VALUE FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM NOVEMBER
YEAR YEAR 25, 1996 (START OF
ENDED ENDED OPERATIONS) TO
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.02 $ 11.83 $ 10.00
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.04 0.07 0.07
Net realized and unrealized gain
(loss) on investments 1.69 3.10 1.83
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 1.73 3.17 1.90
---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.07) (0.04) (0.07)
Net realized capital gains (2.40) (0.94) 0.00
Distributions in excess of
Net realized gain (2.47) (0.98) (0.07)
---------- ---------- ----------
TOTAL DISTRIBUTIONS (0.68) 0.00 (0.04)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 13.28 $ 14.02 $ 11.83
TOTAL RETURN 19.05% 28.32% 19.04%(B)
RATIOS/ SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(000'S OMITTED) $ 9,742 $ 1,599 $ 783
RATIO OF EXPENSES TO AVERAGE NET ASSETS
Before expense waivers and fee
Reimbursements 2.02% 5.58% 16.44%(a)
After expense waivers and fee
Reimbursements 0.81% 1.00% 1.00%(a)
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS:
Before expense waivers and fee
Reimbursements (0.47)% (3.99)% (14.32)%(a)
After expense waivers and fee
Reimbursements 0.74% 0.59% 1.14%(a)
PORTFOLIO TURNOVER RATE 136.81% 274.63% 34.26%
</TABLE>
(a) annualized
(b) Aggregate Total Return, not annualized
--------------------------------------------------------------------------------
35
<PAGE>
THE MID-CAP VALUE FUND
FOR THE PERIOD
FROM JANUARY
YEAR 6, 1998 (START OF
ENDED OPERATIONS) TO
JUNE 30, 1999 JUNE 30, 1998
---------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.93 $ 10.00
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.00 (0.02)
Net realized and unrealized gain
(loss) on investments 0.23 0.95
---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.23 0.93
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income 0.00 0.00
Net realized capital gains (0.16) 0.00
Distributions in excess of
Net realized gain 0.00 0.00
---------- ----------
TOTAL DISTRIBUTIONS (0.16) (0.00)
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 11.00 $ 10.93
TOTAL RETURN 2.68% 9.30%(B)
RATIOS/ SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(000'S OMITTED) $ 12,155 $ 9,033
RATIO OF EXPENSES TO AVERAGE NET ASSETS
Before expense waivers and fee
Reimbursements 1.63% 1.97%(a)
After expense waivers and fee
Reimbursements 1.35% 1.35%(a)
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS:
Before expense waivers and fee
Reimbursements (0.33)% (0.93)%(a)
After expense waivers and fee
Reimbursements (0.05)% (0.31)%(a)
PORTFOLIO TURNOVER RATE 69.36% 13.86%
(a) annualized
(b) Aggregate Total Return, not annualized
--------------------------------------------------------------------------------
36
<PAGE>
THE SMALL-CAP VALUE FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM NOVEMBER
YEAR YEAR 25, 1996 (START OF
ENDED ENDED OPERATIONS) TO
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.47 $ 11.53 $ 10.00
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.04) (0.01) 0.01
Net realized and unrealized gain
(loss) on investments (0.04) 2.99 2.02
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS (0.44) 2.98 2.03
---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income 0.00 0.00 (0.01)
Net realized capital gains (0.22) (1.04) (0.49)
Distributions in excess of
Net realized gain 0.00 0.00 0.00
---------- ---------- ----------
TOTAL DISTRIBUTIONS (0.22) (1.04) (0.50)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 12.81 $ 13.47 $ 11.53
TOTAL RETURN (2.96)% 27.04% 20.35%(B)
RATIOS/ SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(000'S OMITTED) $ 13.020 $ 3.792 $ 1,333
RATIO OF EXPENSES TO AVERAGE NET ASSETS
Before expense waivers and fee
Reimbursements 1.78% 4.20% 10.50%(a)
After expense waivers and fee
Reimbursements 1.35% 1.35% 1.31%(a)
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS:
Before expense waivers and fee
Reimbursements (0.82)% (3.03)% (8.96)%(a)
After expense waivers and fee
Reimbursements (0.40)% (0.18)% 0.22%(a)
PORTFOLIO TURNOVER RATE 113.81% 129.58% 90.63%
</TABLE>
(a) annualized
(b) Aggregate Total Return, not annualized
--------------------------------------------------------------------------------
37
<PAGE>
THE FIXED INCOME FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM NOVEMBER
YEAR YEAR 25, 1996 (START OF
ENDED ENDED OPERATIONS) TO
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.41 $ 09.98 $ 10.00
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.48 0.47 0.26
Net realized and unrealized gain
(loss) on investments (0.27) 0.50 (0.11)
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.21 0.97 0.15
---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.48) (0.45) (0.26)
Net realized capital gains (0.01) 0.00 0.00
Distributions in excess of
Net realized gain 0.00 0.00 0.00
---------- ---------- ----------
TOTAL DISTRIBUTIONS (0.49) (0.45) (0.26)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.13 $ 10.41 $ 9.89
TOTAL RETURN 1.84% 9.97% 1.57%(B)
RATIOS/ SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(000'S OMITTED) $ 7,675 $ 5,682 $ 576
RATIO OF EXPENSES TO AVERAGE NET ASSETS
Before expense waivers and fee
Reimbursements 1.41% 2.53% 16.56%(a)
After expense waivers and fee
Reimbursements 0.90% 0.90% 0.90%(a)
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS:
Before expense waivers and fee
Reimbursements 4.03% 2.96% (10.87)%(a)
After expense waivers and fee
Reimbursements 4.45% 4.59% 4.79%(a)
PORTFOLIO TURNOVER RATE 276.94% 81.55% 0.00%
</TABLE>
(a) annualized
(b) Aggregate Total Return, not annualized
38
<PAGE>
FOR MORE INFORMATION
Additional information about the Funds is available in the Trust's latest Annual
Report, Semi-annual Report and Statement of Additional Information (SAI). The
SAI contains more detailed information on all aspects of the Funds. A current
SAI, dated July 3, 2000 has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated by reference into this prospectus. The
Trust's Annual Report contains audited financial information concerning the
Funds and discussion relating to the factors that affected each Fund's
performance during each Fund's last fiscal year.
To receive information without charge concerning the Funds or to request a copy
of the SAI or annual or semi-annual reports relating to the Funds, please
contact the Trust at:
Quaker Investment Trust
c/o Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
1-800-220-8888
A copy of your requested document(s) will be mailed to you within three days of
your request.
You may also receive information concerning the Funds or request a copy of the
SAI or other documents relating to the Funds, by contacting the Securities and
Exchange Commission:
IN PERSON: at the SEC's Public Reference Room in Washington, D.C.
BY PHONE: 1-800-SEC-0330
BY MAIL: Public Reference Section, Securities and Exchange Commission,
Washington, D.C. 20549-6009 (duplicating fee required)
ON THE INTERNET: www.sec.gov
Investment Company Act No.
811-06260
39
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
QUAKER INVESTMENT TRUST
555 North Lane, Suite 6160
Conshohocken, PA 19428-0844
Telephone 800-220-8888
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of the Quaker Core Equity Fund, Quaker
Aggressive Growth Fund, Quaker Large-Cap Value Fund, Quaker Mid-Cap Value Fund,
Quaker Small-Cap Value Fund, Quaker Small-Cap Growth Fund, Quaker Fixed-Income
Fund, Quaker High Yield Fund and Quaker Government Money Market Fund (each a
"Fund" and together the "Funds"), dated July 3, 2000. You may obtain a copy of
the Prospectus, free of charge, by writing to Quaker Investment Trust ("Trust")
c/o Declaration Service Company, 555 North Lane, Suite 6160, Conshohocken, PA
19460 or by calling 1-800-220-8888.
TABLE OF CONTENTS
Investment Policies and Restrictions
Investment Restrictions
Investment Advisor
Directors and Officers
Performance Information
Purchasing and Redeeming Shares
Tax Information
Portfolio Transactions
Custodian
Transfer Agent
Administration
Distributor
Independent Accountants
Legal Counsel
Distribution Plan
General Information
Financial Statements
--------------------------------------------------------------------------------
40
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
Each Fund's investment objectives and the manner in which each Fund pursues its
investment objectives are generally discussed in the prospectus. This section
provides additional information concerning the Fund's investments and its
investment restrictions.
INVESTMENT GRADE SECURITIES. Quaker Fixed Income Fund predominately purchases
high quality investment grade securities. The securities industry defines
investment grade securities as obligations which have the characteristics
described by S&P, Fitch, Moody's, D&P or other recognized rating services in
their four highest rating grades. For S&P, Fitch and D&P those ratings are AAA,
AA, A and BBB. For Moody's those ratings are Aaa, Aa, A and Baa. Although
considered to be of "investment grade" quality, securities rated BBB by S&P,
Fitch, and D&P or Baa by Moody's, while normally exhibiting adequate protection
parameters, have speculative characteristics. For a description of each rating
grade, see Appendix A to the Statement of Additional Information. Fixed Income
generally limits portfolio investments to those securities in the three highest
ratings, rated at least A by Moody's, S&P, Fitch or D&P, or if not rated, of
equivalent quality as determined by the Advisor. There may also be instances in
which the Fixed-Income Fund purchases bonds that are rated A by one rating
agency and not rated or rated lower than A by other rating agencies.
The Quaker High Yield Fund generally invests in securities that are not
investment grade, as defined above.
The Quaker Government Money Market Fund will not invest in instruments maturing
more than 397 days from the date of investment, and will maintain a
dollar-weighted average portfolio maturity of 90 days or less.
The Quaker Government Money Market Fund is a "Money Market Fund", and as such,
is obligated to comply with the requirements of the Investment Company Act of
1940, as amended (the "Act"), which governs the operations of money market
funds.
The Quaker Government Money Market Fund will normally hold portfolio securities
to maturity. As a result, the Fund does not expect to realize capital gains on
its securities holdings, nor does it expect its net asset value to fluctuate
above or below $1.00 per share.
The Quaker Government Money Market Fund will normally invest at least 85% of its
net assets in the following securities:
(1) U.S. Government Treasury Bills, Treasury Notes, and Treasury bonds with
remaining maturities of less than 397 days,
(2) U.S. Government agency securities with remaining maturities of less than
397 days,
(3) Repurchase Agreements collateralized by U.S. Government and Agency
securities.
U.S. GOVERNMENT TREASURY BILLS, TREASURY NOTES, AND TREASURY BONDS are direct
obligations of the U.S. Government. As such, these instruments are generally
considered to have the highest credit standing. Securities backed by the full
faith and credit of the United States Government (direct obligations) carry
minimal credit risk; shareholders are generally exposed only to interest rate
risk.
U.S. GOVERNMENT AGENCY SECURITIES are securities issued by instrumentalities of
the U.S. Government. Some of these securities are direct obligations of the U.S.
Government, but those that are not still enjoy a very high degree of credit
safety.
REPURCHASE AGREEMENTS. The Quaker Government Money Market Fund may invest in
repurchase agreements ("Repos") with U.S. banks, provided that the Fund's
custodian always has possession of the securities serving as collateral for the
Repos or has proper evidence of book entry receipt of said securities.
In a Repo, the Fund purchases securities subject to the seller's simultaneous
agreement to repurchase those securities from the Fund at a specified time
(usually one day) and price. The repurchase price reflects an agreed-upon
interest rate during the time of investment. All Repos entered into by the Fund
must be collateralized by U.S. Government or Agency Securities, the market
values of which equal or exceed 102% of the principal amount of the money
invested by the Fund.
1
<PAGE>
CASH RESERVES. The Quaker Government Money Market Fund may normally hold up to
15% of its net assets in cash to meet liquidity needs.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. Each Fund may purchase
securities on a when-issued basis, and it may purchase or sell securities for
delayed-delivery. These transactions occur when securities are purchased or sold
by the Fund with payment and delivery taking place at some future date. The Fund
may enter into such transactions when, in the Adviser's opinion, doing so may
secure an advantageous yield and/or price to the Fund that might otherwise be
unavailable. The Funds have not established any limit on the percentage of
assets they may commit to such transactions, but to minimize the risks of
entering into these transactions, each Fund will maintain a segregated account
with its Custodian consisting of cash, cash equivalents, or U.S. Government
Securities, in an amount equal to the aggregate fair market value of its
commitments to such transactions.
OTHER INVESTMENT LIMITATIONS. The investment objective of each Fund is
fundamental, and may only be changed upon approval of a "majority" of that
Fund's outstanding shares, as defined in the Investment Company Act of 1940.
Securities that are listed on a securities exchange are valued at the last
quoted sales price at the time the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded by each Fund. Securities that are listed on an exchange and which are not
traded on the valuation date are valued at the mean of the bid and asked prices.
Unlisted securities for which market quotations are readily available are valued
at the latest quoted sales price, if available, at the time of valuation,
otherwise, at the latest quoted bid price. Temporary cash investments with
maturities of 60 days or less, and all securities held by the Government Money
Market Fund, will be valued at amortized cost, which approximates market value.
Securities for which no current quotations are readily available are valued at
fair value as determined in good faith using methods approved by the Board of
Trustees of the Trust. Securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities.
Fixed income securities will ordinarily be traded on the over-the-counter
market. When market quotations are not readily available, fixed income
securities may be valued based on prices provided by a pricing service. The
prices provided by the pricing service are generally determined with
consideration given to institutional bid and last sale prices and take into
account securities prices, yields, maturities, call features, ratings,
institutional trading in similar groups of securities, and developments related
to specific securities. Such fixed income securities may also be priced based
upon a matrix system of pricing similar bonds and other fixed income securities.
Such matrix system may be based upon the considerations described above used by
other pricing services and information obtained by the pricing agent from the
Advisors and other pricing sources deemed relevant by the pricing agent.
EQUITY SECURITIES. The Quaker Core Equity Fund, Quaker Aggressive Growth Fund,
Quaker Large-Cap Value Fund, Quaker Mid-Cap Value Fund, Quaker Small-Cap Value
Fund, and Quaker Small-Cap Growth Fund (the "Equity Funds") may invest in common
stock, convertible preferred stock, straight preferred stock, and investment
grade convertible bonds. Each Equity Fund may also invest up to 5% of its net
assets in warrants or rights to acquire equity securities (other than those
acquired in units or attached to other securities). Stocks held in the
portfolios of the Equity Funds will generally be traded on either the New York
Stock Exchange, American Stock Exchange or the NASDAQ over-the-counter market.
Under normal conditions, at least 90% of the Equity Funds' total assets will be
invested in equity securities. Warrants and rights are excluded for purposes of
this calculation.
2
<PAGE>
FOREIGN SECURITIES. Because of the inherent risk of foreign securities over
domestic issues, the Equity Funds will only purchase foreign securities traded
domestically as American Depository Receipts (ADRs). ADRs are receipts issued by
a U.S. bank or trust company evidencing ownership of securities of a foreign
issuer. ADRs may be listed on a national securities exchange or may trade on the
over the counter markets. The prices of ADRs are denominated in U.S. dollars,
while the underlying security may be denominated in a foreign currency. Each
Equity Fund may invest up to 25% of its net assets in foreign securities.
SHORT-TERM INVESTMENTS. The Equity Funds also will normally hold money market or
repurchase agreement instruments for funds awaiting investment, to accumulate
cash for anticipated purchases of portfolio securities, to allow for shareholder
redemptions and to provide for Fund operating expenses. As a temporary defensive
measure, the Equity Funds may invest up to 100% of their respective total assets
in investment grade bonds, U.S. Government Securities, repurchase agreements, or
money market instruments. When the Equity Funds invest their assets in such
securities as a temporary defensive measure, they will not be not pursuing their
stated investment objective. See, "Quaker Fixed Income Fund" below.
OPTIONS. Each Equity Fund may invest in options on equity securities and
securities indices, and options on futures contacts. The primary risks
associated with these investments are; (1) the risk that a position cannot be
easily closed out due to the lack of a liquid secondary market, and (2) the risk
that changes in the value of the investment will not correlate to changes in the
value of the underlying security. Further. over-the-counter options can be less
liquid than exchange-traded options. Accordingly, an Equity Fund will treat
over-the-counter options as illiquid securities. Investing in options involves
specialized skills and techniques different from those associated with ordinary
portfolio transactions. Each Equity Fund may invest not more than 10% of its
total assets in options transactions. Options may be purchased for hedging
purposes, or to provide a viable substitute for direct investment in, and/or
short sales of, specific equity securities. The Equity Funds will write (sell)
stock or stock index options only for hedging purposes or to close out positions
in stock or stock index options that an Equity Fund has purchased. The Equity
Funds may only write (sell) "covered" options.
FUTURES CONTRACTS AND RELATED OPTIONS. To hedge against changes in securities
prices or interest rates, each Equity Fund may purchase and sell various kinds
of futures contracts, and purchase and write call and put options on such
futures contracts. Permissible futures contracts investments are limited to
futures on various equity securities and other financial instruments and
indices. An Equity Fund will engage in futures and related options transactions
for bona-fide hedging or other non-hedging purposes as permitted by regulations
of the Commodity Futures Trading Commission.
An Equity Fund may only purchase or sell non-hedging futures contracts, or
purchase or sell related non-hedging options, except for closing purchase or
sale transactions, if immediately thereafter the sum of the amount of initial
margin deposits on the Equity Fund's existing non-hedging futures and related
non-hedging options positions, and the amount of premiums paid for existing
non-hedging options on futures (net of the amount the positions are "in the
money") does not exceed 5% of the market value of the Fund's total assets.
Otherwise, each Equity Fund may invest up to 10% of its total assets in initial
margins and premiums on futures and related options. Additional information on
permitted futures transactions of the Equity Funds and their associated risks is
contained in the Statement of Additional Information.
PERMISSIBLE INVESTMENTS COMMON TO ALL QUAKER FUNDS
MONEY MARKET INSTRUMENTS. Money market instruments mature in thirteen months or
less from the date of purchase and include U.S. Government Securities, corporate
debt securities, bankers acceptances and certificates of deposit of domestic
branches of U.S. banks, and commercial paper rated in one of the two
3
<PAGE>
highest rating categories by any of the nationally recognized statistical rating
organizations or if not rated, of equivalent quality in the Advisor's opinion.
Money market instruments may be purchased for temporary defensive purposes, to
accumulate cash for anticipated purchases of portfolio securities and to provide
for shareholder redemptions and operating expenses of a Fund. For temporary
defensive purposes, an Advisor may, when it believes that unusually volatile or
unstable economic and market conditions exists, depart from a Fund's normal
investment approach and invest up to 100% of the net assets of a Fund in these
instruments.
U.S. GOVERNMENT SECURITIES. Each Fund may invest a portion of its portfolio in
U.S. Government Securities, as defined above.
REPURCHASE AGREEMENTS. The Funds may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
agreement transaction occurs when a Fund acquires a security and simultaneously
resells it to the vendor (normally a member bank of the Federal Reserve or a
registered Government Securities dealer) for delivery on an agreed upon future
date. The repurchase price exceeds the purchase price by an amount which
reflects an agreed upon market interest rate earned by the Fund effective for
the period of time during which the repurchase agreement is in effect. Delivery
pursuant to the resale typically will occur within one to seven days of the
purchase. In the event of the bankruptcy of the other party to a repurchase
agreement, a Fund could experience delays in recovering its cash, or a loss in
value due to a decline in the value of the securities held.
INVESTMENT COMPANIES. In order to achieve its investment objective, a Fund may
invest up to 10% of the value of its total assets in securities of other
investment companies. Each Fund may invest in any type of investment company
consistent with the Fund's investment objective and policies. A Fund will not
acquire securities of any one investment company if, immediately thereafter, the
Fund would own more than 3% of such company's total outstanding voting
securities, securities issued by such company would have an aggregate value in
excess of 5% of the Fund's total assets, or securities issued by such company
and securities held by the Fund issued by other investment companies would have
an aggregate value in excess of 10% of the Fund's total assets. To the extent a
Fund invests in other investment companies, the shareholders of that Fund would
indirectly pay a portion of the operating costs of the investment companies.
REAL ESTATE SECURITIES. The Equity Funds may invest in readily marketable
interests in real estate investment trusts ("REITs"). REITs are pooled
investment vehicles which invest primarily in income-producing real estate or
real estate related loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs are generally publicly
traded on the national stock exchanges and in the over-the-counter market and
have varying degrees of liquidity. Although the Funds are not limited in the
amount of these types of securities they may acquire, it is not presently
expected that within the next 12 months a Fund will have in excess of 5% of its
total assets in real estate securities.
You should be aware that Equity REITs may be affected by changes in the value of
the underlying property owned by the REITs, while mortgage REITs may be affected
by the quality of any credit extended (which may also be affected by changes in
the value of the underlying property) and by changes in interest rates. REITs
are dependent upon management skills, often have limited diversification, and
are subject to the risks of financing projects. REITs are subject to heavy cash
flow dependency, default by borrowers, self-liquidation, and the possibilities
of failing to qualify for exemption from tax for distributed income under the
Internal Revenue Code and failing to maintain their exemptions from the
Investment Company Act. Certain REITs have relatively small market
capitalizations, which may result in less market liquidity and greater price
volatility of their securities.
4
<PAGE>
ILLIQUID INVESTMENTS. Each Fund may invest up to 10% of its net assets in
illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, each Advisor determines the liquidity of its Fund's
investments. Included within the category of illiquid securities are restricted
securities, which cannot be sold to the public without registration under the
federal securities laws. Unless registered for sale, these securities can only
be sold in privately negotiated transactions or pursuant to an exemption from
registration.
SPECIAL SITUATIONS. The Aggressive Growth Fund intends to invest in special
situations from time to time. A special situation arises when, in the opinion of
Fund management, the securities of a company will, within a reasonably estimated
time period, be accorded market recognition at an appreciated value solely by
reason of a development particularly or uniquely applicable to that company and
regardless of general business conditions or movements of the market as a whole.
Such developments and situations include, but are not limited to: liquidations,
reorganizations, recapitalizations or mergers, material litigation,
technological breakthroughs, and new management or management policies. Although
large and well-known companies may be involved, special situations often involve
much greater risk than is found in the normal course of investing. To minimize
these risks, the Fund will not invest in special situations unless the target
company has at least three years of continuous operations (including
predecessors), or unless the aggregate value of such investments is not greater
than 25% of the Fund's total net assets (valued at the time of investment).
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued basis, and it may purchase or sell securities for
delayed-delivery. These transactions occur when securities are purchased or sold
by the Fund with payment and delivery taking place at some future date. The Fund
may enter into such transactions when, in the Advisor's opinion, doing so may
secure an advantageous yield and/or price to the Fund that might otherwise be
unavailable. The Fund has not established any limit on the percentage of assets
it may commit to such transactions, but to minimize the risks of entering into
these transactions, the Fund will maintain a segregated account with its
custodian consisting of cash, or other high-grade liquid debt securities,
denominated in U.S. dollars or non-U.S. currencies, in an amount equal to the
aggregate fair market value of its commitments to such transactions.
MASTER-FEEDER OPTION. Notwithstanding its other investment policies, the Funds
may seek to achieve their investment objective by investing all of their
investable net assets in another investment company having the same investment
objective and substantially the same investment policies and restrictions as
those of the Fund. Although such an investment may be made in the sole
discretion of the Trustees, the Fund's shareholders will be given 30 days prior
notice of any such investment. There is no current intent to make such an
investment.
PORTFOLIO TURNOVER. The Funds will generally purchase and sell securities
without regard to the length of time the security has been held. Accordingly, it
can be expected that the rate of portfolio turnover may be substantial. For each
Fund's latest fiscal year ending on June 30, 1999, portfolio turnover rates
were:
Core Equity Fund: 78.38%
Aggressive Growth Fund: 1,675.49%
Large-Cap Value Fund: 136.81%
Mid-Cap Value Fund: 34.26%
Small-Cap Value Fund 113.81%
Fixed Income Fund: 276.94%
5
<PAGE>
High portfolio turnover in any year will result in the payment by the Fund of
above-average transaction costs and could result in the payment by shareholders
of above-average amounts of taxes on realized investment gains. Distributions to
shareholders of such investment gains, to the extent they consist of short-term
capital gains, will be considered ordinary income for federal income tax
purposes.
Portfolio turnover rate is calculated by dividing (1) the lesser of purchases or
sales of portfolio securities for the for the fiscal year by (2) the monthly
average of the value of portfolio securities owned during the fiscal year. A
100% turnover rate would occur if all the securities in the Fund's portfolio,
with the exception of securities whose maturities at the time of acquisition
were one year or less, were sold and either repurchased or replaced within one
year.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following fundamental investment limitations, which
cannot be changed without approval by holders of a majority of the outstanding
voting securities" of the Fund as defined in the Investment Company Act of 1940
(the "1940 Act"). As provided in the 1940 Act, a vote of a "majority of the
outstanding voting securities" of the Fund means the affirmative vote of the
lesser of (1) more than 50% of the outstanding shares of the Fund, or (2) 67% or
more of the shares of the Fund present at a meeting, if more than 50% of the
shares are represented at the meeting in person or by proxy. Except with respect
to borrowing, changes in values of the Fund's assets as a whole will not cause a
violation of the following investment restrictions so long as percentage
restrictions are observed by the Fund at the time it purchases any security.
As a matter of fundamental policy, each Fund may not:
(1) Issue senior securities, borrow money, or pledge its assets, except that it
may borrow from banks as a temporary measure (a) for extraordinary or emergency
purposes, in amounts not exceeding 5% of its total assets or (b) in order to
meet redemption requests, in amounts not exceeding 15% of its total assets; the
Fund will not make any investments if borrowing exceeds 5% of its total assets
until such time as total borrowing represents less than 5% of Fund assets
(except that the Aggressive Growth Fund may engage in short sales of securities
to the extent described in the Prospectus);
(2) With respect to 75% of its assets, invest more than 5% of the value of its
total assets in the securities of any one issuer or purchase more than 10% of
the outstanding voting securities of any class of securities of any one issuer
(except that securities of the U.S. Government, its agencies and
instrumentalities are not subject to this limitation);
(3) Invest 25% or more of the value of its total assets in any one industry or
group of industries (except that securities of the U.S. Government, its agencies
and instrumentalities are not subject to this limitation);
(4) Invest for the purpose of exercising control or management of another
issuer;
(5) Purchase or sell commodities or commodities contracts, real estate
(including limited partnership interests, but excluding readily marketable
securities secured by real estate or interests therein, readily marketable
interests in real estate investment trusts, readily marketable securities issued
by companies that invest in real estate or interests therein, or mortgage-backed
securities for the Fixed Income Fund as
6
<PAGE>
described in the Prospectus) or interests in oil, gas, or other mineral
exploration or development programs or leases (although it may invest in readily
marketable securities of issuers that invest in or sponsor such programs or
leases);
(6) Underwrite securities issued by others, except to the extent that the
disposition of portfolio securities, either directly from an issuer or from an
underwriter for an issuer, may be deemed to be an underwriting under the federal
securities laws;
(7) Make short sales of securities or maintain a short position, except short
sales "against the box", and except that the Aggressive Growth Fund may engage
in short sales of securities to the extent described in the Prospectus; (a short
sale is made by selling a security the Fund does not own; a short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain at no additional cost securities identical to those sold short)
(while each Fund has reserved the right to make short sales "against the box",
the Advisor to each Fund (other than the Aggressive Growth Fund) has no present
intention of engaging in such transactions);
(8) Participate on a joint or joint and several basis in any trading account in
securities; or
(9) Make loans of money or securities, except that the Fund may (i) invest in
repurchase agreements and commercial paper; (ii) purchase a portion of an issue
of publicly distributed bonds, debentures or other debt securities; and (iii)
acquire private issues of debt securities subject to the limitations on
investments in illiquid securities.
The following investment limitations are not fundamental, and may be changed
without shareholder approval. As a matter of non-fundamental policy, each Fund
may not:
(1) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of bonds,
guarantors) if more than 5% of its total assets would be invested in such
securities;
(2) Invest more than 10% of its net assets in illiquid securities; for this
purpose, illiquid securities include, among others (a) securities for which no
readily available market exists or which have legal or contractual restrictions
on resale, (b) fixed time deposits that are subject to withdrawal penalties and
have maturities of more than seven days, and (c) repurchase agreements not
terminable within seven days;
(3) Invest in the securities of any issuer if those officers or Trustees of the
Trust and those officers and directors of the Advisor who individually own more
than 1/2 of 1% of the outstanding securities of such issuer together own more
than 5% of such issuer's securities;
(4) Write, purchase, or sell puts, calls, straddles, spreads, or combinations
thereof or futures contracts or related options (except that the Equity Funds
may engage in certain transactions in options to the extent described in the
Prospectus);
(5) Invest in warrants, valued at the lower of cost or market, exceeding more
than 5% of the value of the Fund's net assets; included within this amount, but
not to exceed 2% of the value of the Fund's net assets, may be warrants which
are not listed on the New York or American Stock Exchange; warrants acquired by
the Fund in units or attached to securities may be deemed to be without value;
or
(6) Purchase any securities on margin except in connection with such short-term
credits as may be necessary for the clearance of transactions.
7
<PAGE>
INVESTMENT ADVISORS
Information on each Fund's Investment Advisor is set forth in the Prospectus.
This section contains additional information concerning the Advisors and their
obligations to the Funds.
GENERAL ADVISOR DUTIES.
-----------------------
Each Advisor or sub-advisor supervises and implements the investment activities
of their respective Fund, including the making of specific decisions as to the
purchase and sale of portfolio investments. Among the responsibilities of each
Advisor under the Advisory Agreement is the selection of brokers and dealers
through whom transactions in the Funds' portfolio investments will be effected.
The Advisory Agreement and each Sub-advisory Agreement provide that each Advisor
shall not be liable for any loss suffered by the Fund or its shareholders as a
consequence of any act or omission in connection with services under the
Advisory Agreement, except by reason of the Advisor's willful misfeasance, bad
faith, gross negligence, or reckless disregard of its obligations and duties.
Each Advisory Agreement and each Sub-advisory Agreement has an initial term of
two years, but may be continued thereafter from year to year so long as its
continuance is approved at least annually (a) by the vote of a majority of the
Directors of the Fund who are not "interested persons" of the Fund or the
Advisor cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Directors as a whole or by the vote of a
majority (as defined in the 1940 Act) of the outstanding shares of the Fund.
Each Advisory Agreement and each Sub-advisory Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
DIRECTORS AND OFFICERS
The Board Of Trustees ("Board" or "Trustees") has overall responsibility for
conduct of the Trust's affairs. The day-to-day operations of each Fund are
managed by the Fund's Advisor, subject to the Bylaws of the Trust and review by
the Board. The Trustees of the Trust, including those Trustees who are also
officers, are listed below. The Business Address of each Trustee is:
1288 Valley Forge Road, Suite 76
Valley Forge, PA 19482
<TABLE>
<CAPTION>
Position Principal Occupation for
Name, Age with Fund the Last Five Years
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Howard L. Gleit, 59 Trustee Of Counsel, Connolly Epstein Chicco 1515 Market
Street, Philadelphia, Pennsylvania since 1997;.
Previously of counsel to Foxman Engelmeyer & Ewing
Philadelphia, Pennsylvania & Zapruder & Odell,
Bala Cynwyd, Pennsylvania since 1994; Previously a
partner with Pepper, Hamilton & Scheetz
Philadelphia, Pennsylvania.
8
<PAGE>
Everett T. Keech, 59 Trustee Chairman and CEO, Pico Products, Inc., a
manufacturing firm, One Tower Bridge, Suite 501
West Conshohocken, Pennsylvania
Laurie Keyes, 49* Trustee Chief Operating Officer, Quaker Securities, Inc.,
Secretary 1288 Valley Forge Road, Suite 75, Valley Forge,
Pennsylvania
Jeffry H. King, 55* Trustee Chairman and CEO, Quaker Securities, Inc. 1288
Chairman Valley Forge Road Suite 75Valley Forge,
Pennsylvania
Louis P. Pektor III, 48 Trustee President, Ashley Development Company 961 Marcon
Boulevard, Suite 300, Allentown, Pennsylvania
since 1993; President, Greystone Capital,
Allentown, Pennsylvania since 1993; previously,
Executive Vice President, Wall Street Mergers &
Acquisitions, Allentown, Pennsylvania
</TABLE>
----------------------------
* Indicates that Trustee is an "interested person" of the Trust for purposes of
the 1940 Act because of his or her position with one of the Advisors, the
Distributor, or the Sponsor to the Trust.
There are no family relationships between the Trustees and executive officers of
the Trust, except between Ms. Keyes and Mr. King, who are married. Mr. Jeffry H.
King is the sole shareholder of Quaker Management Corp., investment adviser to
each Fund, and Quaker Financial Advisors, Inc., sub-adviser to the Aggressive
Growth Fund. Mr. King is also the controlling shareholder of Quaker Funds, Inc.,
Sponsor to the Funds.
COMPENSATION
------------
The officers of the Trust do not receive ongoing compensation from the Trust for
performing the duties of their offices. Each Trustee who is not an "interested
person" of the Trust receives a fee of $2,000 each year plus $250 per meeting
attended in person and $100 per meeting attended by telephone. All Trustees are
reimbursed for any out-of-pocket expenses incurred in connection with attendance
at meetings.
Name of Director Compensation Pension Annual Total Compensation
From Company Benefits Benefits Paid to Trustee
--------------------------------------------------------------------------------
Howard L. Gleit $2,500 None None $2,500
Trustee
Everett T. Keech $2,500 None None $2,500
Trustee
Laurie Keyes None None None None
Trustee
Jeffry H. King None None None None
Trustee
Louis P. Pektor III $2,500 None None $2,500
Trustee
9
<PAGE>
CONTROL PERSONS AND SHAREHOLDERS OWNING IN EXCESS OF 5% OF FUND SHARES
----------------------------------------------------------------------
On June 23, 2000 the shareholders of each Fund approved the conversion of each
Fund's only share class, the No-Load Class, to Class A. As of April 28, 2000,
the following persons owned more than 5% of the shares of the Funds, which are
now Class A shares. Because Class and C Shares are being offered for the first
time by this prospectus, no person owns more than 5% of any of these Share
Classes in any Fund.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
% OWNERSHIP OF
NAME OF FUND IN SHARE CLASS NUMBER OF TOTAL FUND
NAME OF SHAREHOLDER WHICH SHARES HELD OWNED SHARES OWNED SHARES
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National Investor Quaker Core Class A 10,940,421 36.21%
Services, FBO Client Accts Equity Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
St. Mary's County Quaker Core Class A 5,415,307 17.92%
Sheriff's Department Equity Fund (Formerly
Retirement Plan No-Load)
------------------------------------------------------------------------------------------------
Charles Schwab, FBO Client Quaker Core Class A 3,892,002 12.88%
Accts Equity Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
Geewax, Terker & Company Quaker Core Class A 2,199,534 7.28%
Equity Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
Geewax, Terker & Company Quaker Core Class A 1,912,725 6.33%
Equity Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
Boynton, E., Individual Quaker Core Class A 1,598,571 5.29%
Equity Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
National Investor Quaker Aggressive Class A 1,420,195 10.32%
Services, FBO Client Accts Growth Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
Daftary, Manu, Individual Quaker Aggressive Class A 1,039,787 7.56%
Growth Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
King, Jeffry H., Individual Quaker Aggressive Class A 894,134 6.50%
Growth Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
10
<PAGE>
------------------------------------------------------------------------------------------------
National Investor Quaker Large-Cap Class A 5,402,115 79.63%
Services, FBO Client Accts Value Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
National Investor Quaker Mid-Cap Class A 7,493,212 84.13%
Services, FBO Client Accts Value Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
Trust Company of Illinois Quaker Mid-Cap Class A 560,851 6.29%%
Value Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
Bank of Oklahoma OPUBCO Quaker Small-Cap Class A 4,910,149 42.60%
Value Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
Charles Schwab, FBO Client Quaker Small-Cap Class A 2,075,887 18.01%
Accts Value Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
Aronson, T., Individual Quaker Small-Cap Class A 652,511 5.66%
Value Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
Berger, S., Individual Quaker Small-Cap Class A 614,599 5.33%
Value Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
St. Mary's County Quaker Fixed Class A 4,782,113 66.37%
Sheriff's Department Income Value Fund (Formerly
Retirement Plan No-Load)
------------------------------------------------------------------------------------------------
Charles Schwab, FBO Client Quaker Fixed Class A 1,304,305 18.10%
Accts Income Value Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
Waitneight, P., Individual Quaker Fixed Class A 657,067 9.12%
Income Value Fund (Formerly
No-Load)
------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE INFORMATION
From time to time the Funds may quote total return figures. "Total Return" for a
period is the percentage change in value during the period of an investment in
Fund shares, including the value of shares acquired through reinvestment of all
dividends and capital gains distributions. "Average Annual Total Return" is the
average annual compounded rate of change in value represented by the Total
Return Percentage for the period.
[n]
Average Annual Total Return is computed as follows: P(1+T) = ERV
Where: P = a hypothetical initial investment of $1000]
T = average annual total return
n = number of years
ERV = ending redeemable value of shares at the end of the period
11
<PAGE>
Each Fund's performance is a function of conditions in the securities markets,
portfolio management, and operating expenses. Although information such as that
shown above is useful in reviewing the Fund's performance and in providing some
basis for comparison with other investment alternatives, it should not be used
for comparison with other investments using different reinvestment assumptions
or time periods.
The yield of the Fixed Income Fund is computed by dividing the net investment
income per share earned during the period stated in the advertisement by the
maximum offering price per share on the last day of the period. For the purpose
of determining net investment income, the calculation includes, among expenses
of the Fund, all recurring fees that are charged to all shareholder accounts and
any nonrecurring charges for the period stated. In particular, yield is
determined according to the following formula:
Yield =2[(A - B/CD + 1)6-1]
Where: A equals dividends and interest earned during the period; B equals
expenses accrued for the period (net of reimbursements); C equals average daily
number of shares outstanding during the period that were entitled to receive
dividends; D equals the maximum offering price per share on the last day of the
period.
Calculation of Yield for the Government Money Market Fund
----------------------------------------------------------
The current yield of the Government Money Market Fund is calculated daily on a
base period return of a hypothetical account having a beginning balance of one
share for a particular seven (7) day period. The return is determined by
dividing the net change (exclusive of any capital changes in such account) by
its average net asset value for the period, and then multiplying it by 365/7 to
get the annualized current yield.
The calculation of net change reflects the value of additional shares purchased
with the dividends of The Fund, including dividends on both the original share
and on such additional shares purchased with the dividends from The Fund.
An effective yield, which reflects the effects of compounding and represents an
annualization of the current yield with all dividends reinvested, may also be
calculated for The Fund by adding 1 to the base period return, raising the sum
to the 365/7 power, and subtracting 1 from the result.
Set forth below is an example, for purposes of illustration only, of the current
and effective yield calculations for the Fund for a seven (7) day base period
ending December 31, 1999:
12/31/98
--------
Value of account at beginning of period $1.000000
Value of same account at end of period 1.000098
Net change in account value .000098
Annualized current net yield 0.51%
(Net Change x 365/7)/ average net asset value
Effective yield 0.51%
(Net Change + 1) 365/7 power -1
Average weighted maturity of investments 24 days
The annualization of a week's dividends is not a representation as to what an
investment in the Government Money Market Fund will actually yield in the
future. Actual yields will depend on such variables as investment quality,
average maturity, the type of instruments selected for investment, changes in
interest rates on instruments, changes in expenses and other factors. Yields are
one basis investors may use to analyze the Fund and other investment vehicles;
however, yields of other investment vehicles may not be comparable because of
the factors set forth in the preceding sentence, differences in the time periods
compared, and differences in the methods used in valuing portfolio instruments,
computing net asset value and calculating yield. No charge is made for
redemptions. Any redemption may be more or less than the shareholder's cost
depending on the market value of the securities held by the Government Money
Market Fund.
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In sales literature, each Fund's performance may be compared with that of market
indices and other mutual funds. In addition to the above computations, each Fund
might use comparative performance as computed in a ranking determined by Lipper
Analytical Services, Morningstar, Inc., or that of another service.
PURCHASING AND REDEEMING SHARES
Redemptions of each Fund's shares will be made at net asset value ("NAV") less
any applicable CDSC. Each Fund's NAV is determined on days on which the New York
Stock Exchange ("NYSE") is open for trading. For purposes of computing the NAV
of a share of a Fund, securities traded on security exchanges, or in the
over-the-counter market in which transaction prices are reported, are valued at
the last sales price at the time of valuation or, lacking any reported sales on
that day, at the most recent bid quotations. Securities for which quotations are
not available and any other assets are valued at a fair market value as
determined in good faith by the Advisor, subject to the review and supervision
of the Board. The price per share for a purchase order or redemption request is
the NAV next determined after receipt of the order.
The Funds are open for business on each day that the NYSE is open. Each Fund's
share price or NAV is normally determined as of 4:00 p.m., Eastern time. Each
Fund's share price is calculated by subtracting its liabilities from the closing
fair market value of its total assets and dividing the result by the total
number of shares outstanding on that day. Fund liabilities include accrued
expenses and dividends payable, and its total assets include the market value of
the portfolio securities as well as income accrued but not yet received.
Redemptions in Kind.
-------------------
The Funds do not intend, under normal circumstances, to redeem their securities
by payment in kind. It is possible, however, that conditions may arise in the
future which would, in the opinion of the Trustees, make it undesirable for the
Funds to pay for all redemptions in cash. In such case, the Board of Trustees
may authorize payment to be made in readily marketable portfolio securities of
the Fund. Securities delivered in payment of redemptions would be valued at the
same value assigned to them in computing the net asset value per share.
Shareholders receiving them would incur brokerage costs when these securities
are sold. An irrevocable election has been filed under Rule 18f-1 of the 1940
Act, wherein each Fund committed itself to pay redemptions in cash, rather than
in kind, to any shareholder of record of the Fund who redeems during any
ninety-day period, the lesser of (a) $250,000 or (b) one percent (1%) of the
Fund's net asset value at the beginning of such period.
TAX INFORMATION
The Funds intend to qualify as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended, so as to be
relieved of federal income tax on its capital gains and net investment income
currently distributed to its shareholders. To qualify as a RIC, the Funds must,
among other things, derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities, or other income derived with respect to
its business of investing in such stock or securities.
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If the Funds qualifies as a RIC and distributes at least 90% of its net
investment income, the Funds will not be subject to Federal income tax on the
income so distributed. However, the Funds would be subject to corporate income
tax on any undistributed income other than tax-exempt income from municipal
securities.
The Funds intends to distribute to shareholders, at least annually,
substantially all net investment income and any net capital gains realized from
sales of the Fund's portfolio securities. Dividends from net investment income
and distributions from any net realized capital gains are reinvested in
additional shares of the Funds unless the shareholder has requested in writing
to have them paid by check.
If shares are purchased shortly before a record date for a distribution, the
shareholder will, in effect, receive a return of a portion of his investment,
but the distribution will be taxable to him even if the net asset value of the
shares is reduced below the shareholder's cost. However, for federal income tax
purposes the original cost would continue as the tax basis.
If a shareholder fails to furnish his social security or other tax
identification number or to certify properly that it is correct, the Funds may
be required to withhold federal income tax at the rate of 31% (backup
withholding) from dividend, capital gain and redemption payments to him.
Dividend and capital gain payments may also be subject to backup withholding if
the shareholder fails to certify properly that he is not subject to backup
withholding due to the under-reporting of certain income.
Taxation of the Shareholder. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November and December and made payable
to shareholders of record in such month will be deemed to have been received on
December 31st if paid by the Funds during the following January.
Distributions by the Funds will result in a reduction in the fair market value
of the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution would be taxable to the shareholder
as ordinary income or as a long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just prior to a distribution. The price of such shares
include the amount of any forthcoming distribution so that those investors may
receive a return of investment upon distribution which will, nevertheless, be
taxable to them.
Dividends. A portion of the Fund's income may qualify for the dividends-received
deduction available to corporate shareholders to the extent that the Fund's
income is derived from qualifying dividends. Because the Fund may earn other
types of income, such as interest, income from securities loans, non-qualifying
dividends, and short-term capital gains, the percentage of dividends from the
Fund that qualifies for the deduction generally will be less than 100%. The Fund
will notify corporate shareholders annually of the percentage of Fund dividends
that qualifies for the dividend received deductions.
A portion of the Fund's dividends derived from certain U.S. Government
obligations may be exempt from state and local taxation. Short-term capital
gains are distributed as dividend income. The Fund will send each shareholder a
notice in January describing the tax status of dividends and capital gain
distributions for the prior year.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for each Fund are made by the Advisor. In
placing purchase and sale orders for portfolio securities for a Fund, it is the
policy of the Advisor to seek the best execution of orders at the most favorable
price. In selecting brokers to effect portfolio transactions, the determination
of what is expected to result in the best execution at the most favorable price
involves a number of largely judgmental
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<PAGE>
considerations. Among these are the Advisor's evaluation of the broker's
efficiency in executing and clearing transactions, the rate of commission or the
size of the broker-dealer's "spread", the size and difficulty of the order, the
nature of the market for the security, operational capabilities of the
broker-dealer, and the research and other services provided. A Fund may pay more
than the lowest available commission in return for brokerage and research
services. Research and other services may include information as to the
availability of securities for purchase or sale, statistical or factual
information or opinions pertaining to securities and reports and analysis
concerning issuers and their creditworthiness. The Advisor may use research and
other services to service all of its clients, rather than the particular clients
whose commissions may pay for research or other services. In other words, the
Fund's brokerage may be used to pay for a research service that is used in
managing another client of the Advisor.
The Advisor may purchase or sell portfolio securities on behalf of a Fund in
agency or principal transactions. In agency transactions, the Fund generally
pays brokerage commissions. In principal transactions, the Fund generally does
not pay commissions. However, the price paid for the security may include an
undisclosed commission or "mark-up" or selling concessions. The Advisor normally
purchases fixed-income securities on a net basis from primary market makers
acting as principals for the securities. The Advisor may purchase certain money
market instruments directly from an issuer without paying commissions or
discounts. Over-the-counter securities are generally purchased and sold directly
with principal market makers who retain the difference in their cost in the
security and its selling price. In some instances, the Advisor feels that better
prices are available from non-principal market makers who are paid commissions
directly.
The Advisor may combine transaction orders placed on behalf of the Fund with
orders placed on behalf of any other fund or private account managed by the
Advisor for the purpose of negotiating brokerage commissions or obtaining a more
favorable transaction price. In these cases, transaction costs are shared
proportionately by the fund or account, as applicable, which are part of the
block. If an aggregated trade is not completely filled, then the Advisor
typically allocates the trade among the funds or accounts, as applicable, on a
pro rata basis based upon account size. Exemptions are permitted on a
case-by-case basis when judged by the Advisor to be fair and reasonable to the
funds or accounts involved.
Trading by the Portfolio Manager
--------------------------------
Pursuant to Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, the Funds,
the Advisor, and the Distributor have adopted Codes of Ethics restricting
personal securities trading by the Fund's Advisors. These Codes are on public
file, and are available from the Securities and Exchange Commission. While the
Codes permit personal transactions by the Advisors in securities held or to be
acquired by each Fund, the Codes prohibit and are designed to prevent fraudulent
activity in connection with such personal transactions.
For the Trust's fiscal year ending on June 30, 1999 the Funds of the Trust paid
aggregate brokerage commissions of $98,031 to affiliated broker/dealers.
CUSTODIAN
First Union National Bank (the "Custodian"), 123 South Broad Street,
Philadelphia, PA 19109, serves as custodian for each Fund's assets. The
Custodian acts as the depository for each Fund, holds in safekeeping its
portfolio securities, collects all income and other payments with respect to
portfolio securities, disburses monies at the Fund's request and maintains
records in connection with its duties as Custodian. For its services as
Custodian, the Custodian is entitled to receive from each Fund an annual fee
based on the average net assets of the Fund held by the Custodian.
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<PAGE>
For the fiscal year ended June 30, 1999, each Fund paid custodial fees as
follows:
Fee Paid
--------
Core Equity $4,017
Aggressive Growth $5,253
Large-Cap Value $4,500
Mid-Cap Value $2,059
Small-Cap Value $4,683
Fixed Income $1,267
TRANSFER AGENT
Declaration Service Company (the "DSC") 555 North Lane, Suite 6160,
Conshohocken, PA 19428 serves as the Funds' transfer, dividend paying, and
shareholder servicing agent. The Transfer Agent, subject to the authority of the
Board of Trustees, provides transfer agency services pursuant to an agreement
with the Administrator, which has been approved by the Trust. The Transfer Agent
maintains the records of each shareholder's account, answers shareholder
inquiries concerning accounts, processes purchases and redemptions of Fund
shares, acts as dividend and distribution disbursing agent, and performs other
shareholder servicing functions. The Transfer Agent is compensated for its
services by the Administrator and not directly by the Funds.
For the fiscal year ended June 30, 1999, each Fund paid transfer agent fees as
follows:
Fee Paid
--------
Core Equity $12,931
Aggressive Growth $ 2,444
Large-Cap Value $ 2,678
Mid-Cap Value $ 9,358
Small-Cap Value $ 9,144
Fixed Income $ 6,849
ADMINISTRATION
DSC also acts as administrator to the Trust pursuant to a written agreement with
the Trust. DSC supervises all aspects of the operations of the Funds except
those performed by the Fund's Advisors under the Fund's investment advisory
agreements. DSC is responsible for:
(a) calculating each Fund's net asset value;
(b) preparing and maintaining the books and accounts specified in Rule 31a-1;
and 31a-2 of the Investment Company Act of 1940;
(c) preparing financial statements contained in reports to stockholders of the;
Fund
(d) preparing each Fund's federal and state tax returns;
(e) preparing reports and filings with the Securities and Exchange Commission;
(f) preparing filings with state Blue Sky authorities; and
(g) maintaining each Fund's financial accounts and records.
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For the services to be rendered as administrator, the Trust pays DSC an annual
fee, paid monthly, based on the average net assets of each Fund, as determined
by valuations made as of the close of each business day of the month.
For the fiscal year ended June 30, 1999, each Fund paid administration fees as
follows:
Fee Paid
--------
Core Equity $12,931
Aggressive Growth $ 2,444
Large-Cap Value $ 2,678
Mid-Cap Value $ 9,358
Small-Cap Value $ 9,144
Fixed Income $ 6,849
DISTRIBUTOR
Declaration Distributors, Inc. (DDI), 555 North Lane, Suite 6160, Conshohocken,
PA 19428, acts as the principal underwriter of each Fund's shares pursuant to a
written agreement with the Trust ("Distribution Agreement"). DDI and DSC are
both wholly-owned subsidiaries of Declaration Holdings, Inc., a Delaware
corporation.
The Distribution Agreement may be terminated by either party upon 60 days' prior
written notice to the other party.
Pursuant to the Distribution Agreement, DDI facilitates the registration of each
Funds' shares under state securities laws and assists in the sale of shares. For
providing underwriting services to the Funds, DDI is paid an annual fixed fee by
the Trust . For the fiscal year ended June 30, 1999, the Trust paid aggregate
distribution fees of $ 0.00 to DDI.
SPONSOR
Quaker Funds, Inc. (the "Sponsor"), 1288 Valley Forge Road, Post Office Box 987,
Valley Forge, Pennsylvania 19482, acts as sponsor for each Fund and provides
certain shareholder services (more thoroughly described in the Prospectus)
pursuant to a Sponsorship Agreement between the Trust and the Sponsor for each
Fund approved by the Board of Trustees of the Trust. The Shareholder Sponsorship
Agreement may be terminated at any time, without penalty, by each party upon 60
days prior written notice to the other party.
Laurie Keyes and Jeffry H. King, each of whom is a Trustee of the Trust, control
Quaker Funds, Inc. Quaker Funds, Inc. was formed as a Pennsylvania corporation
in 1996 and is located at 1288 Valley Forge Road, Suite 76, Valley Forge,
Pennsylvania 19482. For the fiscal year ended June 30, 1999, the Sponsor waived
receipt of all fees.
INDEPENDENT ACCOUNTANTS
The firm of Goldenberg Rosenthal Friedlander, LLP, 101 West Avenue, P.O. Box
458, Jenkintown, Pennsylvania 19046-0468, serves as independent accountants for
the Funds, and will audit the annual financial statements of the Funds, prepare
each Fund's federal and state tax returns, and consult with the Funds on matters
of accounting and federal and state income taxation.
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LEGAL COUNSEL
David Jones & Assoc., P.C., 4747 Research Forest Drive, Suite 180, # 303, The
Woodlands, TX 77381, has passed on certain matters relating to this registration
statement and acts as counsel to the Trust.
DISTRIBUTION PLAN
As noted in the Fund's Prospectus, the Trust has adopted plans pursuant to Rule
12b-1 under the 1940 Act (the "Plan") whereby each share class of the Funds is
authorized to pay a fee per annum of the Fund's average daily net assets to the
Sponsor and others to compensate them for certain expenses incurred in the
distribution of the Fund's shares and the servicing or maintaining of existing
Fund shareholder accounts. The fees may be paid on a monthly basis, in arrears.
GENERAL INFORMATION
The Trust is an unincorporated business trust organized under Massachusetts law
on October 24, 1990 and operating as a diversified, open-end management
investment company. The Trust's Declaration of Trust authorizes the Board of
Trustees to divide shares into series, each series relating to a separate
portfolio of investments, and to classify and reclassify any unissued shares
into one or more classes of shares of each such series. The Declaration of Trust
currently provides for the shares of six series and the number of shares of each
series shall be unlimited. The Trust does not intend to issue share
certificates.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as each Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust, including the Funds, will vote
together and not separately on a series-by-series or class-by-class basis,
except as otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular series or class. Rule 18f-2 under the 1940 Act provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Trust shall not be deemed to
have been effectively acted upon unless approved by the holders of a majority of
the outstanding shares of each series or class affected by the matter. A series
or class is affected by a matter unless it is clear that the interests of each
series or class in the matter are substantially identical or that the matter
does not affect any interest of the series or class. Under Rule 18f-2, the
approval of an investment advisory agreement, a Rule 12b-1 plan, or any change
in a fundamental investment policy would be effectively acted upon with respect
to a series only if approved by a majority of the outstanding shares of such
series. However, the Rule also provides that the ratification of the appointment
of independent accountants, the approval of principal underwriting contracts and
the election of Trustees may be effectively acted upon by shareholders of the
Trust voting together, without regard to a particular series or class.
When issued for payment as described in the Prospectus and this Additional
Statement, shares of each Fund will be fully paid and non-assessable.
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The Declaration of Trust provides that the Trustees of the Trust will not be
liable in any event in connection with the affairs of the Trust, except as such
liability may arise from his or her own bad faith, willful misfeasance, gross
negligence, or reckless disregard of duties. It also provides that all third
parties shall look solely to the Trust property for satisfaction of claims
arising in connection with the affairs of the Trust. With the exceptions stated,
the Declaration of Trust provides that a Trustee or officer is entitled to be
indemnified against all liability in connection with the affairs of the Trust.
Other Expenses. Each Fund is responsible for the payment of its expenses. These
include, for example, the fees payable to the Advisor, or expenses otherwise
incurred in connection with the management of the investment of the Funds'
assets, the fees and expenses of the Custodian, the fees and expenses of the
Administrator, the fees and expenses of Trustees, outside auditing and legal
expenses, all taxes and corporate fees payable by each Fund, Securities and
Exchange Commission fees, state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to shareholders, costs of shareholder reports and shareholder meetings, and any
extraordinary expenses. Each Fund also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular series of the Trust will be
charged to that series, and expenses not readily identifiable as belonging to a
particular series will be allocated by or under procedures approved by the Board
of Trustees among one or more series in such a manner as it deems fair and
equitable.
The Trust does not intend to hold annual shareholder meetings; it may, however,
hold special shareholder meetings for purposes such as changing fundamental
policies or electing Trustees. The Board of Trustees shall promptly call a
meeting for the purpose of electing or removing Trustees when requested in
writing to do so by the record holders of a least 10% of the outstanding shares
of the Trust. The term of office of each Trustee is of unlimited duration. The
holders of at least two-thirds of the outstanding shares of the Trust may remove
a Trustee from that position either by declaration in writing filed with the
Custodian or by votes cast in person or by proxy at a meeting called for that
purpose.
Shareholders of the Trust will vote in the aggregate and not by series (Fund) or
class, except as otherwise required by the 1940 Act or when the Board of
Trustees determines that the matter to be voted on affects only the interests of
the shareholders of a particular series or class. Matters affecting an
individual series, include, but are not limited to, the investment objectives,
policies and restrictions of that series. Shares have no subscription,
preemptive or conversion rights. Share certificates will not be issued. Each
share is entitled to one vote (and fractional shares are entitled to
proportionate fractional votes) on all matters submitted for a vote, and shares
have equal voting rights except that only shares of a particular series are
entitled to vote on matters affecting only that series. Shares do not have
cumulative voting rights. Therefore, the holders of more than 50% of the
aggregate number of shares of all series of the Trust may elect all the
Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability.
Reporting to Shareholders. Each Fund will send to its shareholders annual and
semi-annual reports; the financial statements appearing in annual reports for
each Fund will be audited by independent accountants. In addition, the Funds
will send to each shareholder having an account directly with the Fund, a
quarterly statement showing transactions in the account, the total number of
shares owned
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and any dividends or distributions paid. Inquiries regarding any Fund may be
directed in writing to 555 North Lane, Suite 6160, Conshohocken, PA 19428 or by
calling 800-220-8888.
FINANCIAL STATEMENTS
The financial statements of each Fund are incorporated by reference to the
Trust's latest audited annual report, dated June 30, 1999. The Trust's annual
report has been audited by Goldenberg Rosenthal Friedlander, LLP, independent
auditors. You may receive a copy of the report, free of charge, by contacting
the Trust.
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APPENDIX A
DESCRIPTION OF RATINGS
The Funds may generally acquire from time to time fixed income securities that
meet the following minimum rating criteria ("Investment Grade Debt Securities")
or, if unrated, are in the Advisor's opinion comparable in quality to Investment
Grade Debt Securities. The Fixed Income Fund, however, intends to limit its
portfolio to a more restrictive quality criteria, limiting portfolio investment
to those securities in the three highest ratings, as described below, or if not
rated, of equivalent quality as determined by the Advisor to the Fixed Income
Fund. The various ratings used by the nationally recognized securities rating
services are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed income
securities in which the Funds may invest should be continuously reviewed and
that individual analysts give different weightings to the various factors
involved in credit analysis. A rating is not a recommendation to purchase, sell
or hold a security, because it does not take into account market value or
suitability for a particular investor. When a security has received a rating
from more than one service, each rating is evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources that they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
Standard & Poor's Ratings Group. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Group ("S&P") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA - Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for debt in
higher rated categories.
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<PAGE>
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
"Investment-Grade Debt Securities" and 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.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to municipal notes and
indicates very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given a
plus (+) designation.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A - Debt which is rated A possesses many favorable investment attributes
and is to be considered as an upper medium grade obligation. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Debt which is rated Baa is considered as a medium grade obligation,
i.e., it is 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 debt lacks outstanding investment
characteristics and in fact has speculative characteristics as well.
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Moody's applies numerical modifiers (l, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category.
Bonds which are rated Ba, B, Caa, Ca or C by Moody's are not considered
"Investment-Grade Debt Securities" by the Advisor. Bonds 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 often may be very moderate and not
well safeguarded.
Bonds which are rated 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 for 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 as having extremely poor prospects of ever attaining any real
investment standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics of issuers rated
Prime-1 but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriated may be more affected by external conditions. Ample alternate
liquidity is maintained.
The following summarizes the highest rating used by Moody's for short-term notes
and variable rate demand obligations:
MIG-l; VMIG-l - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
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A - Bonds rated A have average but adequate protection factors. The risk
factors are more variable and greater in periods of economic stress.
BBB - Bonds rated BBB have below average protection factors but are still
considered sufficient for prudent investment. There is considerable
variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff l is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff l+, Duff 1 and
Duff 1- within the highest rating category. Duff l+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc. ("Fitch") for bonds which are deemed to be
"Investment-Grade Debt Securities" by the Advisor:
AAA - Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA - Bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds that are rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher
ratings.
BBB - Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
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To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category.
Bonds rated BB, B and CCC by Fitch are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the three highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+
F-2 - Instruments assigned this rating have satisfactory degree of
assurance for timely payment, but the margin of safety is not as great as
for issues assigned F-1+ and F-1 ratings.
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