Rule 497(c)
File No. 33-87298
File No. 811-8902
1838
SMALL CAP EQUITY FUND
THE DATE OF THIS PROSPECTUS IS MAY 1, 1996
Five Radnor Corporate Center, Suite 320
100 Matsonford Road, Radnor, PA 19087
(610) 293-4300
1838 Investment Advisors Funds (the "Trust") is an open-end, management
investment company. It is organized as a series Delaware business trust and
currently offers shares of two series: 1838 International Equity Fund and 1838
Small Cap Equity Fund, each of which has a diversified portfolio of assets and a
specific investment objective and policies. This prospectus pertains only to
1838 Small Cap Equity Fund (the "Fund").
The investment objective of the Fund is long-term growth. The Fund
seeks to achieve its objective by investing primarily in the common stock of
domestic companies with relatively small market capitalizations, those with a
market value of $800 million or less (small cap), which are believed to be
undervalued and have good prospects for capital appreciation. The Fund will
invest in small capitalization companies using a value approach. There can be no
assurance that the Fund's investment objective will be achieved. (See
"Investment Objectives and Policies" and "Special Risk Considerations.")
The shares of the Fund may be purchased or redeemed at any time.
Purchases will be effected at the net asset value next determined following
receipt and acceptance of the investor's purchase order. Redemptions will be
effected at the net asset value next determined following receipt and acceptance
of the investor's request. (See "Calculation of Net Asset Value," "How to
Purchase Shares," and "How to Redeem Shares.")
This Prospectus sets forth concisely the information about the Fund
that a prospective investor should know before investing. Investors should read
and retain this Prospectus for future reference. More information about the Fund
has been filed with the Securities and Exchange Commission, and is contained in
the "Statement of Additional Information," dated February 1, 1996, as amended
May 1, 1996, which is available at no charge upon written request to the Trust.
The Trust's Statement of Additional Information is incorporated herein by
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
SYNOPSIS................................................................... 3
EXPENSES OF THE FUND....................................................... 5
THE FUND .................................................................. 6
INVESTMENT OBJECTIVES AND POLICIES......................................... 6
RISKS IN DERIVATIVES AND OTHER INVESTMENT PRACTICES........................ 8
SPECIAL RISK CONSIDERATIONS................................................ 13
INVESTMENT RESTRICTIONS.................................................... 14
MANAGEMENT OF THE FUND..................................................... 15
CALCULATION OF NET ASSET VALUE............................................. 17
HOW TO PURCHASE SHARES..................................................... 18
EXCHANGE OF SHARES......................................................... 19
HOW TO REDEEM SHARES....................................................... 19
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 22
SHAREHOLDER ACCOUNTS....................................................... 24
RETIREMENT PLANS........................................................... 24
SHARES OF BENEFICIAL INTEREST, VOTING RIGHTS
AND SHAREHOLDER MEETINGS................................................. 24
PERFORMANCE................................................................ 25
APPLICATION & NEW ACCOUNT REGISTRATION..................................... 26
<PAGE>
SYNOPSIS
Open-End Investment Company
1838 Investment Advisors Funds, which was organized as a Delaware
business trust on December 9, 1994, is an open-end, management investment
company. It is organized as a series Delaware business trust and currently
offers shares of two series: 1838 International Equity Fund and 1838 Small Cap
Equity Fund (the "Fund"). See "The Fund" and "Shares of Beneficial Interest,
Voting Rights and Shareholder Meetings."
Investment Objective
The objective of the Fund is long-term growth. The Fund seeks to
achieve its objective by investing primarily in the common stock of domestic
companies with relatively small market capitalization, those with a market value
of $800 million or less (small cap), which are believed to be undervalued and
have good prospects for capital appreciation. The Fund will invest in small
capitalization companies using a value approach. See "Investment Objectives and
Policies."
Investment Adviser, Distributor and Transfer Agent
1838 Investment Advisors, L.P. (the "Investment Adviser") is the
investment adviser for the Fund. Rodney Square Distributors, Inc. ("RSD") is the
distributor for the Fund. Rodney Square Management Corporation ("Rodney Square")
is the administrator, transfer agent and dividend disbursing agent for the Fund.
See "Management of the Fund."
How to Purchase Shares
The Fund does not impose any sales load or 12b-1 Plan fees. The public
offering price of shares of the Fund is the net asset value per share next
determined after the receipt in proper form of the purchase order. See "How to
Purchase Shares."
Minimum Investment
The minimum initial investment is $1,000 and there is no minimum for
subsequent investments. See "How to Purchase Shares."
Redemptions and Exchanges
Shares of the Fund are redeemed at the net asset value calculated after
receipt of the redemption request. A purchase of shares through an exchange will
be effected at the net asset value per share determined at that time or as next
determined thereafter. See "How to Redeem Shares" and "Exchange of Shares."
Investment Advisory Fees
The Investment Adviser manages the investment of the assets of the Fund
in accordance with its objective and policies and restrictions, subject to the
supervision and direction of the Board of Trustees. For its services, the
Investment Adviser is paid a monthly fee by the Fund at the annual rate of .75%
of the Fund's average daily net assets. See "Management of the Fund."
Special Risk Considerations
Investors should consider a number of factors:
1. Investments in the securities of companies with small market
capitalizations are generally considered to offer greater opportunity for
appreciation and to involve greater risks of depreciation than securities of
companies with larger market capitalizations. See "Investment Objective and
Policies" and "Special Risk Considerations."
2. The Fund may invest up to 20% of its total assets in foreign
securities. Investments on an international basis involve certain risks not
involved in domestic investment, including fluctuations in foreign exchange
rates, future political and economic developments, different legal systems and
the existence or possible imposition of exchange controls or other foreign or
U.S. governmental laws or restrictions applicable to such investments. See
"Investment Objectives and Policies" and "Special Risk Considerations."
3. The Fund may engage in the following portfolio strategies: enter
into forward foreign currency exchange contracts and foreign currency futures
and options; write covered options; purchase options; and engage in transactions
in stock index options and futures and related options on such futures. See
"Portfolio Strategies Involving Forward Foreign Exchange Transactions, Options
and Futures" under "Other Investment Practices" and "Futures and Options" under
"Special Risk Considerations."
4. The Fund may lend securities from its portfolio, with a value not
exceeding 33-1/3% of its total assets, to banks, brokers and other financial
institutions and receive collateral prior to lending. The principal risk to the
Fund is the risk that the borrower defaults on its obligation to return borrowed
securities. See "Lending of Portfolio Securities" under "Other Investment
Practices."
5. The Fund may invest in securities pursuant to repurchase agreements
or purchase and sale contracts (which involve risk of loss if a seller defaults
on its obligations under the agreement or contract). See "Repurchase Agreements
and Purchase and Sale Contracts" under "Other Investment Practices."
EXPENSES OF THE FUND
The following table illustrates all estimated expenses and fees that a
shareholder of the Fund will incur.
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases................. None
Maximum Sales Load Imposed on Reinvested Dividends...... None
Estimated Annual Operating Expenses
(as a percentage of average net assets)
Investment Advisory Expenses (after fee waiver)1........ 0.00%
12b-1 Fees.............................................. None
Other Expenses (after reimbursement)(1)................. 1.25%
Total Operating Costs (after fee waiver
and reimbursement)(1).................. 1.25%
(1) For the current fiscal year, the Investment Adviser has voluntarily agreed
to waive its fees or reimburse the Fund monthly so that the Fund's total
operating expenses will not exceed 1.25% of the average daily net assets of
the Fund. Without such waiver or reimbursement, the Investment Advisory
Expenses, Other Expenses, and Total Operating Expenses are estimated to be
0.75%, 1.44%, and 2.19%, respectively, of the Fund's average daily net
assets on an annualized basis.
The purpose of this table is to assist the investor in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly. The amount of "Other Expenses" is based on estimated amounts for the
current fiscal year.
The following example illustrates the expenses that you would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return; and (2) redemption at the end of each time period.
1 yr. 3 yrs.
----- ------
$ 13 $ 40
This example should not be considered a representation of past or
future expenses or performance. Actual expenses may be greater or lesser than
those shown.
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THE FUND
1838 Investment Advisors Funds (the "Trust") is an open-end, management
investment company commonly known as a mutual fund. The Trust was established as
a series Delaware business trust on December 9, 1994. The Trust currently offers
two series of shares, each of which has a diversified portfolio of assets: 1838
International Equity Fund and 1838 Small Cap Equity Fund. This prospectus
relates only to 1838 Small Cap Equity Fund (the "Fund").
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are set forth below.
The investment objective of the Fund is a fundamental policy and may not be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. There can be no assurance that the Fund will
achieve its objective.
The Fund's investment objective is long-term capital growth. The Fund
seeks to achieve its objective by investing primarily in the common stock of
domestic companies with relatively small market capitalizations, those with
market value of $800 million or less (small cap), which are believed to be
undervalued and have good prospects for capital appreciation. During normal
market conditions, at least 65% of the Fund's total assets will be invested in
the equity securities of companies with market capitalizations of $800 million
or less, at the time of initial purchase.
The Fund will invest primarily in small capitalization companies using
a value approach. This approach entails finding companies whose current stock
prices (i) are believed not to adequately reflect their underlying value as
measured by assets; and (ii) are low in relation to current earnings, cash flow
or business franchises, and which, in the Investment Adviser's opinion, seem
capable of recovering from any out of favor considerations. Companies with a
market value of $800 million or less may offer greater potential for capital
appreciation since they are often overlooked or undervalued by investors.
Because of their size, small cap stocks are less actively followed by stock
analysts and less information is available on which to base stock price
evaluations. As a result, greater variations often exist between the current
stock price and its estimated underlying value which may present greater
opportunity for long-term capital growth.
The Investment Adviser will rely on its proprietary research to
identify undervalued, small cap stocks before their value is recognized by the
investment community. Stocks will be selected when the Investment Adviser
believes (1) the current stock price is undervalued in relation to current
earnings, cash flow or estimated asset value per share; and (2) the potential
for a catalyst exists (such as increased investor attention, asset sales or a
change in management) which will cause the stock's price to increase to reflect
the company's underlying value.
The Fund's holdings will generally be traded in established
over-the-counter markets, but assets may also be invested in securities listed
on a national or regional securities exchange. The Fund may also invest a
portion of its assets in publicly traded stocks with limited marketability and
up to 15% of its assets in restricted securities, as described below.
Higher risks are often associated with investment in the securities of
small capitalization companies. See "Special Risk Considerations."
In addition to the investments described above, the Fund's investments
may include, but are not limited to, those described below.
While the Fund will remain primarily invested in common stocks, it may,
for temporary defensive purposes, invest in reserves without limitation.
Reserves in which the Fund may invest are cash or short-term cash equivalents,
including Treasury obligations, direct obligations of federal agencies, and high
quality, private sector short-term instruments. The Fund may also establish and
maintain reserves as the Investment Adviser believes is advisable to facilitate
the Fund's cash flow needs (e.g., redemptions, expenses, and purchases of
portfolio securities). The Fund's reserves will be invested in domestic and
foreign money market instruments rated within the top two credit categories by a
national rating organization or, if unrated, the Investment Adviser's
equivalent.
While the Fund has no current intention to do so, the Fund may invest
in debt or preferred equity securities convertible into or exchangeable for
equity securities and warrants. The Fund may purchase both rated and unrated
convertible debt securities, depending upon prevailing market and economic
conditions. Debt securities rated as investment grade means that they have a
rating of Baa or better as determined by Moody's or BBB by S&P, or are of
comparable quality. These are the highest ratings or categories as defined by
Moody's and S&P. Debt securities that are rated Baa by Moody's or BBB by S&P or,
if unrated, are of comparable quality, may have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher rated debt securities. Debt rated BB and below by S&P and Ba and
below by Moody's is regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. The Fund may invest up to 5% (measured at
the time of purchase) of its total assets in corporate debt securities without
regard to quality or rating.
The Investment Adviser expects that a majority of investments in the
Fund will be in U.S. based companies; however, from time to time, the Fund may
invest up to 20% of its total assets in securities principally traded in markets
outside the United States, if they meet the Fund's investment criteria. Under
normal circumstances, investments in foreign securities will comprise no more
than 10% of portfolio assets. While investments in foreign securities are
intended to reduce risk by providing further diversification, such investments
involve certain risks not involved in domestic investment. See "Special Risk
Considerations."
Foreign securities of the Fund are subject to currency risk, that is,
the risk that the U.S. dollar value of these securities may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations. To manage this risk and facilitate the purchase
and sale of foreign securities, the Fund will engage in foreign currency
transactions involving the purchase and sale of forward foreign currency
exchange contracts. Although foreign currency transactions will be used
primarily to protect the Fund from adverse currency movements, they also involve
the risk that anticipated currency movements will not be accurately predicted
and the Fund's total return could be adversely affected as a result. See
"Portfolio Strategies Involving Forward Foreign Exchange Transactions, Options
and Futures" under "Other Investment Practices" and "Special Risk
Considerations."
The Fund may invest in the securities of foreign issuers in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) or other securities convertible into securities of
foreign issuers, such as convertible preferred stock, convertible bonds and
warrants or rights convertible into common stock. These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. If the Fund determines that other securities convertible
into foreign securities are available in the market, the Fund will notify
shareholders before investing in such securities.
ADRs are receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. GDRs are receipts issued throughout the world which
evidence a similar ownership arrangement. Generally, ADRs, in registered form,
are designed for use in the U.S. securities markets, and EDRs, in bearer form,
are designed for use in European securities markets. GDRs are tradeable both in
the U.S. and Europe and are designed for use throughout the world. The Fund may
invest in unsponsored ADRs, EDRs and GDRs. The issuers of unsponsored ADRs, EDRs
and GDRs are not obligated to disclose material information in the United States
and, therefore, there may not be a correlation between such information and the
market value of such securities.
The Fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended, but can be offered
and sold to "qualified institutional buyers" under Rule 144A under that Act.
However, the Fund will not invest more than 15% of its assets in illiquid
investments, which includes securities for which there is no readily available
market, securities subject to contractual restrictions on resale, and otherwise
restricted securities, unless the Fund's Board of Trustees continuously
determines, based on the trading markets for the specific restricted security,
that it is liquid. (However, under the law of certain states, the Fund presently
is limited with respect to such investments to 10% of its net assets.) The Board
of Trustees has determined to treat as liquid Rule 144A securities which are
freely tradeable in their primary markets offshore. The Board of Trustees may
adopt guidelines and delegate to the Investment Adviser the daily function of
determining and monitoring liquidity of restricted securities. The Board of
Trustees, however, will retain sufficient oversight and be ultimately
responsible for the determinations.
Since it is not possible to predict with assurance exactly how this
market for restricted securities sold and offered under Rule 144A will develop,
the Board of Trustees will carefully monitor the Fund's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
securities.
RISKS IN DERIVATIVES AND OTHER INVESTMENT PRACTICES
When-Issued, Forward Delivery and Delayed Settlement Securities
The Fund will invest in securities whose terms and characteristics are
already known but which have not yet been issued. These are called "when-issued"
or "forward delivery" securities. "Delayed settlements" occur when the Fund
agrees to buy or sell securities at some time in the future, making no payment
until the transaction is actually completed. Such transactions will be limited
to no more than 25% of the Fund's assets. The Fund engages in these types of
purchases in order to buy securities that fit with its investment objective at
attractive prices -- not to increase its investment leverage. Securities
purchased on a when-issued basis may decline or appreciate in market value prior
to their actual delivery to the Fund.
Portfolio Strategies Involving Forward Foreign Exchange Transactions, Options
and Futures
The following investment practices are practices that involve
investment in derivatives. Derivatives are contracts or securities, the value of
which depends on (or "derives" from) the future prices of underlying financial
assets. Investment in derivatives entails risk of which investors should be
aware, as described under each heading below. For additional information about
derivative securities in which the Fund may invest, and the risks associated
with these investments, see "Investment Objectives and Policies" in the Fund's
Statement of Additional Information.
Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts.
Forward foreign currency exchange contracts provide for the purchase or sale of
an amount of a specified foreign currency at a future date. The general purpose
of these contracts is both to put currencies in place to settle trades and to
generally protect the United States dollar value of securities held by the Fund
against exchange rate fluctuation. While such forward contracts may limit losses
to the Fund as a result of exchange rate fluctuation, they will also limit any
gains that may otherwise have been realized. The Fund will enter into such
contracts only to protect against the effects of fluctuating rates of currency
exchange and exchange control regulations. See "Forward Foreign Currency
Exchange Contracts" in the Statement of Additional Information.
Foreign Currency Futures Contracts and Options
As another means of reducing the risks associated with investing in
securities denominated in foreign currencies, the Fund may enter into contracts
for the future acquisition or delivery of foreign currencies and may purchase
foreign currency options. These investment techniques are designed primarily to
hedge against anticipated future changes in currency prices which otherwise
might adversely affect the value of the Fund's portfolio securities. The Fund
will incur brokerage fees when it purchases or sells futures contracts or
options, and it will be required to maintain margin deposits. As set forth
below, futures contracts and options entail risks, but the Investment Adviser
believes that use of such contracts and options may benefit the Fund by
diminishing currency risks. The Fund will not enter into any futures contract or
option if immediately thereafter the value of all the foreign currencies
underlying its futures contracts and foreign currency options would exceed 10%
of the value of its total assets. In addition, the Fund may enter into a futures
contract only if immediately thereafter not more than 5% of its total assets are
required as deposit to secure obligations under such contracts.
Writing Covered Options
The Fund is authorized to write (i.e., sell) covered call options on
the securities in which it may invest and to enter into closing purchase
transactions with respect to certain of such options. A covered call option is
an option where the Fund in return for a premium gives another party a right to
buy specified securities owned by the Fund at a specified future date and price
set at the time of the contract.
The Fund also may write covered put options which give the holder of
the option the right to sell the underlying security to the Fund at the stated
exercise price. The Fund maintains liquid securities with its custodian equal to
or greater than the exercise price of the underlying security. The Fund will
receive a premium for writing a put option which increases the Fund's return.
The Fund will not write put options if the aggregate value of the obligations
underlying the put shall exceed 50% of the Fund's net assets.
Purchasing Options
The Fund is authorized to purchase put options to hedge against a
decline in the market value of its securities. By buying a put option the Fund
has a right to sell the underlying security at the exercise price, thus limiting
the Fund's risk of loss through a decline in the market value of the security
until the put option expires. In certain circumstances, the Fund may purchase
call options on securities held in its portfolio on which it has written call
options or on securities it intends to purchase.
The Fund will not purchase options on securities (including stock index
options discussed below) if as a result of such purchase, the aggregate cost of
all outstanding options on securities held by the Fund would exceed 5% of the
market value of the Fund's total assets.
Stock Index Options and Futures
The Fund may engage in transactions in stock index options and futures,
and related options on such futures. The Fund may purchase or write put and call
options on stock indices to hedge against the risks of market-wide stock price
movements in the securities in which the Fund invests. Options on indices are
similar to options on securities except that on exercise or assignment, the
parties to the contract pay or receive an amount of cash equal to the difference
between the closing value of the index and the exercise price of the option
times a specified multiple. The Fund may invest in stock index options based on
a broad market index, or based on a narrow index representing an industry or
market segment.
The Fund may also purchase and sell stock index futures contracts
("futures contracts") as a hedge against adverse changes in the market value of
its portfolio securities as described below. A futures contract is an agreement
between two parties which obligates the purchaser of the futures contract to buy
and the seller of a futures contract to sell a security for a set price on a
future date. Unlike most other futures contracts, a stock index futures contract
does not require actual delivery of securities, but results in cash settlement
based upon the difference in value of the index between the time the contract
was entered into and the time of its settlement. The Fund may effect
transactions in stock index futures contracts in connection with equity
securities in which it invests.
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities that might otherwise result. When the Fund is not fully invested in
the securities markets and anticipates a significant market advance, it may
purchase futures in order to gain rapid market exposure that may in part or
entirely offset increases in the cost of securities that the Fund intends to
purchase. As such purchases are made, an equivalent amount of futures contracts
will be terminated by offsetting sales. The Investment Adviser does not consider
purchases of futures contracts to be a speculative practice under these
circumstances. It is anticipated that, in a substantial majority of these
transactions, the Fund will purchase such securities upon termination of the
long futures position, whether the long position is the purchase of a futures
contract or the purchase of a call option or the writing of a put option on a
future, but under unusual circumstances (e.g., the Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Fund also has authority to purchase and write call and put options
on futures contracts and stock indices in connection with its hedging
activities. Generally, these strategies are utilized under the same market and
market sector conditions (i.e., conditions relating to specific types of
investments) in which the Fund enters into futures transactions. The Fund may
purchase put options or write call options on futures contracts and stock
indices rather than selling the underlying futures contract in anticipation of a
decrease in the market value of its securities. Similarly, the Fund may purchase
call options, or write put options on futures contracts and stock indices, as a
substitute for the purchase of such futures to hedge against the increased cost
resulting from an increase in the market value of securities which the Fund
intends to purchase.
The Fund may engage in options and futures transactions on U.S. and
foreign exchanges and in options in the over-the-counter markets ("OTC
options"). Exchange-traded contracts are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange or clearing
corporation) which, in general, have standardized strike prices and expiration
dates. OTC options transactions are two-party contracts with price and terms
negotiated by the buyer and seller. See "Restrictions on OTC Options" below for
information as to restrictions on the use of OTC options.
Restrictions on OTC Options
The Fund will engage in OTC options, including over-the-counter stock
index options, over-the-counter foreign currency options and options on foreign
currency futures, only with member banks of the Federal Reserve System and
primary dealers in United States Government securities or with affiliates of
such banks or dealers that have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million
or any other bank or dealer having capital of at least $150 million or whose
obligations are guaranteed by an entity having capital of at least $150 million.
The Fund will acquire only those OTC options for which the Investment Adviser
believes the Fund can receive on each business day at least two independent bids
or offers (one of which will be from an entity other than a party to the option)
or which can be sold at a formula price provided for in the OTC option
agreement.
The staff of the Securities and Exchange Commission has taken the
position that purchased OTC options and the assets used as cover for written OTC
options are illiquid securities. Therefore, the Fund has adopted an investment
policy pursuant to which it will not purchase or sell OTC options (including OTC
options on futures contracts) if, as a result of such transaction, the sum of
the market value of OTC options currently outstanding which are held by the
Fund, the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund and margin deposits on the
Fund's existing OTC options on futures contracts exceed 15% of the net assets of
the Fund, taken at market value, together with all other assets of the Fund
which are illiquid or are not otherwise readily marketable. However, if the OTC
option is sold by the Fund to a primary U.S. Government securities dealer
recognized by the Federal Reserve Bank of New York and the Fund has the
unconditional contractual right to repurchase such OTC option from the dealer at
a predetermined price, then the Fund will treat as illiquid such amount of the
underlying securities as is equal to the repurchase price less the amount by
which the option is "in-the-money" (i.e., current market value of the underlying
security minus the option's strike price). The repurchase price with the primary
dealers is typically a formula price which is generally based on a multiple of
the premium received for the option, plus the amount by which the option is
"in-the-money." This policy as to OTC options is not a fundamental policy of the
Fund and may be amended by the Trustees of the Trust without the approval of the
Fund's shareholders. However, the Fund will not change or modify this policy
prior to the change or modification by the Securities and Exchange Commission's
staff of its position.
Restrictions on the Use of Futures Transactions
Regulations of the Commodity Futures Trading Commission ("CFTC")
applicable to the Fund provide that the futures trading activities described
herein will not result in the Fund being deemed a "commodity pool operator"
under such regulations if the Fund adheres to certain restrictions. In
particular, the Fund may purchase and sell futures contracts and options thereon
(i) for bona fide hedging purposes, and (ii) for non-hedging purposes, if the
aggregate initial margin and premiums required to establish positions in such
contracts and options does not exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and unrealized losses on
any such contracts and options.
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
ensuring that the use of such futures contract is unleveraged.
Portfolio Transactions
In executing portfolio transactions, the Investment Adviser seeks to
obtain the best net results for the Fund, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), size of
order, difficulty of execution and operational facilities of the firm involved
and the firm's risk in positioning a block of securities. While the Investment
Adviser generally seeks reasonably competitive commission rates, the Fund does
not necessarily pay the lowest commission or spread available. The Fund has no
obligation to deal with any broker or group of brokers in the execution of
transactions in portfolio securities. Under the Investment Company Act, persons
affiliated with the Fund and persons who are affiliated with such affiliated
persons, including the Investment Adviser, are prohibited from dealing with the
Fund as a principal in the purchase and sale of securities unless a permissive
order allowing such transactions is obtained from the Securities and Exchange
Commission. Affiliated persons of the Fund, and affiliated persons of such
affiliated persons, may serve as the Fund's broker in transactions conducted on
an exchange and in over-the-counter transactions conducted on an agency basis
and may receive brokerage commissions from the Fund. In addition, consistent
with the Rules of Fair Practice of the National Association of Securities
Dealers, Inc., the Fund may consider sales of shares of the Fund as a factor in
the selection of brokers or dealers to execute portfolio transactions for the
Fund. Brokerage commissions and other transaction costs on foreign stock
exchange transactions are generally higher than in the U.S., although the Fund
will endeavor to achieve the best net results in effecting its portfolio
transactions.
Lending of Portfolio Securities
The Fund may from time to time lend securities from its portfolio, with
a value not exceeding 33-1/3% of its total assets, to banks, brokers and other
financial institutions and receive collateral in cash, a letter of credit issued
by a domestic U.S. bank or securities issued or guaranteed by the U.S.
Government which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. During the period of
such a loan, the Fund receives the income on both the loaned securities and the
collateral and thereby increases its yield. In the event that the borrower
defaults on its obligation to return borrowed securities because of insolvency
or otherwise, the Fund could experience delays and costs in gaining access to
the collateral and could suffer a loss to the extent the value of the collateral
falls below the market value of the borrowed securities.
Portfolio Turnover
The Investment Adviser will effect portfolio transactions without
regard to holding period if, in its judgment, such transactions are advisable in
light of a change in circumstances in general market, economic or financial
conditions. As a result of its investment policies, the Fund may engage in a
substantial number of portfolio transactions. Although it is impossible to
predict the portfolio turnover rate, the Fund does not expect the portfolio
turnover rate to exceed 100%. High portfolio turnover involves additional
transaction costs (such as brokerage commissions or sales charges) which are
borne by the Fund, and might involve adverse tax effects. (See "Dividends,
Distributions and Taxes").
The portfolio turnover rate is calculated by dividing the lesser of the
Fund's annual sales or purchases of portfolio securities (exclusive of purchases
or sales of securities whose maturities at the time of acquisition were one year
or less) by the monthly average value of the securities in the portfolio during
the year.
Repurchase Agreements and Purchase and Sale Contracts
The Fund may invest in securities pursuant to repurchase agreements or
purchase and sale contracts. Repurchase agreements may be entered into only with
a member bank of the Federal Reserve System or a primary dealer in U.S.
Government securities. Purchase and sale contracts may be entered into only with
financial institutions which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
Under such agreements, the other party agrees, upon entering into the contract
with the Fund, to repurchase the security at a mutually agreed upon time and
price in a specified currency, thereby determining the yield during the term of
the agreement. This results in a fixed rate of return insulated from market
fluctuations during such period although it may be affected by currency
fluctuations. In the case of repurchase agreements, the prices at which the
trades are conducted do not reflect accrued interest on the underlying
obligation; whereas, in the case of purchase and sale contracts, the prices take
into account accrued interest. Such agreements usually cover short periods, such
as under one week. Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities transferred to
the purchaser. In the case of a repurchase agreement, as a purchaser, the Fund
will require the seller to provide additional collateral if the market value of
the securities falls below the repurchase price at any time during the term of
the repurchase agreement; the Fund does not have the right to seek additional
collateral in the case of purchase and sale contracts. In the event of default
by the seller under a repurchase agreement construed to be a collateralized
loan, the underlying securities are not owned by the Fund but only constitute
collateral for the seller's obligation to pay the repurchase price. Therefore,
the Fund may suffer time delays and incur costs or possible losses in connection
with disposition of the collateral. A purchase and sale contract differs from a
repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract, instead of the
contractual fixed rate, the rate of return to the Fund would be dependent upon
intervening fluctuations of the market values of such securities and the accrued
interest on the securities. In such event, the Fund would have rights against
the seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform. Repurchase
agreements and purchase and sale contracts maturing in more than seven days are
deemed illiquid by the Securities and Exchange Commission and are therefore
subject to the Fund's investment restriction limiting investments in securities
that are not readily marketable to 15% of the Fund's total assets. (However,
under the law of certain states, the Fund presently is limited with respect to
such investments to 10% of its net assets.)
SPECIAL RISK CONSIDERATIONS
Small Capitalization Companies
Investments in securities of companies with small market
capitalizations are generally considered to offer greater opportunity for
appreciation and to involve greater risks of depreciation than securities of
companies with larger market capitalizations. Since the securities of such
companies are not as broadly traded as those of companies with larger market
capitalizations, these securities are often subject to wider and more abrupt
fluctuations in market price.
Among the reasons for the greater price volatility of these securities
are the less certain growth prospects of smaller firms, a lower degree of
liquidity in the markets for such stocks compared to larger capitalization
stocks, and the greater sensitivity of small companies to changing economic
conditions. Besides exhibiting greater volatility, small company stocks may, to
a degree, fluctuate independently of larger company stocks. Small company stocks
may decline in price as large company stock prices rise, or rise in price as
large company stock prices decline. Investors should therefore expect that the
value of the Fund's shares may be more volatile than the shares of a fund that
invests in larger capitalization stocks.
International Investing
Investments on an international basis involve certain risks not
involved in domestic investment, including fluctuations in foreign exchange
rates, future political and economic developments, different legal systems and
the existence or possible imposition of exchange controls or other foreign or
U.S. governmental laws or restrictions applicable to such investments.
Securities prices in different countries are subject to different economic,
financial, political and social factors. Because the Fund may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates may affect the value of securities in
the portfolio and the unrealized appreciation or depreciation of investments
insofar as U.S. investors are concerned. Foreign currency exchange rates are
determined by forces of supply and demand in the foreign exchange markets. These
forces are, in turn, affected by international balance of payments and other
economic and financial conditions, government intervention, speculation and
other factors. With respect to certain countries, there may be the possibility
of expropriation of assets, confiscatory taxation, high rate of inflation,
political or social instability or diplomatic developments which could affect
investment in those countries. In addition, certain foreign investments may be
subject to foreign withholding taxes. As a result, management of the Fund may
determine that, notwithstanding otherwise favorable investment criteria, it may
not be practicable or appropriate to invest in a particular country.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those to which U.S. companies are subject.
Foreign financial markets, while often growing in volume, have, for the
most part, substantially less volume than U.S. markets, and securities of many
foreign companies are less liquid and their prices may be more volatile than
securities of comparable domestic companies. Such markets have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Further, satisfactory custodial services for investment securities may not be
available in some countries having smaller capital markets, which may result in
the Fund incurring additional costs and delays in transporting and custodying
such securities outside such countries. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Brokerage commissions and other transaction costs on
foreign securities exchanges are generally higher than in the U.S. There is
generally less government supervision and regulation of exchanges, brokers and
issuers in foreign countries than there is in the U.S.
Futures and Options
The primary risks associated with the use of futures and options are
(i) the failure to predict accurately the direction of stock prices, interest
rates, currency movements and other economic factors; (ii) the failure as
hedging techniques in cases where the price movements of the securities
underlying the options and futures do not follow the price movements of the
portfolio securities subject to the hedge; (iii) the potentially unlimited loss
from investing in futures contracts; and (iv) the likelihood of the Fund being
unable to control losses by closing its position where a liquid secondary market
does not exist. The risk that the Fund will be unable to close out a futures
position or options contract will be minimized by the Fund only entering into
futures contracts or options transactions on national exchanges and for which
there appears to be a liquid secondary market. For more detailed information
about futures transactions and options, see the Statement of Additional
Information.
Options and futures transactions in foreign markets are also subject to
the risk factors associated with foreign investments generally, as discussed
above.
Borrowing
The Fund may borrow up to 20% of its total assets, taken at market
value, but only from banks as a temporary measure for extraordinary or emergency
purposes, including to meet redemptions or to settle securities transactions.
The Fund will not purchase securities while borrowings exceed 5% of its total
assets, except (a) to honor prior commitments or (b) to exercise subscription
rights when outstanding borrowings have been obtained exclusively for
settlements of other securities transactions. The purchase of securities while
borrowings are outstanding will have the effect of leveraging the Fund. Such
leveraging increases the Fund's exposure to capital risk, and borrowed funds are
subject to interest costs which will reduce net income.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of restrictions and policies relating to
the investment of its assets and its activities, which are fundamental policies
and may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
Among the more significant restrictions, the Fund may not:
o As to 75% of its total assets, invest in the securities of any
one issuer if, immediately after and as a result of such
investment, the value of the holdings of the Fund in the
securities of such issuer exceeds 5% of the Fund's total
assets, taken at market value, except that such restriction
shall not apply to cash and cash items, or securities issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities.
o Invest in the securities of any single issuer if, immediately
after and as a result of such investment, the Fund owns more
than 10% of the outstanding voting securities of such issuer.
o Invest more than 25% of its total assets (taken at market
value at the time of each investment) in the securities of
issuers in any particular industry, except for temporary
defensive purposes.
Changes in values of particular Fund assets or the assets of the Fund
as a whole will not cause a violation of the investment restrictions so long as
percentage restrictions are observed by the Fund at the time it purchases a
security.
Nothing in the foregoing investment restrictions shall be deemed to
prohibit the Fund from purchasing the securities of any issuer pursuant to the
exercise of subscription rights distributed to the Fund by the issuer, except
that no such purchase may be made if as a result the Fund will no longer be a
diversified investment company as defined in the Investment Company Act or fail
to meet the diversification requirements of the Internal Revenue Code of 1986,
as amended.
MANAGEMENT OF THE FUND
Board of Trustees
The Board of Trustees of the Fund consists of five individuals, three
of whom are not "interested persons" of the Fund as defined in the Investment
Company Act. The members of the Fund's Board of Trustees are fiduciaries for the
Fund's shareholders and, in this regard, are governed by the laws of the State
of Delaware. The Trustees establish policy for the operation of the Fund, and
appoint the officers who conduct the daily business of the Fund. The Statement
of Additional Information contains more information regarding the Officers and
Trustees of the Fund.
Investment Adviser
The Fund's investment adviser is 1838 Investment Advisors, L.P., a
Delaware limited partnership and registered investment adviser under the
Investment Advisers Act of 1940. The Investment Adviser's offices are located at
Five Radnor Corporate Center, Suite 320, 100 Matsonford Road, Radnor, PA 19087.
The Investment Adviser supervises the investment of the assets of the Fund in
accordance with its objective, policies and restrictions.
For its services, the Investment Adviser is paid a monthly fee at the
annual rate of .75% of the Fund's average daily net assets. This fee is higher
than that paid by most mutual funds for investment advisory services, but
management of the Fund believes this fee is justified by the additional
investment research and analysis required in connection with investing in small
capitalization companies. This fee is subject to reductions reflecting certain
reductions in the fee of the Investment Adviser pursuant to state expense
limitations and other voluntary reductions in fees paid by the Fund.
W. Thacher Brown, the President, Chairman and a Trustee of the Fund, is
the President and a 39.5% shareholder of 1838 Investment Advisors, Inc. ("1838
Inc."), which is the managing general partner of the Investment Adviser. Mr.
Brown is also an individual limited partner of the Investment Adviser. George W.
Gephart, Jr., a Trustee and Vice President of the Fund, Anna M. Bencrowsky, a
Vice President, Treasurer and Secretary of the Fund, and Edwin B. Powell, Vice
President and portfolio manager of the Fund are also shareholders of 1838 Inc.
Since 1988, the Investment Adviser has served as the investment adviser to a
registered closed-end investment company and, as of March 31, 1996, the
Investment Adviser managed approximately $4.7 billion in client assets.
The Investment Adviser, 1838 Inc. and MeesPierson Capital Management
Inc. ("MPCM"), a 24.9% limited partner of the Investment Adviser and indirect
wholly owned subsidiary of MeesPierson N.V., located at Five Radnor Corporate
Center, Suite 320, 100 Matsonford Road, Radnor, PA 19087, have entered into a
purchase agreement whereby MPCM has the option to purchase from 1838 Inc. a
limited partnership interest representing an additional 5.1% of the Investment
Adviser. Under the terms of the purchase agreement, MPCM may not exercise its
option prior to December 31, 1998.
Edwin B. Powell, Principal of the Investment Adviser, will be
principally responsible for the day-to-day management of the Fund's portfolio.
Since June of 1994, Mr. Powell has served as a money manager with the Investment
Adviser, managing a number of separate portfolios in the small cap style. Prior
to joining the Investment Adviser, Mr. Powell was employed by Provident Capital
Management (a subsidiary of PNC Bancorp) where for seven years he managed a
number of large and small cap portfolios in a value style. While at Provident
Capital Management, Mr. Powell managed two publicly traded, open-end mutual
funds: PNC Value Fund and PNC Small Cap Value Fund.
Distributor and Distribution Agreement
Rodney Square Distributors, Inc. ("RSD"), 1100 N. Market Street,
Wilmington, DE 19890, has been engaged pursuant to a distribution agreement
dated February 8, 1995, to assist in securing purchasers for shares of the Fund.
RSD also directly, or through its affiliates, provides investor support
services. RSD will receive no compensation for distribution of shares of the
Fund, except for reimbursement of out-of-pocket expenses.
Banking laws limit deposit-taking institutions and certain of their
affiliates from underwriting or distributing securities. RSD is an affiliate of
Wilmington Trust Company ("WTC"), the Fund's custodian bank for its domestic
assets. RSD believes that it may perform the services contemplated by its
agreement with the Trust without violation of applicable banking laws or
regulations. If RSD were prohibited from performing these services, it is
expected that the Board of Trustees would consider entering into agreements with
other entities. It is not expected that shareholders would suffer any adverse
financial consequences as a result of such an occurrence.
Administrator, Transfer Agent, Dividend Paying Agent and Custodian
Rodney Square, Rodney Square North, 1100 N. Market Street, Wilmington,
DE 19890-0001 serves as Administrator, Transfer Agent and Dividend Paying Agent
of the Fund and also provides accounting services to the Fund.
As Administrator, Rodney Square supplies office facilities,
non-investment related statistical and research data, stationery and office
supplies, executive and administrative services, internal auditing and
regulatory compliance services. Rodney Square also assists in the preparation of
reports to shareholders, prepares proxy statements, updates prospectuses and
makes filings with the Securities and Exchange Commission and state securities
authorities. Rodney Square performs certain budgeting and financial reporting
and compliance monitoring activities. For the services provided as
Administrator, Rodney Square receives a monthly administration fee from the
Trust at the annual rate of 0.15% of the average daily net assets of the Trust
on the first $50 million; 0.10% of such assets in excess of $50 million to $100
million; 0.07% of such assets in excess of $100 million to $200 million; and
0.05% of such assets in excess of $200 million. Each Series pays its pro-rata
portion based upon total Trust assets. Such fees are subject to a minimum fee of
$50,000 per year for one series and $15,000 minimum per year for each additional
series. Rodney Square also serves as Transfer Agent and Dividend Paying Agent of
the Fund.
Rodney Square also serves as an Accounting Agent to the Fund. As
Accounting Agent, Rodney Square determines the Fund's net asset value per share
and provides accounting services to the Fund pursuant to an Accounting Services
Agreement with the Trust.
The custodian for the assets of the Fund is WTC, Rodney Square North,
1100 North Market Street, Wilmington, DE 19890-0001.
Expenses
Except as indicated above, the Fund is responsible for the payment of
its expenses, other than those borne by the Investment Adviser and such expenses
may include, but are not limited to: (a) management fees; (b) the charges and
expenses of the Fund's legal counsel and independent accountants; (c) brokers'
commissions, mark-ups and mark-downs and any issue or transfer taxes chargeable
to the Fund in connection with its securities transactions; (d) all taxes and
corporate fees payable by the Fund to governmental agencies; (e) the fees of any
trade association of which the Fund is a member; (f) the cost of certificates,
if any, representing shares of the Fund; (g) amortization and reimbursements of
the organization expenses of the Fund and the fees and expenses involved in
registering and maintaining registration of the Fund and its shares with the
Securities and Exchange Commission, and the preparation and printing of the
Fund's registration statements and prospectuses for such purposes; (h) allocable
communications expenses with respect to investor services and all expenses of
shareholders and trustees' meetings and of preparing, printing and mailing
prospectuses and reports to shareholders; (i) litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Fund's business; and (j) compensation for employees of the Fund.
CALCULATION OF NET ASSET VALUE
Rodney Square determines the net asset value per share of the Fund as
of the close of regular trading on each day that the New York Stock Exchange is
open for unrestricted trading from Monday through Friday and on which there is a
purchase or redemption of the Fund's shares. The net asset value is determined
by the Fund by dividing the value of the Fund's securities, plus any cash and
other assets, less all liabilities, by the number of shares outstanding.
Expenses and fees of the Fund, including the advisory and the distributor fees,
are accrued daily and taken into account for the purpose of determining the net
asset value.
In valuing the Fund's assets, all securities for which representative
market quotations are available will be valued at the last quoted sales price on
the security's principal exchange on that day. If there are no sales of the
relevant security on such day, the security will be valued at the mean between
the closing bid and asked price on that day, if any. Securities for which market
quotations are not readily available and all other assets will be valued at
their respective fair market value as determined in good faith by, or under
procedures established by, the Board of Trustees. In determining fair value, the
Trustees may employ an independent pricing service.
Money market securities with less than sixty days remaining to maturity
when acquired by the Fund will be valued on an amortized cost basis by the Fund,
excluding unrealized gains or losses thereon from the valuation. This is
accomplished by valuing the security at cost and then assuming a constant
amortization to maturity of any premium or discount. If the Fund acquires a
money market security with more than sixty days remaining to its maturity, it
will be valued at current market value until the 60th day prior to maturity, and
will then be valued on an amortized cost basis based upon the value on such date
unless the Trustees determine during such 60-day period that this amortized cost
value does not represent fair market value.
Those securities that are quoted in foreign currency will be valued
daily in U.S. dollars at the foreign currency exchange rates prevailing at the
time Rodney Square calculates the daily net asset value per share. Although the
Fund values its assets in U.S. dollars on a daily basis, it does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
HOW TO PURCHASE SHARES
Shares of the Fund are offered on a continuous basis by RSD and may be
purchased by mail or wire at the net asset value next determined after receipt
by Rodney Square, upon acceptance of the purchase order in proper form by RSD.
The Fund and RSD reserve the right to reject any purchase order and the Fund and
RSD may suspend the offering of the Fund's shares. The minimum initial
investment is $1,000, with no minimum subsequent investment. The Fund reserves
the right to vary the initial and subsequent investment minimums at any time.
There is no minimum investment requirement for qualified retirement plans.
Purchases may be made in one of the following ways:
Purchases by Mail
You may purchase shares by sending a check drawn on a U.S. bank payable
to 1838 Small Cap Equity Fund, along with a completed Application, to 1838 Small
Cap Equity Fund, c/o Rodney Square Management Corporation, P.O. Box 8987,
Wilmington, DE 19899-9752. A purchase order sent by overnight mail should be
sent to 1838 Small Cap Equity Fund, c/o Rodney Square Management Corporation,
1100 N. Market St., 3rd Floor, Wilmington, DE 19890. If a subsequent investment
is being made, the check should also indicate your Fund account number.
When you purchase by check, payment on redemptions will be mailed upon
clearance of the check (which may take up to 15 days). If you purchase shares
with a check that does not clear, your purchase will be canceled and you will be
responsible for any losses or fees incurred in that transaction.
Purchases by Wire
You may purchase shares by wiring federal funds. To advise the Fund of
the wire, and if making an initial purchase, to obtain an account number, you
must telephone Rodney Square at (800) 884-1838. Once you have an account number,
instruct your bank to wire federal funds to:
RODNEY SQUARE MANAGEMENT CORPORATION
C/O WILMINGTON TRUST COMPANY
WILMINGTON, DE
ABA #0311 0009 2
ATTENTION: 1838 SMALL CAP EQUITY FUND
DDA #2670-9482
FURTHER CREDIT [SHAREHOLDER NAME AND ACCOUNT NUMBER]
If you make an initial purchase by wire, you must promptly forward a
completed Application to Rodney Square at the address stated above under
"Purchases By Mail." Investors should be aware that some banks may impose a wire
service fee.
Automatic Investment Plan
Shareholders may purchase Fund shares through an Automatic Investment
Plan. The Plan provides a convenient method by which investors may have monies
deducted directly from their checking, savings or bank money market accounts for
investment in the Fund. Under the Plan, Rodney Square, at regular intervals,
will automatically debit a shareholder's bank checking account in an amount of
$50 or more (subsequent to the $1,000 minimum initial investment), as specified
by the shareholder. A shareholder may elect to invest the specified amount
monthly, bimonthly, quarterly, semi-annually or annually. The purchase of Fund
shares will be effected at the net asset value at the close of regular trading
on the New York Stock Exchange (the "Exchange") (generally 4:00 p.m. Eastern
time) on or about the 20th day of the month. To obtain an Application for the
Automatic Investment Plan, check the appropriate box of the Application at the
end of this Prospectus or call Rodney Square at (800) 884-1838.
Additional Purchase Information
Purchase orders for shares of the Fund which are received by Rodney
Square and accepted by RSD prior to the close of regular trading hours on the
Exchange (generally 4:00 p.m. Eastern time) on any day that the Fund calculates
its net asset value, are priced according to the net asset value determined on
that day. Purchase orders received by Rodney Square and accepted by RSD after
the close of the Exchange on a particular day are priced as of the time the net
asset value per share is next determined.
Shares of the Fund are offered at the net asset value next determined
after a purchase order is received by Rodney Square, upon acceptance of the
purchase order by RSD.
EXCHANGE OF SHARES
You may exchange all or a portion of your Fund shares for shares of any
of the other funds in the 1838 Investment Advisors Funds' complex that currently
offer shares to investors. Shares of a fund are available only in states in
which such shares may be lawfully sold.
A redemption of shares through an exchange will be effected at the net
asset value per share next determined after receipt by Rodney Square of the
request, and a purchase of shares through an exchange will be effected at the
net asset value per share determined at that time. The net asset values per
share of each series of the Trust are determined at the close of regular trading
on the Exchange (generally 4:00 p.m., Eastern time) on any day that such series
calculates its net asset value.
Exchange transactions will be subject to the minimum initial investment
and other requirements of the fund into which the exchange is made. An exchange
may not be made if the exchange would leave a balance in a shareholder's account
of less than $1,000.
To obtain prospectuses of the other funds in the 1838 Investment
Advisors Funds' complex, contact Rodney Square at (800) 884-1838. To obtain more
information about exchanges, or to place exchange orders, also contact Rodney
Square. The Fund reserves the right to terminate or modify the exchange offer
described here and will give shareholders sixty days' notice of such termination
or modification as required by the Securities and Exchange Commission.
HOW TO REDEEM SHARES
Shareholders may redeem their shares of the Fund without charge on any
day that the Fund calculates its net asset value (see "Calculation of Net Asset
Value"). Redemptions will be effective at the net asset value per share next
determined after receipt and acceptance by Rodney Square of a redemption request
meeting the requirements described below. Redemption proceeds are normally sent
on the next business day following receipt and acceptance by Rodney Square of
the redemption request but, in any event, redemption proceeds are sent within
seven calendar days of receipt and acceptance of the request. Redemption
requests should be accompanied by the Fund's name and your account number.
Corporations, other organizations, trusts, fiduciaries and other institutional
investors may be required to furnish certain additional documentation to
authorize redemptions.
The Fund will honor redemption requests of shareholders who recently
purchased shares by check, but will not mail the proceeds until it is reasonably
satisfied that the purchase check has cleared, which may take up to fifteen days
from the purchase date, at which time the redemption proceeds will be mailed to
the shareholder.
Except as noted below, redemption requests received and accepted by
Rodney Square prior to the close of regular trading hours on the Exchange on any
business day that the Fund calculates its per share net asset value are
effective that day. Redemption requests received and accepted by Rodney Square
after the close of the Exchange are effective as of the time the net asset value
per share is next determined.
In-Kind Redemption
The Fund will satisfy redemption requests in cash to the fullest extent
feasible, so long as such payments would not, in the opinion of the Investment
Adviser or the Board of Trustees, result in the necessity of the Fund selling
assets under disadvantageous conditions and to the detriment of the remaining
shareholders of the Fund.
Pursuant to the Fund's Agreement and Declaration of Trust, payment for
shares redeemed may be made either in cash or in-kind, or partly in cash and
partly in-kind. However, the Fund has elected, pursuant to Rule 18f-1 under the
Act, to redeem its shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund, during any 90-day period for any one
shareholder. Payments in excess of this limit will also be made wholly in cash
unless the Board of Trustees believes that economic conditions exist which would
make such a practice detrimental to the best interests of the Fund. Any
portfolio securities paid or distributed in-kind would be valued as described
under "Net Asset Value."
In the event that an in-kind distribution is made, a shareholder may
incur additional expenses, such as the payment of brokerage commissions, on the
sale or other disposition of the securities received from the Fund. In-kind
payments need not constitute a cross-section of the Fund's portfolio. Where a
shareholder has requested redemption of all or a part of the shareholder's
investment, and where the Fund completes such redemption in-kind, the Fund will
not recognize gain or loss for federal tax purposes, on the securities used to
complete the redemption but the shareholder will recognize gain or loss equal to
the difference between the fair market value of the securities received and the
shareholder's basis in the Fund shares redeemed.
Shares may be redeemed in one of the following ways:
Redemption by Mail
Shareholders redeeming their shares by mail should submit written
instructions with a guarantee of their signature by an "eligible guarantor
institution" as defined in Rule 17Ad-15 under the Securities Exchange Act of
1934. Eligible guarantor institutions include banks, brokers, dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations. Broker-dealers guaranteeing
signatures must be a member of a clearing corporation or maintain net capital of
at least $100,000. Credit unions must be authorized to issue signature
guarantees. Signature guarantees will be accepted from any eligible guarantor
institution which participates in a signature guarantee program. A signature and
a signature guarantee are required for each person in whose name the account is
registered.
Written redemption instructions should be submitted to 1838 Small Cap
Equity Fund, c/o Rodney Square Management Corporation, P.O. Box 8987,
Wilmington, DE 19899-9752. A redemption order sent by overnight mail should be
sent to 1838 Small Cap Equity Fund, c/o Rodney Square Management Corporation,
1105 N. Market Street, 3rd Floor, Wilmington, DE 19890.
Redemption by Telephone
Shareholders who prefer to redeem their shares by telephone must elect
to do so by applying in writing for telephone redemption privileges by
completing an Application for Telephone Redemptions (included at the end of this
Prospectus) which describes the telephone redemption procedures in more detail
and requires certain information that will be used to identify the shareholder
when a telephone redemption request is made.
Neither the Fund nor any of its service contractors will be liable for
any loss or expense in acting upon any telephone instructions that are
reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Fund will use such procedures as are considered
reasonable, including requesting a shareholder to correctly state his or her
Fund account number, the name in which his or her account is registered, the
number of shares to be redeemed and certain other information necessary to
identify you as the shareholder. To the extent that the Fund fails to use
reasonable procedures to verify the genuineness of telephone instructions, it
and/or its service contractors may be liable for any such instructions that
prove to be fraudulent or unauthorized.
During times of drastic economic or market changes, the telephone
redemption privilege may be difficult to implement. In the event that you are
unable to reach Rodney Square by telephone, you may make a redemption request by
mail. The Fund or Rodney Square reserves the right to refuse a wire or telephone
redemption if it is believed advisable to do so. Procedures for redeeming Fund
shares by wire or telephone may be modified or terminated at any time by the
Fund.
Redemptions by Wire
Redemption proceeds may be wired to your predesignated bank account at
any commercial bank in the United States if the amount is $1,000 or more. The
receiving bank may charge a fee for this service. Amounts redeemed by wire are
normally wired on the next business day after receipt and acceptance of
redemption instructions (if received before the close of regular trading on the
Exchange), but in no event later than seven days following such receipt and
acceptance.
Additional Redemption Information
Redemption proceeds may be mailed to your bank or, for amounts of
$10,000 or less, mailed to your Fund account address of record if the address
has been established for a minimum of 60 days. In order to authorize the Fund to
mail redemption proceeds to your Fund account address of record, complete the
appropriate section of the Application for Telephone Redemptions or include your
Fund account address of record when you submit written instructions. You may
change the account which you have designated to receive amounts redeemed at any
time. Any request to change the account designated to receive redemption
proceeds should be accompanied by a guarantee of the shareholder's signature by
an eligible guarantor institution. Further documentation will be required to
change the designated account when shares are held by a corporation, other
organization, trust, fiduciary or other institutional investor.
The Fund also reserves the right to involuntarily redeem an investor's
account where the account is worth less than the minimum initial investment
required when the account is established, presently $1,000. (Any redemption of
shares from an inactive account established with a minimum investment may reduce
the account below the minimum initial investment, and could subject the account
to redemption initiated by the Fund). The Fund will advise the shareholder of
such intention in writing at least sixty (60) days prior to effecting such
redemption, during which time the shareholder may purchase additional shares in
any amount necessary to bring the account back to $1,000. If the value of an
investor's account falls below the minimum initial investment requirement due to
market fluctuations, the Fund will not redeem an investor's account except
pursuant to the instructions of the shareholder.
Systematic Withdrawal Plan
Shareholders who own shares with a value of $10,000 or more may
participate in the Systematic Withdrawal Plan. For an Application for the
Systematic Withdrawal Plan, check the appropriate box on the Application or call
Rodney Square at (800) 884-1838. Under the Plan, shareholders may automatically
redeem a portion of their Fund shares monthly, bimonthly, quarterly,
semi-annually or annually. The minimum withdrawal available is $100. The
redemption of Fund shares will be effected at their net asset value at the close
of the Exchange on or about the 25th day of the month. If you expect to purchase
additional Fund shares, it may not be to your advantage to participate in the
Systematic Withdrawal Plan because contemporaneous purchases and redemptions may
result in adverse tax consequences.
For more information on redemption services, contact Rodney Square.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund will declare and pay dividends annually to its shareholders of
substantially all of its net investment income, if any, earned during the year
from its investments. The Fund will distribute net realized capital gains, if
any, once with respect to each year. Expenses of the Fund, including the
advisory fee, are accrued each day. Reinvestments of dividends and distributions
in additional shares of the Fund will be made at the net asset value determined
on the ex date of the dividend or distribution unless the shareholder has
elected in writing to receive dividends or distributions in cash. An election
may be changed by notifying Rodney Square in writing thirty days prior to record
date.
Each series of the Trust, including the Fund, will be treated as a
separate entity for federal income and excise tax purposes. The Fund intends to
qualify annually to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As
such, the Fund will not be subject to federal income tax, or to any excise tax,
to the extent its earnings are distributed as provided in the Code and by
satisfying certain other requirements relating to the sources of its income and
diversification of its assets.
The Fund intends to distribute substantially all of its net investment
income and net capital gains. Dividends from net investment income or net
short-term capital gains will be taxable to you as ordinary income, whether
received in cash or in additional shares. For corporate investors dividends from
net investment income will generally qualify in part for the corporate
dividends-received deduction. However, the portion of the dividends so qualified
depends on the aggregate qualifying dividend income received by the Fund from
domestic (U.S.) sources.
Distributions paid by the Fund from long-term capital gains, whether
received in cash or in additional shares, are taxable to those investors subject
to income tax as long-term capital gains, regardless of the length of time an
investor has owned shares in the Fund. The Fund does not seek to realize any
particular amount of capital gains during a year; rather, realized gains are a
byproduct of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, for
those investors subject to tax, if purchases of shares in a Fund are made
shortly before the record date for a dividend or capital gains distribution, a
portion of the investment will be returned as a taxable distribution.
Dividends which are declared in October, November or December to
shareholders of record in such a month but which, for operational reasons, may
not be paid to the shareholder until the following January, will be treated for
tax purposes as if paid by the Fund and received by the shareholder on December
31 of the calendar year in which they are declared.
A sale of shares of the Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
two mutual funds (or two series of a mutual fund). Any loss incurred on sale or
exchange of the Fund's shares, held for six months or less, will be treated as a
long-term capital loss to the extent of capital gain dividends received with
respect to such shares.
The Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities. If more than 50% of the total assets of the
Fund at the end of its fiscal year are invested in securities of foreign
corporations, the Fund may elect to pass-through to its shareholders their pro
rata share of foreign taxes paid by such Fund. If this election is made,
shareholders will be (i) required to include in their gross income their pro
rata share of foreign source income (including any foreign taxes paid by the
Fund), and (ii) entitled to either deduct (as an itemized deduction in the case
of individuals) their share of such foreign taxes in computing their taxable
income or to claim a credit for such taxes against their U.S. income tax,
subject to certain limitations under the Code. Shareholders will be informed by
the Fund at the end of each calendar year regarding the availability of any
credits and the amount of foreign source income (including any foreign taxes
paid by the Fund) to be included on their income tax returns.
Under Code Section 988, foreign currency gains or losses, including
those from forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options, will generally be treated as
ordinary income or loss. Such Code Section 988 gains or losses will increase or
decrease the amount of the Fund's investment company taxable income available to
be distributed to shareholders as ordinary income. If Code Section 988 losses
exceed other investment company taxable income during a taxable year, the Fund
would not be able to make any ordinary dividend distributions, and any
distributions made before the losses were realized but in the same taxable year,
would be recharacterized as a return of capital to shareholders, thereby
reducing each shareholder's basis in Fund Shares.
In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions. It is recommended that shareholders consult their
tax advisers regarding specific questions as to federal, state, local or foreign
taxes.
Each year, the Fund will mail you information on the tax status of the
Fund's dividends and distributions.
The Fund is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who have not complied
with IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your account registration form your proper taxpayer
identification number and by certifying that you are not subject to backup
withholding.
The tax discussion set forth above is included for general information
only, prospective investors should consult their own tax advisers concerning the
federal, state, local or foreign tax consequences of an investment in a Fund.
Additional information on tax matters relating to the Fund and to its
shareholders is included in the Statement of Additional Information.
SHAREHOLDER ACCOUNTS
Rodney Square, as Transfer Agent, maintains for each shareholder an
account expressed in terms of full and fractional shares of the Fund rounded to
the nearest 1/1000th of a share.
In the interest of economy and convenience, the Fund does not issue
share certificates. Each shareholder is sent a statement at least quarterly
showing all purchases in or redemption from the shareholder's account. The
statement also sets forth the balance of shares held in the shareholder's
account.
RETIREMENT PLANS
Shares of the Fund are available for use in certain tax-deferred plans
(such as Individual Retirement Accounts ("IRAs"), defined contribution, 401(k)
and 403(b)(7) plans).
Individual Retirement Accounts
Application forms and brochures for IRAs can be obtained from Rodney
Square by calling (800) 884-1838.
WTC makes available its services as an IRA custodian for each
shareholder account that is established as an IRA. For these services, WTC
receives an annual fee of $10.00 per series, which fee is paid directly to WTC
by the IRA shareholder. If the fee is not paid by the date due, shares of the
Fund owned by the IRA will be redeemed automatically for purposes of making the
payment.
SHARES OF BENEFICIAL INTEREST,
VOTING RIGHTS AND SHAREHOLDER MEETINGS
Shares of Beneficial Interest and Voting Rights
The Trust is organized as a Delaware business trust. The Trust's
Agreement and Declaration of Trust permits the trustees to issue an unlimited
number of shares of beneficial interest with a $0.001 par value per share. The
Board of Trustees has the power to designate one or more series or
sub-series/classes of shares of beneficial interest and to classify or
reclassify any unissued shares with respect to such series.
The shares of the Fund, when issued, will be fully paid and
non-assessable and within each series or class, have no preference as to
conversion, exchange, dividends, retirement or other features. The shares of the
Trust which the trustees may, from time to time, establish, shall have no
preemptive rights. The shares of the Trust have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of trustees can elect 100% of the trustees if they choose to do so. A
shareholder is entitled to one vote for each full share held (and a fractional
vote for each fractional share held), then standing in his name on the books of
the Trust. On any matter submitted to a vote of shareholders, all shares of the
Trust then issued and outstanding and entitled to vote on a matter shall vote
without differentiation between separate series on a one-vote-per share basis.
Each whole share is entitled to one vote and each fractional share is entitled
to a proportionate fractional vote. If a matter to be voted on does not affect
the interests of all series, then only the shareholders of the affected series
shall be entitled to vote on the matter. The Trust's Agreement and Declaration
of Trust also give shareholders the right to vote (i) for the election or
removal of trustees; (ii) with respect to additional matters relating to the
Trust as required by the Investment Company Act; and (iii) on such other matters
as the trustees consider necessary or desirable.
Shareholder Meetings
Pursuant to the Trust's Agreement and Declaration of Trust, the Trust
does not intend to hold shareholder meetings except when required to elect
trustees, or with respect to additional matters relating to the Trust as
required under the Investment Company Act. The trustees have, however,
undertaken to the Securities and Exchange Commission that the trustees will
promptly call a meeting for the purpose of voting upon the question of removal
of any trustee when requested to do so by not less than 10% of the outstanding
shareholders of the Trust. In addition, subject to certain conditions,
shareholders of the Trust may apply to the Trust to communicate with other
shareholders to request a shareholders' meeting to vote upon the removal of a
trustee or trustees.
PERFORMANCE
Total return data may from time to time be included in advertisements
about the Fund. The Fund's total return may be calculated on an annualized and
aggregate basis for various periods (which periods will be stated in the
advertisement). Average annual return reflects the average percentage change per
year in value of an investment in the Fund. Aggregate total return reflects the
total percentage change over the stated period.
The Fund may compare its investment performance to appropriate market
indices such as the Russell 2000 Index, Nasdaq Industrial Index, Standard &
Poor's 500 Composite Stock Price Index and Morningstar, Inc., as well as to
appropriate mutual fund indices; and the Fund may advertise its ranking compared
to other similar mutual funds as reported by industry analysts such as Lipper
Analytical Services, Inc.
All data will be based on the Fund's past investment results and does
not predict future performance. Investment performance, which will vary, is
based on many factors, including market conditions, the composition of the
investments in the Fund, and the Fund's operating expenses. Investment
performance also often reflects the risk associated with the Fund's investment
objective and policies. In addition, averages are generally unmanaged, and items
included in the calculations of such averages may not be identical to the
formula used by the Fund to calculate its performance. These factors should be
considered when comparing the Fund to other mutual funds and other investment
vehicles.
1838 SMALL CAP EQUITY FUND
APPLICATION & NEW ACCOUNT REGISTRATION
INSTRUCTIONS
- ------------
FOR WIRING INSTRUCTIONS OR FOR ASSISTANCE IN COMPLETING THIS FORM CALL
(800) 884-1838.
ACCOUNT REGISTRATION
- --------------------
Joint tenants use Lines 1 and 2; Custodian for a minor, use Lines 1 and 3;
Corporation, trust or other organization or any fiduciary capacity, use Line 4.
<TABLE>
<S> <C> <C> <C> <C>
1. Individual _______________________ ____ _________________________________ _________________________
First Name MI Last Name S.S. or Tax ID No.*
2. Joint Tenancy**_______________________ ____ _________________________________ _________________________
First Name MI Last Name S.S. or Tax ID No.*
3. Gifts to Minors+______________________ ____ _________________________________ _________________________
Minor's Name Minor's S.S. No.* State
4. Other Registration ________________________________________________________________ _________________________
Name S.S. or Tax ID No.*
5. If Trust, Date of Trust Instrument: __________________________________________________________________________
6. ______________________________________________________________________________________________________________
Your Occupation
7. ______________________________________________________________________________________________________________
Employer's Name Employer's Address
ADDRESS OF RECORD
- -----------------
______________________________________________________________________________________________________________
Street
______________________________________________________________________________________________________________
City State Zip Code
INITIAL INVESTMENT ($1,000 MINIMUM)
- -----------------------------------
____ By check. (Make payable to "1838 Small Cap Equity Fund")
____ By wire. Account number(s) assigned by RSMC _______________________________________________________________
Bank from which funds will be wired ____________________________________________________________________
Date wired _____________________________________
Amount $ to be Invested _________________________________
</TABLE>
* Customer Tax Identification No.: (a) for an individual, joint tenants, or a
custodial account under the Uniform Gifts/Transfers to Minors Act, supply
the Social Security number of the registered account owner who is to be
taxed; (b) for a trust, a corporation, a partnership, an organization, a
fiduciary, etc., supply the Employer Identification number of the legal
entity or organization that will report income and/or gains.
** "Joint Tenants with Rights of Survivorship" unless otherwise specified.
+ Regulated by the Uniform Gifts/Transfers to Minor's Act.
DISTRIBUTION OPTIONS
- --------------------
All dividends and distributions will be automatically reinvested in additional
shares at net asset value unless otherwise indicated by checking the box(es)
below.
/ / DIVIDENDS IN CASH / / CAPITAL GAINS IN CASH
If you have chosen to receive your dividends in cash, you have the option to
receive your dividends either by direct deposit into your bank account or by
check. Please check one box below.
/ / DIRECT DEPOSIT / / CHECK
Please attach a voided bank check here if you choose direct deposit.
OTHER OPTIONS
- -------------
Check any of the following if you would like additional information about a
particular plan or service sent to you.
/ / AUTOMATIC INVESTMENT PLAN / / SYSTEMATIC WITHDRAWAL PLAN
CERTIFICATIONS
- --------------
1. I have received and read the Prospectus for the 1838 Small Cap Equity
Fund and agree to its terms; I am of legal age.
2. If a corporate customer, I certify that appropriate corporate resolutions
authorizing investment in the 1838 Small Cap Equity Fund have been duly
adopted.
3. I certify under penalties of perjury that the Social Security number or
taxpayer identification number shown above is correct.
4. Unless the box below is checked, I certify under penalties of perjury
that I am not subject to backup withholding because the
Internal Revenue Service (a) has not notified me that I am subject to
backup withholding as a result of failure to report all interest or
dividends, or (b) has notified me that I am no longer subject to backup
withholding.
The certifications in this paragraph are required from all nonexempt persons to
prevent backup withholding of 31% of all taxable distributions and gross
redemption proceeds under the federal income tax law.
/ / Check here if you are subject to backup withholding.
SIGNATURES
- ----------
Please sign exactly as registered under "Account Registration."
Signature ___________________________ Date ___________________________
Signature ___________________________ Date ___________________________
Joint Owner/Trustee
Check one: / / Owner / / Trustee / / Custodian / / Other
RETURN THIS COMPLETED FORM TO:
1838 Small Cap Equity Fund
Rodney Square Management Corporation
P.O. Box 8987
Wilmington, DE 19899-9752
1838 SMALL CAP EQUITY FUND
APPLICATION FOR TELEPHONE REDEMPTION
Telephone redemption permits redemption of fund shares by telephone, with
proceeds directed only to the fund account address of record or to the bank
account designated below. For investments by check, telephone redemption is
available only after these shares have been on the Fund's books for 10 days.
This form is to be used to add or change the telephone redemption option on your
1838 Small Cap Equity Fund account(s).
ACCOUNT INFORMATION
- -------------------
Fund Account Number(s): ______________________________________________
(Please provide if you are a
current account holder)
Registered in the Name(s) of: ______________________________________________
______________________________________________
______________________________________________
Registered Address: ______________________________________________
______________________________________________
______________________________________________
Note: If this form is not submitted together with the application, a corporate
resolution must be included for accounts registered to other than an individual,
a fiduciary or partnership.
REDEMPTION INSTRUCTIONS
- -----------------------
/ / ADD / / CHANGE
Check one or more.
/ / MAIL PROCEEDS TO MY FUND ACCOUNT ADDRESS OF RECORD (MUST BE
$10,000 OR LESS AND ADDRESS MUST BE ESTABLISHED FOR A MINIMUM OF
60 DAYS)
/ / MAIL PROCEEDS TO MY BANK
/ / WIRE PROCEEDS TO MY BANK (MINIMUM $1,000)
/ / ALL OF THE ABOVE
Telephone redemption by wire can be used only with financial institutions that
are participants in the Federal Reserve Bank Wire System. If the financial
institution you designate is not a Federal Reserve participant, telephone
redemption proceeds will be mailed to the named financial institution. In either
case, it may take a day or two, upon receipt for your financial institution to
credit your bank account with the proceeds, depending on its internal crediting
procedures.
BANK INFORMATION
- ----------------
Please complete the following information only if proceeds mailed/wired to your
bank was selected. A voided bank check must be attached to this application.
Name of Bank __________________________________________
Bank Routing Transit # __________________________________________
Bank Address __________________________________________
City/State/Zip __________________________________________
Bank Account Number __________________________________________
Name(s) on Bank Account __________________________________________
AUTHORIZATIONS
- --------------
By electing the telephone redemption option, I appoint Rodney Square
Management Corporation ("Rodney Square") my agent to redeem shares of any
designated fund of the 1838 Investment Advisors Funds when so instructed by
telephone. This power will continue if I am disabled or incapacitated. I
understand that a request for telephone redemption may be made by anyone, but
the proceeds will be sent only to the account address of record or to the
bank listed above. Proceeds in excess of $10,000 will be sent to your
predesignated bank only. By signing below, I agree on behalf of myself, my
assigns, and successors, not to hold Rodney Square and any of its affiliates,
or any fund of the 1838 Investment Advisors Funds responsible for acting
under the powers I have given Rodney Square. I also agree that all account
and registration information I have given will remain the same unless I
instruct Rodney Square otherwise in a written form, including a signature
guarantee. If I want to terminate this agreement, I will give Rodney Square
at least ten days notice in writing. If Rodney Square or 1838 Investment
Advisors Funds want to terminate this agreement, they will give me at least
ten days notice in writing.
All owners on the account must sign below and obtain signature guarantee(s).
____________________________________ ______________________________________
Signature of Individual Owner Signature of Joint Owner (if any)
_______________________________________________________________________________
Signature of Corporate Officer, Trustee or other -- please include your title
You must have a signature(s) guaranteed by an eligible institution acceptable to
Rodney Square, such as a bank, broker/dealer, government securities dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association. A Notary Public is not an acceptable
guarantor.
SIGNATURE GUARANTEE(S) (stamp)
INVESTMENT ADVISER
1838 Investment Advisors, L.P.
Five Radnor Corporate Center
Suite 320
100 Matsonford Road
Radnor, PA 19087
UNDERWRITER
Rodney Square Distributors, Inc.
1100 N. Market Street
Wilmington, DE 19890
SHAREHOLDER SERVICES
Rodney Square Management Corporation
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
CUSTODIAN
Wilmington Trust Company
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, PA 19103-7098
AUDITORS
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
ES01
1838
SMALL CAP EQUITY FUND
PROSPECTUS
MAY 1, 1996
INVESTMENT ADVISER
1838 Investment Advisors, L.P.
Five Radnor Corporate Center
Suite 320
100 Matsonford Road
Radnor, PA 19087
UNDERWRITER
Rodney Square Distributors, Inc.
1100 N. Market Street
Wilmington, DE 19890
SHAREHOLDER SERVICES 1838
Rodney Square Management Corporation SMALL CAP EQUITY FUND
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
CUSTODIAN
Wilmington Trust Company
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
AUDITORS
Coopers & Lybrand L.L.P. PROSPECTUS
2400 Eleven Penn Center May 1, 1996
Philadelphia, PA 19103
1838 INVESTMENT ADVISORS FUNDS
STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 1, 1996
AS AMENDED MAY 1, 1996
- --------------------------------------------------------------------------------
Five Radnor Corporate Center, Suite 320, 100 Matsonford Road, Radnor, PA 19087
- --------------------------------------------------------------------------------
1838 Investment Advisors Funds (the "Trust") has established
two series: 1838 International Equity Fund (the "International Equity Fund") and
1838 Small Cap Equity Fund (the "Small Cap Equity Fund") (individually, a "Fund"
and collectively, the "Funds") each with its own investment objective.
Information concerning each Fund is included in a separate Prospectus for each
Fund. No investment in shares should be made without first reading the
Prospectus. A copy of each Prospectus may be obtained without charge from the
Trust at the address and telephone numbers listed below.
INVESTMENT ADVISER: UNDERWRITER:
1838 Investment Advisors, L.P. Rodney Square Distributors, Inc.
Five Radnor Corporate Center, Suite 320 1100 N. Market Street
100 Matsonford Road Wilmington, DE 19890
Radnor, PA 19087 (800) 884-1838
(610) 293-4300
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONNECTION WITH THE CURRENT 1838 INTERNATIONAL EQUITY FUND PROSPECTUS DATED
FEBRUARY 1, 1996 OR THE 1838 SMALL CAP EQUITY FUND PROSPECTUS DATED MAY 1, 1996.
RETAIN THIS STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE AND POLICIES....................................1
INVESTMENT RESTRICTIONS.............................................11
INVESTMENT ADVISER AND SUB-ADVISER..................................14
ALLOCATION OF PORTFOLIO BROKERAGE...................................16
DISTRIBUTOR.........................................................16
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.................17
PURCHASE OF SHARES..................................................18
REDEMPTIONS.........................................................18
TRUSTEES AND OFFICERS OF THE TRUST..................................19
TAXATION............................................................23
GENERAL INFORMATION.................................................25
PERFORMANCE.........................................................25
FINANCIAL STATEMENTS................................................28
REPORT OF INDEPENDENT ACCOUNTANTS ..................................41
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Each Fund seeks to achieve its respective objective by making
investments selected in accordance with its investment policies and
restrictions. The Funds will vary their investment strategy as described in each
Fund's prospectus to achieve their objectives. This Statement of Additional
Information contains further information concerning the techniques and
operations of each Fund, the securities in which they will invest, and the
policies they will follow.
The following discussion of investment techniques and
instruments should be read in conjunction with the "Investment Objective and
Policies" and "Special Risk Considerations" sections of the Prospectus of each
Fund.
Foreign Investment
The securities markets of many countries have at times in the
past moved relatively independently of one another due to different economic,
financial, political and social factors. When such lack of correlation, or
negative correlation, in movements of these securities markets occurs, it may
reduce risk for a Fund's portfolio as a whole. This negative correlation also
may offset unrealized gains a Fund has derived from movements in a particular
market. To the extent the various markets move independently, total portfolio
volatility is reduced when the various markets are combined into a single
portfolio. Of course, movements in the various securities markets may be offset
by changes in foreign currency exchange rates. Exchange rates frequently move
independently of securities markets in a particular country. As a result, gains
in a particular securities market may be affected by changes in exchange rates.
Portfolio Turnover
While it is the policy of each Fund generally not to engage in
trading for short-term gains, 1838 Advisors, L.P. (the "Investment Adviser"),
and MeesPierson 1838 Investment Advisors, the International Equity Fund's
sub-adviser ("Sub-Adviser"), will effect portfolio transactions without regard
to holding period if, in their judgment, such transactions are advisable in
light of a change in circumstances of a particular company or within a
particular industry or in general market, economic or financial conditions.
While the International Equity Fund anticipates that its annual portfolio
turnover rate should not exceed 75% under normal conditions and the Small Cap
Equity Fund anticipates its portfolio turnover rate should not exceed 100% under
normal conditions, it is impossible to predict portfolio turnover rates. The
International Equity Fund's annualized portfolio turnover rate for the period
from August 3, 1995 (commencement of operations) to October 31, 1995 was 42.21%.
The portfolio turnover rate is calculated by dividing the lesser of a Fund's
annual sales or purchases of portfolio securities (exclusive of purchases or
sales of securities whose maturities at the time of acquisition were one year or
less) by the monthly average value of the securities in the portfolio during the
year. High portfolio turnover would involve additional transaction costs (such
as brokerage commissions) which are borne by a Fund, or adverse tax effects.
(See "Dividends, Distributions and Taxes" in the Prospectus). Each Fund is
subject to the federal income tax requirement that less than 30% of a Fund's
gross income must be derived from gains from the sale or other disposition of
securities held for less than three months.
The U.S. Government has from time to time in the past imposed
restrictions, through taxation and otherwise, on foreign investments by U.S.
investors such as the Funds. If such restrictions should be reinstituted, it
might become necessary for a Fund to invest all or substantially all of its
assets in U.S. securities. In such event, the Fund would review its investment
objective and policies to determine whether changes are appropriate. Any changes
in the investment objective or fundamental policies set forth under "Investment
Restrictions" below would require the approval of the holders of a majority of
the Fund's outstanding voting securities.
A Fund's ability and decisions to purchase or sell portfolio
securities may be affected by laws or regulations relating to the convertibility
and repatriation of assets. Because the shares of a Fund are redeemable on a
daily basis on each day the Fund determines its net asset value in U.S. dollars,
the Fund intends to manage its portfolio so as to give reasonable assurance that
it will be able to obtain U.S. dollars to the extent necessary to meet
anticipated redemptions. Under present conditions, the Investment Adviser does
not believe that these considerations will have any significant effect on its
portfolio strategy, although there can be no assurance in this regard.
Securities Lending
Each Fund may lend its investment securities to approved
borrowers who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, a Fund attempts to increase its income through the receipt of
interest on the loan. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Fund. Each Fund may lend its investment securities to qualified brokers,
dealers, domestic and foreign banks or other financial institutions, so long as
the terms, the structure and the aggregate amount of such loans are not
inconsistent with the Investment Company Act of 1940, as amended, or the Rules
and Regulations or interpretations of the Securities and Exchange Commission
(the "SEC") thereunder, which currently require that (a) the borrower pledge and
maintain with a Fund collateral consisting of cash, an irrevocable letter of
credit issued by a bank or securities issued or guaranteed by the United States
Government having a value at all times not less than 100% of the value of the
securities loaned, (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by a Fund at any time, and
(d) the Fund receives reasonable interest on the loan (which may include the
Fund investing any cash collateral in interest bearing short-term investments).
All relevant facts and circumstances, including the creditworthiness of the
broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Board of
Trustees.
At the present time, the staff of the SEC does not object if
an investment company pays reasonable negotiated fees in connection with loaned
securities so long as such fees are set forth in a written contract and approved
by the investment company's Board of Trustees. In addition, voting rights may
pass with the loaned securities, but if a material event occurs affecting an
investment on a loan, the loan must be called and the securities voted.
Hedging Strategies
Each Fund may engage in various portfolio strategies to hedge
against adverse movements in the equity, debt and currency markets. Each Fund
may buy or sell futures contracts, write (i.e., sell) covered call and put
options on its portfolio securities, purchase put and call options on securities
and engage in transactions in related options on such futures. Each of these
portfolio strategies is described below. Although certain risks are involved in
options and futures transactions, the Investment Adviser believes that, because
the Funds will engage in options and futures transactions only for hedging
purposes, the options and futures portfolio strategies of a Fund will not
subject it to the risks frequently associated with the speculative use of
options and futures transactions. While a Fund's use of hedging strategies is
intended to reduce the volatility of the net asset value of the Fund's shares,
the Fund's net asset value will fluctuate. There can be no assurance that a
Fund's hedging transactions will be effective. Also, a Fund may not necessarily
be engaging in hedging activities when movements in any equity, debt or currency
market occurs.
Forward Foreign Currency Exchange Contracts
The U.S. dollar value of the assets of the Funds may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Funds may incur costs in connection
with conversions between various currencies. The Funds will conduct their
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for such trades.
The Funds may enter into forward foreign currency exchange
contracts in several circumstances. When a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when a Fund
anticipates the receipt in a foreign currency of dividends or interest payments
on a security which it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when either of the Funds anticipates that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract for a fixed amount
of dollars, to sell the amount of foreign currency approximating the value of
some or all of such Fund's securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of these securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. From time to time, each Fund may enter
into forward contracts to protect the value of portfolio securities and enhance
Fund performance. The Funds will not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate such Fund to deliver an amount of foreign currency in
excess of the value of such Fund securities or other assets denominated in that
currency.
The Funds generally will not enter into a forward contract
with a term of greater than one year. At the maturity of a forward contract, a
Fund may either sell the portfolio security and make delivery of the foreign
currency, or it may retain the security and terminate its contractual obligation
to deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency.
It is impossible to forecast with absolute precision the
market value of a particular portfolio security at the expiration of the
contract. Accordingly, it may be necessary for a Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency
that such Fund is obligated to deliver and if a decision is made to sell the
security and make delivery of the foreign currency.
If a Fund retains the portfolio security and engages in an
offsetting transaction, such Fund will incur a gain or loss (as described below)
to the extent that there has been movement in forward contract prices. Should
forward prices decline during the period between a Fund entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, such Fund would suffer a loss to the extent that the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
Each of the Funds' dealings in forward foreign currency
exchange contracts will be limited to the transactions described above. Of
course, the Funds are not required to enter into such transactions with regard
to their foreign currency-denominated securities. It also should be realized
that this method of protecting the value of portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
which one can achieve at some future point in time. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result should the value of such currency increase.
Futures Contracts
Each Fund may enter into futures contracts for the purposes of
hedging, remaining fully invested and reducing transaction costs. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security at a specified future time and at a
specified price. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. Government Agency.
Although most futures contracts by their terms call for actual
delivery or acceptance of the underlying securities, in most cases the contracts
are closed out before the settlement date without the making or taking of
delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
Futures traders are required to make a good faith initial
margin deposit in cash or acceptable securities with a broker or custodian to
initiate and maintain open positions in futures contracts. An initial margin
deposit is intended to assure completion of the contract (delivery or acceptance
of the underlying security) if it is not terminated prior to the specified
delivery date. Minimal initial margin requirements are established by the
futures exchange and may be changed. Brokers may establish initial deposit
requirements which are higher than the exchange minimums. Futures contracts are
customarily purchased and sold on initial margin that may range upward from less
than 5% of the value of the contract being traded. After a futures contract
position is opened, the value of the contract is marked to market daily. A
second type of deposit called variation margin is used to adjust the futures
position account for the daily marked to market variations. If the marked to
market value declines, additional deposits in cash are required to balance this
decline (variation margin). Conversely, if the marked to market value increases,
deposits in cash may be withdrawn from the account to the extent of the increase
(variation margin). Variation margin payments are made to and from the futures
broker for as long as the contract remains open. The Funds expect to earn
interest income on their initial margin deposits.
Traders in futures contracts may be broadly classified as
either "hedgers" or "speculators." Hedgers use the futures markets primarily to
offset unfavorable changes in the value of securities otherwise held for
investment purposes or expected to be acquired by them. Speculators are less
inclined to own the securities underlying the futures contracts which they trade
and use futures contracts with the expectation of realizing profits from a
fluctuation in interest rates. The Funds intend to use futures contracts only
for hedging purposes.
Regulations of the CFTC applicable to the Funds require that
all of its futures transactions constitute bona fide hedging transactions or
that the Funds' commodity futures and option positions be for other purposes, to
the extent that the aggregate initial margins and premiums required to establish
such non-hedging positions do not exceed five percent of the liquidation value
of each Fund. Each Fund will only sell futures contracts to protect securities
it owns against price declines or purchase contracts to protect against an
increase in the price of securities it intends to purchase. As evidence of this
hedging interest, each Fund expects that approximately 75% of its futures
contracts purchases will be "completed," that is, equivalent amounts of related
securities will have been purchased or are being purchased by the Fund upon sale
of open futures contracts.
Although techniques other than the sale and purchase of
futures contracts could be used to control a Fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a Fund will incur commission expenses in both
opening and closing out future positions, these costs are lower than transaction
costs incurred in the purchase and sale of the underlying securities.
Restrictions on the Use of Futures Contracts
The Funds will not enter into futures contract transactions to
the extent that, immediately thereafter, the sum of its initial margin deposits
on open contracts exceeds 5% of the market value of its total assets. Each Fund
will not enter into futures contracts to the extent that its outstanding
obligations to purchase securities under these contracts exceed 50% and 20% of
the total assets of the International Equity Fund and the Small Cap Equity Fund,
respectively.
Risk Factors in Futures Transactions
Positions in futures contracts may be closed out only on an
exchange which provides a market for such futures. However, there can be no
assurance that a liquid market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, each Fund would continue to be required to
make daily cash payments to maintain its required margin. In such situations, if
a Fund has insufficient cash, it may have to sell securities to meet daily
margin requirements at a time when it may be disadvantageous to do so. In
addition, a Fund may be required to make delivery of the instruments underlying
futures contracts it holds. The inability to close futures positions also could
have an adverse impact on a Fund's ability to effectively hedge.
A Fund will minimize the risk that it will be unable to close
out a futures position by only entering into futures which are traded on
national futures exchanges and for which there appears to be a liquid market.
There can be no assurance, however, that a liquid market will exist for a
particular futures contract at any given time.
The risk of loss in trading futures contracts in some
strategies can be substantial due both to the low margin deposits required and
the extremely high degree of leverage involved in futures pricing. As a result,
a relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchase or sale of a futures contract may result in
excess of the amount invested in the contract. However, because the futures
strategies of the Funds are engaged in only for hedging purposes, the Investment
Adviser does not believe that a Fund is subject to the risks of loss frequently
associated with futures transactions. A Fund would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline.
Utilization of futures transactions by a Fund does involve the
risk of imperfect or no correlation where the securities underlying the futures
contracts have different maturities than the Fund securities being hedged. It is
also possible that a Fund could both lose money on futures contracts and also
experience a decline in value of portfolio securities. There is also the risk of
loss on margin deposits in the event of bankruptcy of a broker with whom a Fund
has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and,
therefore, does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Options
The Funds may purchase and sell put and call options on
futures contracts for hedging purposes. Investments in options involve some of
the same considerations that are involved in connection with investments in
futures contracts (e.g., the existence of a liquid market). In addition, the
purchase of an option also entails the risk that changes in the value of the
underlying security or contract will not be fully reflected in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract on which it is based or the price of the securities being
hedged, an option may or may not be less risky than ownership of the futures
contract or such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract or securities.
Writing Covered Call Options
The general reason for writing call options is to attempt to
realize income. By writing covered call options, each Fund gives up the
opportunity, while the option is in effect, to profit from any price increase in
the underlying security above the option exercise price. In addition, each
Fund's ability to sell the underlying security will be limited while the option
is in effect unless the Fund effects a closing purchase transaction. A closing
purchase transaction cancels out the Fund's position as the writer of an option
by means of offsetting purchase of an identical option prior to the expiration
of the option it has written. Covered call options serve as a partial hedge
against the price of the underlying security declining. Each Fund writes only
covered options, which means that so long as a Fund is obligated as the writer
of the option it will, through its custodian, have deposited the underlying
security of the option or, if there is a commitment to purchase the security, a
segregated cash reserve of cash, cash equivalents, U.S. Government securities or
other high grade liquid debt securities denominated in U.S. dollars or non-U.S.
currencies with a securities depository with a value equal to or greater than
the exercise price of the underlying securities. By writing a put, a Fund will
be obligated to purchase the underlying security at a price that may be higher
than the market value of that security at the time of exercise for as long as
the option is outstanding. Each Fund may engage in closing transactions in order
to terminate put options that it has written.
Purchasing Options
A put option may be purchased to partially limit the risks of
the value of an underlying security or the value of a commitment to purchase
that security for forward delivery. The amount of any appreciation in the value
of the underlying security will be partially offset by the amount of the premium
paid for the put option and any related transaction costs. Prior to its
expiration, a put option may be sold in a closing sale transaction and profit or
loss from a sale will depend on whether the amount received is more or less than
the premium paid for the put option plus the related transaction costs. A
closing sale transaction cancels out a Fund's position as purchaser of an option
by means of an offsetting sale of an identical option prior to the expiration of
the option it has purchased. In certain circumstances, a Fund may purchase call
options on securities held in its investment portfolio on which it has written
call options or on securities which it intends to purchase.
Options on Foreign Currencies
The Funds may purchase and write options on foreign currencies
for hedging purposes in a manner similar to that in which futures contracts on
foreign currencies, or forward contracts, will be utilized. For example, a
decline in the dollar value of a foreign currency in which portfolio dollar
value of a foreign currency in which portfolio securities are denominated will
reduce the dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such diminution in the
value of portfolio securities, a Fund may purchase put options on the foreign
currency. If the value of the currency does decline, the Fund will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio which otherwise
would have resulted.
Conversely, where a rise in the dollar value of a currency in
which securities to be acquired are denominated is projected, thereby increasing
the cost of such securities, a Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to a Fund deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, a Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
Each Fund may write options on foreign currencies for the same
types of hedging purposes. For example, where a Fund anticipates a decline in
the dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the anticipated decline occurs,
the option will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities to be acquired,
a Fund could write a put option on the relevant currency which, if rates move in
the manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, a Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
Each Fund may write covered call options on foreign
currencies. A call option written on a foreign currency by a Fund is "covered"
if the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by the Custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if a Fund has a call on the
same foreign currency and in the same principal amount as the call written where
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash, U.S. Government
securities or other high grade liquid debt securities in a segregated account
with the Custodian.
Each Fund may write call options on foreign currencies that
are not covered for cross-hedging purposes. A call option on a foreign currency
is for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which a Fund owns
or has the right to acquire and which is denominated in the currency underlying
the option due to an adverse change in the exchange rate. In such circumstances,
a Fund collateralized the option by maintaining in a segregated account with the
Custodian, cash or U.S. Government securities or other high grade liquid debt
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked to market daily.
Risks of Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies
Options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to the regulation of the SEC. Similarly, options on currencies
may be traded over-the-counter. In an over-the-counter trading environment, many
of the protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other securities traded
on such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default.
Furthermore, a liquid secondary market in options traded on a national
securities exchange may be more readily available than in the over-the-counter
market, potentially permitting a Fund to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in the event of adverse
market movements.
The purchase and sale of exchange-traded foreign currency
options, however, is subject to the risks of the availability of a liquid
secondary market described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the effect of
other political and economic events. In addition, exchange-traded options of
foreign currencies involve certain risks not presented by the over-the-counter
market. For example, exercise and settlement of such options must be made
exclusively through the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the OCC may, if it
determines that foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would result in
undue burdens on the OCC or its clearing member, impose special procedures on
exercise and settlement, such as technical changes in the mechanics of delivery
of currency, the fixing of dollar settlement prices or prohibitions, on
exercise.
In addition, futures contracts, options on futures contracts,
forward contracts and options of foreign currencies may be traded on foreign
exchanges. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
INVESTMENT RESTRICTIONS
In addition to those set forth in each Fund's current
Prospectus, the Funds have adopted the investment restrictions set forth below,
which are fundamental policies of each Fund and cannot be changed without the
approval of a majority of the outstanding voting securities. As provided in the
Investment Company Act of 1940, a "vote of a majority of the outstanding voting
securities" means the affirmative vote of the lesser of (i) more than 50% of the
outstanding shares, or (ii) 67% or more of the shares present at a meeting if
more than 50% of the outstanding shares are represented at the meeting in person
or by proxy. Each Fund may not:
1. Issue senior securities.
2. Make investments for the purpose of exercising control or
management of another company.
3. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or
reorganization, or by purchase in the open market of securities
of closed-end investment companies where no underwriter or
dealer's commission or profit, other than customary broker's
commission, is involved and any investments in the securities of
other investment companies will be in compliance with the
Investment Company Act of 1940.
4. Purchase or sell real estate or interests therein; provided that
the Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real
estate or interests therein.
5. Purchase or sell commodities or commodity contracts, except that
the Fund may deal in forward foreign exchange between currencies
of the different countries in which it may invest and that the
Fund may purchase or sell stock index and currency options,
stock index futures, financial futures and currency futures
contracts and related options on such futures.
6. Purchase any securities on margin, except that the Fund may
obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities, or
make short sales of securities or maintain a short position. The
payment by the Fund of initial or variation margin in connection
with futures or related options transactions, if applicable,
shall not be considered the purchase of a security on margin.
Also, engaging in futures transactions and related options will
not be deemed a short sale or maintenance of a short position in
securities.
7. Make loans to other persons (except as provided in (8) below);
provided that for purposes of this restriction the acquisition
of bonds, debentures, or other corporate debt securities and
investment in government obligations, short-term commercial
paper, certificates of deposit, bankers' acceptances, repurchase
agreements and any fixed-income obligations in which the Fund
may invest consistent with its investment objective and policies
shall not be deemed to be the making of a loan.
8. Lend its portfolio securities in excess of 33-1/3% of its total
assets, taken at market value; provided that such loans shall be
made in accordance with the guidelines set forth below.
9. Borrow amounts in excess of 20% of its total assets, taken at
market value, and then only from banks as a temporary measure
for extraordinary or emergency purposes such as the redemption
of Fund shares. Utilization of borrowings may exaggerate
increases or decreases in an investment company's net asset
value. However, the Fund will not purchase securities while
borrowings exceed 5% of its total assets, except to honor prior
commitments and to exercise subscription rights when outstanding
borrowings have been obtained exclusively for settlements of
other securities transactions. (See restriction (10) below
regarding the exclusion from this restriction of arrangements
with respect to options, futures contracts and options on
futures contracts.)
10. Mortgage, pledge, hypothecate or in any manner transfer
(except as provided in (8) above), as security for indebtedness,
any securities owned or held by the Fund except as may be
necessary in connection with borrowings mentioned in (9) above,
and then such mortgaging, pledging or hypothecating may not
exceed 10% of the Fund's total assets, taken at market value.
(For the purpose of this restriction and restriction (9) above,
collateral arrangements with respect to the writing of options,
futures contracts, options on futures contracts, and collateral
arrangements with respect to initial and variation margin are
not deemed to be a pledge of assets, and neither such
arrangements nor the purchase and sale of options, futures or
related options are deemed to be the issuance of a senior
security.)
11. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which are not otherwise
readily marketable if, regarding all such securities, more than
15% of its total assets, taken at market value, would be
invested in such securities.
12. Underwrite securities of other issuers except insofar as the
Fund may be deemed an underwriter under the Securities Act of
1933, as amended, in selling portfolio securities.
13. Purchase or sell interests in oil, gas or other mineral
exploration or development programs or leases, except that the
Fund may invest in securities of companies which invest in or
sponsor such programs.
Under the law of certain states, each Fund is presently limited
with respect to the investment restriction described in (11) above to 10% of its
net assets.
The policies set forth below are non-fundamental policies of
each Fund and may be amended without the approval of the shareholders of the
respective Funds. Each Fund will not:
(a) purchase or retain the securities of any issuer if those
individual officers and Trustees of the Fund, the officers and
directors of the Investment Adviser and, in the case of the
International Equity Fund, its Sub-Adviser, each owning
beneficially more than one-half of 1% of the securities of such
issuer, own in the aggregate more than 5% of any class of
securities of such issuer;
(b) invest in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation
if more than 5% of its total assets, taken at market value,
would be invested in such securities;
(c) invest in warrants if, at the time of acquisition, its
investment in warrants, valued at the lower of cost or market
value, would exceed 5% of the Fund's net assets; included within
such limitation, but not to exceed 2% of the Fund's net assets,
are warrants which are not listed on the New York or American
Stock Exchanges. For purposes of this policy, warrants acquired
by the Fund in units or attached to securities may be deemed to
be without value;
(d) invest in real estate limited partnerships or in oil, gas or
mineral leases;
(e) buy and sell options on securities or enter into futures
contracts and options thereon unless (i) the premiums paid on
all such options do not exceed 20% of the Fund's total net
assets; and (ii) the margin deposits required to secure all such
futures or options thereon do not exceed 5% of the Fund's total
assets;
(f) invest in securities of any issuer whose primary business is in
the tobacco or tobacco products industry.
The investment restrictions set forth in the Prospectus contain
an exception that permits each Fund to purchase securities pursuant to the
exercise of subscription rights, subject to the condition that such purchase
will not result in the Fund ceasing to be a diversified investment company.
Japanese and European corporations frequently issue additional capital stock by
means of subscription rights offerings to existing shareholders at a price
substantially below the market price of the shares. The failure to exercise such
rights would result in the Fund's interest in the issuing company being diluted.
The market for such rights is not well developed and, accordingly, the Fund may
not always realize full value on the sale of rights. Therefore, the exception
applies in cases where the limits set forth in the investment restrictions in
the Prospectus would otherwise be exceeded by exercising rights or have already
been exceeded as a result of fluctuations in the market value of a Fund's
portfolio securities with the result that the Fund would otherwise be forced
either to sell securities at a time when it might not otherwise have done so or
to forego exercising the rights.
INVESTMENT ADVISER AND SUB-ADVISER
The Trust, on behalf of each Fund, entered into an investment
advisory agreement with the Investment Adviser, effective February 8, 1995 (the
"Investment Advisory Agreements"), for the provision of investment advisory
services, subject to the supervision and direction of the Board of Trustees.
Pursuant to the Investment Advisory Agreements, each Fund is obligated to pay
the Investment Adviser a monthly fee equal to an annual rate of .75% of the
respective Fund's average daily net assets. The Investment Advisory Agreements
specify that the advisory fee will be reduced to the extent necessary to comply
with the most stringent limits prescribed by any state in which a Fund's shares
are offered for sale. The most stringent current state restriction limits a
fund's allowable aggregate operating expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses such as litigation costs) in
any fiscal year to 2.5% of the first $30 million of net assets of the Fund, 2%
of the next $70 million of net assets of the Fund, and 1.5% of average annual
net assets of the Fund in excess of $100 million. With respect to the
International Equity Fund, the Investment Advisor has voluntarily agreed to
waive its advisory fee or reimburse the International Equity Fund monthly to the
extent that the International Equity Fund's total operating expenses exceed
1.25% of its average daily net assets. The advisory fee payable to the
Investment Advisor in connection with the services provided to the International
Equity Fund for the period August, 3, 1995 (commencement of operations) through
October 31, 1995 amounted to $29,563, all of which was waived.
The Investment Advisory Agreements became effective on February
8, 1995 for a two-year period. Such Agreements may be renewed after their
initial term only so long as such renewal and continuance are specifically
approved at least annually by the Board of Trustees or by vote of a majority of
the outstanding voting securities of each respective Fund, and only if the terms
of the renewal thereof have been approved by the vote of a majority of the
Trustees who are not parties thereto or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
The Investment Advisory Agreements will terminate automatically in the event of
their assignment.
With respect to the International Equity Fund, pursuant to an
agreement between the Investment Adviser and the Sub-Adviser, effective February
8, 1995 (the "Sub-Investment Advisory Agreement"), the Sub-Adviser provides
advice and assistance to the Investment Adviser in the selection of appropriate
investments for the International Equity Fund, subject to the supervision and
direction of the Board of Trustees. As compensation for its services, the
Sub-Adviser receives from the Investment Adviser an annual fee at a rate equal
to .70% of the Fund's average daily net assets, and subject to the reductions
discussed above. The fee is payable monthly upon receipt by the Investment
Adviser of the advisory fee paid by the Fund. For the period August 3, 1995
(commencement of operations) through October 31, 1995, the Sub-Advisor received
no compensation as the Advisor waived its entire fee payable for that period.
The Sub-Investment Advisory Agreement became effective on
February 8, 1995 for a two-year period. The Agreement may be renewed by the
parties after its initial term only so long as such renewal and continuance are
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund, and only if the terms
of renewal thereof have been approved by the vote of a majority of the Trustees
who are not parties thereto or interested persons of any such party, cast in
person at the meeting called for the purpose of voting on such approval. The
Sub-Investment Advisory Agreement will terminate automatically in the event of
its assignment.
ALLOCATION OF PORTFOLIO BROKERAGE
The Investment Adviser and, in the case of the International
Equity Fund, the Sub-Adviser, when effecting the purchases and sales of
portfolio securities for the account of a Fund, will seek execution of trades
either (i) at the most favorable and competitive rate of commission charged by
any broker, dealer or member of an exchange, or (ii) at a higher rate of
commission charges if reasonable in relation to brokerage and research services
provided to the Fund, the Investment Adviser or Sub-Adviser by such member,
broker, or dealer when viewed in terms of either a particular transaction or the
Investment Adviser's or Sub-Adviser's overall responsibilities to the Trust.
Such services may include, but are not limited to, any one or more of the
following: information as to the availability of securities for purchase or
sale, statistical or factual information, or opinions pertaining to investments.
The Investment Adviser and, in the case of the International Equity Fund, the
Sub-Adviser, may use research and services provided to it by brokers and dealers
in servicing all its clients; however, not all such services will be used by the
Investment Adviser or Sub-Adviser in connection with the Funds. Brokerage may
also be allocated to dealers in consideration of a Fund's share distribution,
but only when execution and price are comparable to that offered by other
brokers.
With respect to the International Equity Fund, the Investment
Adviser, through the Sub-Adviser, is responsible for making the Fund's portfolio
decisions subject to instructions described in the Prospectus. The Board of
Trustees, however, impose limitations on the allocation of portfolio brokerage.
During the period August 3, 1995 (commencement of operations) through October
31, 1995, the International Equity Fund paid $52,090 in brokerage commissions.
It is anticipated that its brokerage transactions involving
securities of companies domiciled in countries other than the U.S. will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the U.S., although the Funds will
endeavor to achieve the best net results in effecting their portfolio
transactions. There is generally less government supervision and regulation of
foreign stock exchanges and brokers than in the U.S.
Foreign equity securities may be held by a Fund in the form of
ADRs, EDRs, GDRs or other securities convertible into foreign equity securities.
ADRs, EDRs and GDRs may be listed on stock exchanges or traded in
over-the-counter markets in the U.S. or Europe, as the case may be. ADRs, like
other securities traded in the U.S., as well as GDRs traded in the U.S., will be
subject to negotiated commission rates.
DISTRIBUTOR
Rodney Square Distributors, Inc. ("RSD") serves as the
Distributor of each Fund's shares pursuant to a Distribution Agreement with the
Trust. Under the terms of the Distribution Agreement, RSD agrees to assist in
securing purchasers for shares of the Funds. RSD will receive no compensation
for distribution of shares of the Funds, except for reimbursement of
out-of-pocket expenses.
The Distribution Agreement provides that RSD, in the absence of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties under
the agreement, will not be liable to the Trust or the Fund's shareholders for
losses arising in connection with the sale of Fund shares.
The Distribution Agreement became effective as of February 8,
1995, and will remain in effect for a period of two years. Thereafter, the
Distribution Agreement continues in effect from year to year as long as its
continuance is approved at least annually by a majority of the Trustees,
including a majority of the trustees who are not parties to the Distribution
Agreement or interested persons of any such party (the "Independent Trustees").
The Distribution Agreement terminates automatically in the event of its
assignment. The Distribution Agreement is also terminable without payment of any
penalty with respect to either Fund (i) by the Fund (by vote of a majority of
the Independent Trustees or by vote of a majority of the outstanding voting
securities of the Fund) on sixty (60) days' written notice to RSD, or (ii) by
RSD on sixty (60) days' written notice to the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of January 5, 1996, the following shareholders were known to
own of record more than 5% of the outstanding shares of the International Equity
Fund:
Name and Address Percentage Ownership
---------------- --------------------
Patterson & Co. 51.06
P.O. Box 7829
Philadelphia, PA 19101
Saxon & Co. 13.57
FBO American College of Physicians
P.O. Box 7780-1888
Philadelphia, PA 19182
Saxon & Co. 5.70
FBO Philadelphia Maritime Museum
P.O. Box 7780-1888
Philadelphia, PA 19182
PURCHASE OF SHARES
Tax-Deferred Retirement Plans
Shares of each Fund are available to all types of tax-deferred
retirement plans such as IRAs, employer-sponsored defined contribution plans
(including 401(k) plans) and tax-sheltered custodial accounts described in
Section 403(b)(7) of the Internal Revenue Code of 1986, as amended. Qualified
investors benefit from the tax-free compounding of income dividends and capital
gains distributions.
Individual Retirement Accounts (IRA)
Individuals, who are not active participants (and, when a joint
return is filed, who do not have a spouse who is an active participant) in an
employer maintained retirement plan are eligible to contribute on a deductible
basis to an IRA account. The IRA deduction is also retained for individual
taxpayers and married couples with adjusted gross incomes not in excess of
certain specified limits. All individuals who have earned income may make
nondeductible IRA contributions to the extent that they are not eligible for a
deductible contribution. Income earned by an IRA account will continue to be tax
deferred. A special IRA program is available for employers under which the
employers may establish IRA accounts for their employees in lieu of establishing
tax-qualified retirement plans. Known as SEP-IRAs (Simplified Employee
Pension-IRA), they free the employer of many of the recordkeeping requirements
of establishing and maintaining a tax-qualified retirement plan trust.
If you are entitled to receive a distribution from a qualified
retirement plan, you may rollover all or part of that distribution into a Fund's
IRA. Your rollover contribution is not subject to the limits on annual IRA
contributions. You can continue to defer federal income taxes on your
contribution and on any income that is earned on that contribution.
REDEMPTIONS
Under normal circumstances, you may redeem your shares at any
time without a fee. The redemption price will be based upon the net asset value
per share next determined after receipt of the redemption request, provided it
has been submitted in the manner described in the Prospectus of each Fund. See
"How to Redeem Shares" in the Prospectus. The redemption price may be more or
less than your cost, depending upon the net asset value per share at the time of
redemption.
Payment for shares tendered for redemption is made by check
within seven days after receipt and acceptance of your redemption request by
Rodney Square, except that each Fund reserves the right to suspend the right of
redemption, or to postpone the date of payment upon redemption beyond seven
days, (i) for any period during which the New York Stock Exchange is restricted,
(ii) for any period during which an emergency exists as determined by the SEC as
a result of which disposal of securities owned by a given Fund is not reasonably
predictable or it is not reasonably practicable for such Fund fairly to
determine the value of its net assets, or (iii) for such other periods as the
SEC may by order permit for the protection of Fund shareholders.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and principal executive officers of the Trust and
their principal occupations for the past five years are listed below.
<TABLE>
<CAPTION>
Position and Office Principal Occupation
Name and Address Age with the Trust during the Past Five Years
- ---------------- --- -------------------- --------------------------
<S> <C> <C> <C>
*W. Thacher Brown 48 President, Chairman and President and Chief Executive
Five Radnor Corporate Trustee Officer, 1838 Investment Advisors,
Center, Suite 320 L.P. (1988 - Present); President
100 Matsonford Road and Chief Executive Officer, 1838
Radnor, PA 19087 Investment Advisors, Inc. (1988 -
Present); and Director, 1838 Bond
-Debenture Trading Fund; Airgas,
Inc. and Harleysville Mutual
Insurance Company.
Charles D. Dickey, Jr. 77 Trustee Retired. Formerly Chairman and CEO
1 Tower Bridge of Scott Paper Company (retired as
Suite 1420 CEO 1983; retired as Director,
West Conshohocken, PA 19428 1988); Formerly Director of General
Electric Company (retired 1991).
Frank B. Foster, III 61 Trustee Managing Director, CIP, Inc.
20 Valley Stream Parkway (Investments) (1989 - Present);
Suite 265 Consultant, DBH, Inc. (1987-1993).
Malvern, PA 19355
*George W. Gephart, Jr. 42 Trustee and Vice Principal, 1838 Investment
Five Radnor Corporate Center, President Advisors, L.P. (1988 - Present);
Suite 320 Chairman, Bryn Mawr Rehab Hospital
100 Matsonford Road (Present); and Director, Main Line
Radnor, PA 19087 Health Systems (Present).
Robert P. Hauptfuhrer 64 Trustee Chairman and CEO, Oryx Energy
100 Matsonford Road Company (1988-1994); Director, Oryx
Building 5, Suite 300 Energy Company (1994-Present).
Radnor, PA 19087
Johannes B. van den Berg 38 Vice President Managing Director and Portfolio
Five Radnor Corporate Center, Manager, MeesPierson 1838
Suite 320 Investment Advisors
100 Matsonford Road (1994-Present); Managing
Radnor, PA 19087 Director-International, MeesPierson
Capital Management, Inc. (1993 -
Present); Managing Director and
Chief Investment Officer,
MeesPierson Capital Management,
Inc. (1983 - 1993); and Director,
Asian Selection Fund.
Edwin B. Powell 58 Vice President Principal and Portfolio Manager,
Five Radnor Corporate Center, 1838 Investment Advisors, L.P.
Suite 320 (1994 - Present); Vice President
100 Matsonford Road and Portfolio Manager, Provident
Radnor, PA 19087 Capital Management (1987 - 1994).
Anna M. Bencrowsky 44 Vice President, Associate, 1838 Investment
Five Radnor Corporate Center, Treasurer and Advisors, L.P. (1988 - Present);
Suite 320 Secretary and Vice President and
100 Matsonford Road Secretary, 1838 Bond-Debenture
Radnor, PA 19087 Trading Fund.
John J. Kelley 36 Assistant Treasurer Vice President, Rodney Square
1100 N. Market Street Management Corporation (1995 -
Wilmington, DE 19890-0001 Present); Assistant Vice President,
Rodney Square Management
Corporation (1989 - 1995).
Laurie V. Brooks 33 Assistant Secretary Fund Administrator, Rodney Square
1100 N. Market Street Management Corporation (1994 -
Wilmington, DE 19890-0001 Present); Legal Assistant, Skadden,
Arps, Slate, Meagher & Flom (1989 - 1994).
- ------------------
* Trustees who are "interested persons" as defined in the Investment Company Act
of 1940.
</TABLE>
The officers conduct and supervise the daily business
operations of the Trust, while the Trustees, in addition to the functions set
forth under "Investment Adviser and Sub-Adviser," and "Distributor" review such
actions and decide on general policy. Compensation to officers and trustees of
the Trust who are affiliated with the Investment Adviser is paid by the
Investment Adviser, and not by the Trust.
Information relating to the compensation paid to the Trustees of the
Trust for the fiscal period ended October 31, 1995 is set forth below:
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement Benefits from Trust and Fund
Aggregate Compensation Accrued as Part of Complex Paid to
Name and Position from the Trust(1) Fund Expenses(2) Trustees
- ----------------- ---------------------- ------------------- -------------------
<S> <C> <C> <C>
W. Thacher Brown None $0 $0
Chairman of the Board and
President
George W. Gephart, Jr. None $0 $0
Vice President and Trustee
Charles D. Dickey, Jr. $1,500 $0 $1,500
Trustee
Frank B. Foster, III $1,500 $0 $1,500
Trustee
Robert P. Hauptfuhrer $1,500 $0 $1,500
Trustee
</TABLE>
- ---------------------
(1) The interested Trustees of the Trust receive no compensation for their
service as Trustees. For their service as Trustees, the disinterested Trustees
receive a $6,000 annual fee and $500 per series per Trust meeting attended, as
well as reimbursement for out-of-pocket expenses. If any special or additional
meetings are held during a fiscal year, the disinterested Trustees will be
entitled to receive $500 per series per such meeting attended. For the fiscal
year ended October 31, 1995, such fees and expenses amounted to $4,500. This
amount was paid to the Trustees by the International Equity Fund. On January 5,
1996, Trustees and officers of the International Equity Fund, as a group, owned
beneficially less than 1% of the outstanding shares of the International Equity
Fund.
(2) The Trust has not adopted a pension plan or any other plan that would afford
benefits to its Trustees.
TAXATION
Each Fund intends to qualify each year as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code").
In order to so qualify, a Fund must, among other things (i)
derive at least 90% of its gross income from dividends, interest, payments with
respect to certain securities loans, gains from the sale of securities or
foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; (ii) derive less than 30% of
its gross income from the sale or other disposition of stock or securities or
certain futures and options thereon held for less than three months
("short-short gains"); (iii) distribute at least 90% of its dividends, interest
and certain other taxable income each year; and (iv) at the end of each fiscal
quarter maintain at least 50% of the value of its total assets in cash,
government securities, securities of other regulated investment companies, and
other securities of issuers which represent, with respect to each issuer, no
more than 5% of the value of a Fund's total assets and 10% of the outstanding
voting securities of such issuer, and with no more than 25% of its assets
invested in the securities (other than those of the government or other
regulated investment companies) of any one issuer or of two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades and businesses.
To the extent a Fund qualifies for treatment as a regulated
investment company, it will not be subject to federal income tax on income and
net capital gains paid to shareholders in the form of dividends or capital gains
distributions.
An excise tax at the rate of 4% will be imposed on the excess,
if any, of a Fund's "required distributions" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 plus undistributed
amounts from prior years. The Funds intend to make distributions sufficient to
avoid imposition of the excise tax. Distributions declared by the Funds during
October, November or December to shareholders of record during such month and
paid by January 31 of the following year will be taxable to shareholders in the
calendar year in which they are declared, rather than the calendar year in which
they are received.
Each Fund will provide an information return to shareholders
describing the federal tax status of the dividends paid by the Fund during the
preceding year within 60 days after the end of each year as required by present
tax law. Individual shareholders will receive Form 1099-DIV and Form 1099-B as
required by present tax law during January of each year. If the Fund makes a
distribution after the close of its fiscal year which is attributable to income
or gains earned in such earlier fiscal year, then the Fund shall send a notice
to its shareholders describing the amount and character of such distribution
within 60 days after the close of the year in which the distribution is made.
Shareholders should consult their tax advisors concerning the state or local
taxation of such dividends, and the federal, state and local taxation of capital
gains distributions.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and Treasury regulations currently in effect.
For the complete provisions, reference should be made to the pertinent Code
sections and regulations. The Code and regulations are subject to change by
legislative or administrative action at any time, and retroactively.
Dividends and distributions also may be subject to state and
local taxes.
Federal Tax Treatment of Forward Currency and Futures Contracts
Except for transactions the Funds have identified as hedging
transactions, each Fund is required for federal income tax purposes to recognize
as income for each taxable year its net unrealized gains and losses on forward
currency and futures contracts as of the end of each taxable year as well as
those actually realized during the year. In most cases, any such gain or loss
recognized with respect to a regulated futures contract is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss without
regard to the holding period of the contract. Realized gain or loss attributable
to a foreign currency forward contract is treated as 100% ordinary income.
Furthermore, foreign currency futures contracts which are intended to hedge
against a change in the value of securities held by a Fund may affect the
holding period of such securities and, consequently, the nature of the gain or
loss on such securities upon disposition.
In order for each Fund to continue to qualify for federal
income tax treatment as a regulated investment company under the Code, at least
90% of each Fund's gross income for a taxable year must be derived from certain
qualifying income, i.e., dividends, interest, income derived from loans of
securities and gains from the sale or other disposition of stock, securities or
foreign currencies, or other related income, including gains from options,
futures and forward contracts, derived with respect to its business investing in
stock, securities or currencies. Any net gain realized from the closing out of
futures contracts will, therefore, generally be qualifying income for purposes
of the 90% requirement. Qualification as a regulated investment company also
requires that less than 30% of a Fund's gross income be derived from the sale or
other disposition of stock, securities, options, futures or forward contracts
(including certain foreign currencies not directly related to the Fund's
business of investing in stock or securities) held less than three months. In
order to avoid realizing excessive gains on securities held for less than three
months, a Fund may be required to defer the closing out of futures contracts
beyond the time when it would otherwise be advantageous to do so. It is
anticipated that unrealized gains on futures contracts which have been open for
less than three months as of the end of a Fund's taxable year, and which are
recognized for tax purposes, will not be considered gains on securities held for
less than three months for the purposes of the 30% test.
Each Fund will distribute to shareholders annually any net
capital gains which have been recognized for federal income tax purposes
(including unrealized gains at the end of the Fund's taxable year) on futures
transactions. Such distribution will be combined with distributions of capital
gains realized on a Fund's other investments, and shareholders will be advised
on the nature of the payment.
Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local taxes.
GENERAL INFORMATION
Audits and Reports
The accounts of the Trust are audited each year by Coopers &
Lybrand L.L.P., independent certified public accountants. Shareholders receive
semi-annual and annual reports of the Trust including the annual audited
financial statements and a list of securities owned.
PERFORMANCE
Current yield and total return may be quoted in
advertisements, shareholder reports or other communications to shareholders.
Yield is the ratio of income per share derived from a Fund's investments to a
current maximum offering price expressed in terms of percent. The yield is
quoted on the basis of earnings after expenses have been deducted. Total return
is the total of all income and capital gains paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in the value of
the original investment, expressed as a percentage of the purchase price.
Occasionally, a Fund may include its distribution rate in advertisements. The
distribution rate is the amount of distributions per share made by a Fund over a
12-month period divided by the current maximum offering price.
The SEC rules require the use of standardized performance
quotations or, alternatively, that every non-standardized performance quotation
furnished by a Fund be accompanied by certain standardized performance
information computed as required by the SEC. Current yield and total return
quotations used by a Fund are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods used
by a Fund to compute or express performance follows.
As indicated below, current yield is determined by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period and annualizing the
result. Expenses accrued for the period include any fees charged to all
shareholders during the 30-day base period. According to the SEC formula:
6
Yield = 2 [(a-b +1) - 1]
cd
where
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
As the following formula indicates, the average annual total
return is determined by multiplying a hypothetical initial purchase order of
$1,000 by the average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
annualizing the result. The calculation assumes the maximum sales load is
deducted from the initial $1,000 purchase order and that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The quotation assumes the account was completely
redeemed at the end of each one, five and ten-year period and assumes the
deduction of all applicable charges and fees. According to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10-year periods, determined at
the end of the 1, 5 or 10-year periods (or fractional portion
thereof).
The International Equity Fund's total return for the period from August
3, 1995 (commencement of operations) through October 31, 1995 was (3.90)%.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of the return to
shareholders only for the limited historical period used.
Comparisons and Advertisements
To help investors better evaluate how an investment in a Fund
might satisfy their investment objective, advertisements regarding a Fund may
discuss yield or total return for such Fund as reported by various financial
publications. Advertisements may also compare yield or total return to yield or
total return as reported by other investments, indices, and averages. The
following publications, indices, and averages may be used:
Financial Times Goldman Sachs Europe-Asia Index
Lipper Mutual Fund Indices
Lipper Mutual Fund Performance Analysis
Morgan Stanley Capital International EAFE Index
Morningstar, Inc.
Nasdaq Industrial Index
Russell 2000 Index
Standard & Poor's 500 Composite Stock Price Index
A Fund may also from time to time along with performance
advertisements, present its investments, as of a current date, in the form of
the "Schedule of Investments" included in the Semi-Annual and Annual Reports to
the shareholders of the Trust.
<PAGE>
FINANCIAL STATEMENTS
CONTENTS
1838 INTERNATIONAL EQUITY FUND FINANCIAL STATEMENTS
Schedule of Net Assets
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
TAX INFORMATION
SCHEDULE OF NET ASSETS October 31, 1995
<TABLE>
<CAPTION>
Principal
Amount (000's) Value
or Number (Note 2)
Sector of Shares
<S> <C> <C> <C>
COMMON STOCK (92.6%)
Australia (1.2%)
Broken Hill Propriety Co. Metals - Diversified..................... 8,000 $107,905
News Corp. Ltd. Publishing............................... 18,000 90,396
----------
198,301
----------
Brazil (1.1%)
Telecomunicacoes Brasileiras Telecommunications........................ 4,400 177,276
Sponsor ADR ----------
Chile (0.9%)
Compania Telecomunicacion Chile ADR Telecommunications....................... 2,000 144,000
----------
France (4.8%)
Accor Lodging.................................. 1,300 154,256
Alcatel Alsthom Telecommunications, Energy & Electricity. 1,700 144,988
Carrefour Supermarche Retail Grocery........................... 300 175,966
Cetelem Financial Services....................... 900 143,371
LVMH (Moet-Hennessy) Wines & Spirits.......................... 900 178,846
----------
797,427
----------
Germany (5.3%)
Allianz AG Holding Insurance................................ 90 165,156
Bayer AG Chemical................................. 630 166,177
Bayerische Motoren Werke AG Automobile Manufacturer.................. 250 133,394
Deutsche Bank AG Banking.................................. 3,400 153,088
Hochtief AG Construction............................. 300 117,422
Viag AG Metal Manufacturer, Energy............... 400 161,668
----------
896,905
----------
Hong Kong (4.3%)
Cheung Kong Holdings, Ltd. Real Estate.............................. 22,000 124,061
China Light & Power Co., Ltd. Utility.................................. 20,000 106,574
HSBC Holdings Financial Services....................... 10,000 145,505
Hutchinson Whampoa Real Estate, Transportation and Telecomm. 22,000 121,215
Sun Hung Kai Properties Real Estate.............................. 15,000 119,799
Swire Pacific, Ltd. (A Shares) General Trading and Air Transportation... 14,000 105,022
<PAGE>
----------
722,176
----------
Italy (1.0%)
Assicurazioni Generali SPA Insurance................................ 7,000 162,885
----------
Japan (34.0%)
All Nippon Airways Air Transportation....................... 17,000 164,877
Asahi Bank, Ltd. Banking.................................. 15,000 150,040
Asahi Glass Co., Ltd. Glass Manufacturer....................... 15,000 147,098
Dai-Ichi Kangyo Bank Banking.................................. 9,000 152,688
Daiwa House Industries House Manufacturer....................... 11,000 165,044
Fuji Bank, Ltd. Banking.................................. 10,000 186,324
Hitachi, Ltd. Electronics.............................. 17,000 175,047
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SCHEDULE OF NET ASSETS -- continued October 31, 1995
<TABLE>
<CAPTION>
Principal
Amount (000's) Value
or Number (Note 2)
Sector of Shares
<S> <C> <C> <C>
Japan -- cont.
Hoya Corp. Glass Manufacturer....................... 6,000 $176,517
Industrial Bank of Japan Banking.................................. 7,000 191,521
Kinki Nippon Railway Railroad Transportation.................. 21,000 162,690
Kirin Brewery Co. Ltd. Brewery.................................. 16,000 161,612
Konica Corp. Photography Equipment.................... 25,000 167,937
Kyocera Corp. Bioceramics Manufacturer................. 2,000 164,357
Marubeni Corp. Miscellaneous Distributor................ 35,000 170,928
Mitsubishi Estate Co. Ltd. Real Estate.............................. 14,000 149,648
Mitsubishi Oil Co. Oil Distributor.......................... 17,000 135,369
Mitsubishi Materials Corp. Metals - Diversified..................... 35,000 158,572
Mitsubishi Trust & Banking Banking.................................. 10,000 140,233
Nippon Meat Packers, Inc. Food Processor........................... 12,000 163,573
Nippon Paper Industries Co. Paper Manufacturer....................... 25,000 172,350
Nippon Steel Corp. Steel Manufacturer....................... 52,000 172,869
Nippon Television Network Broadcasting............................. 800 191,423
Nippondenso Co. Ltd. Electronics.............................. 9,000 165,044
Nomura Securities, Co., Ltd. Securities Dealer........................ 9,000 165,044
<PAGE>
Obayashi Corp. Construction............................. 23,000 171,644
Ricoh Company, Ltd. Office Equipment......................... 18,000 194,169
Seven-Eleven Retail - Grocery......................... 2,000 133,760
Sharp Corp. Electronics.............................. 11,000 153,178
Sumitomo Bank Banking.................................. 8,000 141,999
Sumitomo Trust & Banking Banking.................................. 13,000 150,432
Takeda Chemicals Industries Pharmaceuticals.......................... 13,000 183,578
Tokio Marine & Fire Insurance................................ 15,000 154,453
Tokyo Electric Power Electric Utility......................... 6,060 159,266
Toyota Motor Corp. Automobile Manufacturer.................. 8,000 149,059
Wacoal Corp. Textile Manufacturer..................... 14,000 166,123
----------
5,708,466
----------
Malaysia (1.7%)
Genting Berhad Resorts - Plantation..................... 11,000 94,638
Maylayan Banking Banking.................................. 13,000 104,695
United Engineers, Ltd. Engineering & Construction............... 15,000 93,105
----------
292,438
----------
Mexico (0.9%)
CIFRA SA ADR Retail................................... 150,000 157,031
----------
Netherlands (5.6%)
Akzo N.V. Chemicals................................ 1,250 142,087
Heineken N.V. Brewery.................................. 1,200 212,537
International Nederlanden Groep Financial Services....................... 2,961 176,248
Nedlloyd Groep N.V., Koninklijke Transportation........................... 4,300 109,070
Philips Electronics N.V. Electronics.............................. 3,300 127,333
Unilever N.V. Food, Detergents......................... 1,300 169,973
----------
937,248
----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SCHEDULE OF NET ASSETS -- continued October 31, 1995
<TABLE>
<CAPTION>
Principal
Amount (000's) Value
or Number (Note 2)
Sector of Shares
<S> <C> <C> <C>
Republic of Korea (1.8%)
Pohang Iron & Steel Company, Ltd. ADR Steel Manufacturer....................... 5,500 $141,625
Samsung Electronics - GDR* Electronics.............................. 2,500 166,875
----------
308,500
----------
Singapore (3.2%)
DBS Land Real Estate.............................. 35,000 103,327
IPC Corp. Computer Manufacturer.................... 160,000 109,047
Keppel Corp. Shipbuilding, Real Estate................ 12,000 98,312
Singapore Press Holdings Publishing............................... 8,000 124,868
United O/S Bank Banking.................................. 11,000 96,334
----------
531,888
----------
Spain (1.8%)
Empresa Nacional DE Electricidad SA Utility.................................. 3,000 148,880
Repsol SA Oil and Gas Exploration.................. 5,000 149,005
297,885
Sweden (3.0%)
Aga AB (A Shares) Industrial Gas Production................ 12,000 160,662
Astra AB (A Shares) Pharmaceuticals.......................... 5,000 183,528
Hennes & Mauritz AB (B Shares) Retail - Clothing........................ 2,500 163,219
----------
507,409
----------
Switzerland (4.4%)
BBC Brown Boveri Group Ptg. Certificate Electrical Engineering................... 160 184,988
Credit Suisse Holding AG Banking.................................. 2,000 203,670
Holderbank Finan Glaris (B Shares) Building Materials....................... 200 160,126
Roche Holding AG - Genusshein Pharmaceuticals.......................... 25 181,064
----------
729,848
----------
Taiwan (0.9%)
China Steel Corp.* Steel Manufacturer....................... 8,000 145,440
----------
Thailand (2.1%)
Land & House Co. Ltd. Real Estate.............................. 6,000 96,839
Telecomasia Corp.* Telephone Utility........................ 30,000 88,849
Thai Farmers Bank Co. Banking.................................. 11,000 90,956
The Siam Cement Co., Ltd. Building Materials....................... 1,500 81,812
----------
358,456
----------
United Kingdom (14.6%)
Arjo Wiggins Appleton Ord. plc Paper Manufacturer....................... 39,000 143,875
British Petroleum Co. plc Oil & Gas Exploration and Distribution... 23,000 168,792
BTR plc Miscellaneous Manufacturing.............. 33,000 174,807
Cable & Wireless plc Telecommunications....................... 25,000 163,172
Great Universe Stores plc Retail - Clothing........................ 17,000 152,901
<PAGE>
Lloyds Bank plc Banking.................................. 16,197 198,792
Powergen plc Electric Utility......................... 20,000 179,095
Prudential Corp. plc Insurance................................ 32,000 199,527
Reed International plc Publishing............................... 11,300 171,379
Shell Transport and Trading Co. plc Oil & Gas Exploration and Distribution... 14,000 163,440
Siebe plc Machinery Manufacturer................... 16,000 189,816
</TABLE>
See accompanying notes to financial statements.
SCHEDULE OF NET ASSETS -- continued October 31, 1995
<TABLE>
<CAPTION>
Principal
Amount (000's) Value
or Number (Note 2)
Sector of Shares
<S> <C> <C> <C>
United Kingdom -- cont.
Smithkline Beecham (A Shares) Pharmaceuticals.......................... 19,000 $197,848
Tesco plc Retail - Grocery......................... 34,000 160,807
TI Group plc Miscellaneous Manufacturing.............. 26,262 179,483
----------
2,443,734
----------
TOTAL COMMON STOCK (COST $16,196,718) ...................................... 15,517,313
----------
COMMERCIAL PAPER (5.4%)
Ford Motor Credit Corp., 5.76%, 11/01/95 Finance.................................. $913 912,665
(COST $912,665) ----------
CORPORATE BONDS (0.9%)
United Micro Electron, Convertible, Electronics.............................. 100 149,880
1.25%, 06/08/04 ----------
(COST $150,000)
TOTAL INVESTMENTS (COST $17,259,383)+ (98.9%) ....................................... $16,579,858
OTHER ASSETS AND LIABILITIES, NET (1.1%)............................................ 183,884
-----------
NET ASSETS (100.0%)................................................................. $16,763,742
===========
<PAGE>
</TABLE>
______________________
* Non-income producing security.
+ Also the cost for Federal income tax purposes. The aggregate gross
unrealized appreciation in which there was an excess of market value
over tax cost was $637,586, and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over
market value was $1,317,111.
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
See accompanying notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
<TABLE>
<S> <C> <C>
Assets:
Investments, at market (identified cost $17,259,383) (Note 2) ............. $ 16,579,858
Cash ..................................................................... 632,431
Receivables:
Fund shares sold ....................................................... 25,000
Dividends and interest ................................................. 55,900
Foreign taxes recoverable .............................................. 1,312
Forward foreign currency exchange contracts sold (Note 6) .............. 2,848
Deferred organizational costs (Note 2)..................................... 122,895
Other assets .............................................................. 1,497
-----------
Total Assets ........................................................ 17,421,741
Liabilities:
Payables:
Investment securities purchased......................................... $ 632,431
Accrued expenses (Note 4) .............................................. 22,721
Foreign currencies to deliver (Note 6) ................................. 2,847
------------
Total Liabilities ................................................... 657,999
------------
Net Assets ................................................................ $ 16,763,742
============
Net Assets consist of:
Common stock .............................................................. $ 1,745
Additional capital paid in ................................................ 17,387,849
Undistributed net investment income ....................................... 40,266
Accumulated net realized on:
Investments ............................................................ (23,539)
Foreign currency transactions .......................................... 36,990
Net unrealized depreciation on:
Investments ............................................................ (679,525)
Translation of assets and liabilities in foreign currencies ............ (44)
------------
Net Assets, for 1,745,264 shares outstanding .............................. $ 16,763,742
============
Net Asset Value offering price and redemption price per share ($16,763,742
+ 1,745,264 outstanding shares of common stock, $0.001 par value) ...... $ 9.61
========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
For the Period August 3, 1995 (Commencement of Operations) through October 31,
1995
<TABLE>
<S> <C> <C>
Investment Income:
Dividends ........................................................... $ 73,417
Interest ............................................................ 24,750
------------
98,167
Less foreign taxes withheld ......................................... (8,629)
------------
89,538
Expenses:
Investment advisory fee (Note 4) .................................... $ 29,563
Administration fee (Note 4) ......................................... 12,329
Accounting fee (Note 4) ............................................. 14,794
Custodian fees ...................................................... 5,000
Amortization of organizational expenses (Note 2) .................... 6,375
Legal ............................................................... 8,190
Audit ............................................................... 3,200
Registration fees ................................................... 7,956
Directors' fees and expenses (Note 4) ............................... 4,500
Transfer agency fees ................................................ 5,881
Other ............................................................... 4,541
------------
Total expenses before fee waivers ................................ 102,329
Advisory fee waived (Note 4) ..................................... (29,563)
Administration fee waived (Note 4) ............................... (9,247)
Accounting fee waived (Note 4) ................................... (11,096)
Transfer agency fee waived (Note 4) .............................. (3,151)
------------
Total Expenses, net ........................................... 49,272
------------
Net Investment Income ............................................... 40,266
------------
Realized and unrealized gain (loss) from investments and foreign currency:
Net realized gain (loss) from:
Investments ......................................................... (23,539)
Foreign currency transactions ....................................... 36,990
Net unrealized depreciation during the period on:
Investments ......................................................... (679,525)
Translation of assets and liabilities in foreign currencies ......... (44)
------------
Net realized and unrealized loss from investments and foreign currency.. (666,118)
------------
<PAGE>
Net decrease in net assets resulting from operations ...................... $ (625,852)
============
</TABLE>
See accompanying notes to financial statements.
34
STATEMENT OF CHANGES IN NET ASSETS
For the Period August 3, 1995 (Commencement of Operations) through October 31,
1995
<TABLE>
<S> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income .................................................. $ 40,266
Net realized gain (loss) on:
Investments ......................................................... (23,539)
Foreign currency transactions ....................................... 36,990
Net unrealized depreciation during the period on:
Investments ......................................................... (679,525)
Translation of assets and liabilities in foreign currencies ......... (44)
------------
Net decrease in net assets resulting from operations ................... (625,852)
------------
Increase in net assets from Fund share transactions (Note 5) .............. 17,289,594
------------
Increase in net assets ................................................. 16,663,742
Net Assets:
Beginning of period .................................................... 100,000
------------
End of period (including undistributed net investment income of
$40,266) ............................................................ $ 16,763,742
============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period from August 3, 1995 (Commencement of Operations) through October
31, 1995.
<TABLE>
<S> <C>
Net Asset Value - Beginning of Period ...... $ 10.00
----------
Investment Operations:
Net investment income ................ 0.02
Net realized and unrealized loss
on investment and foreign currency
transactions ...................... (0.41)
----------
Total from investment operations (0.39)
----------
Net Asset Value - End of Period ............ $ 9.61
==========
Total Return .............................. (3.90)%
Ratios (to average net assets)/Supplemental Data:
Expenses1 ........................... 1.25%*
Net investment income ................ 1.02%*
Portfolio turnover rate .................... 42.21%*
Net assets at end of period (000 omitted)... 16,764
</TABLE>
1 Without waivers the annualized ratio of expenses to average daily net
assets would have been 2.60% for the period.
* Annualized.
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Description of the Fund. The 1838 Investment Advisors Funds (the
"Trust"), a diversified, open-end management investment company, was
established as a series Delaware business trust on December 9, 1994, and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Trust's Agreement and Declaration of Trust permits the Trustees to
issue an unlimited number of shares of beneficial interest. The Trust has
established two series: the 1838 International Equity Fund and the 1838 Small
Cap Equity Fund. The 1838 International Equity Fund (the "Fund"), the only
series currently offered by the Trust, commenced operations on August 3, 1995.
2. Significant Accounting Policies.
Security Valuation. The Fund's securities, except investments with remaining
maturities of 60 days or less, are valued at the last quoted sales price on
the security's principal exchange on that day. If there are no sales of the
relevant security on such day, the security will be valued at the mean between
the closing bid and asked price on that day, if any. Debt securities having a
maturity of 60 days or less are valued at amortized cost. Securities for
which market quotations are not readily available and all other assets will be
valued at their respective fair market value as determined in good faith by,
or under procedures established by, the Board of Trustees.
Federal Income Taxes. The Fund intends to qualify annually and elect to be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986 and to distribute all of its taxable income to its
shareholders. Therefore, no federal income or excise tax provision is
required. At October 31, 1995, the Fund had a net tax basis capital loss
carryforward available to offset future capital gains of approximately
$24,000, which will expire on October 31, 2003.
Dividends and Capital Gain Distributions. Distributions of net investment
income and net realized gains are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign
currency transactions. These distributions will be made annually in December.
Additional distributions may be made to the extent necessary to avoid the
payment of a 4% excise tax.
Deferred Organizational Costs. Costs incurred by the Fund in connection with
the initial registration and public offering of shares have been deferred and
are being amortized on a straight-line basis over a five-year period beginning
on the date that the Fund commenced operations.
Foreign Currency Translations. The books and records of the Fund are
<PAGE>
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, assets and liabilities
at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions.
NOTES TO FINANCIAL STATEMENTS -- continued
2. Significant Accounting Policies -- continued
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized between the trade and settlement dates on securities
transactions, the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at the end of the fiscal
period, resulting from changes in exchange rates.
Forward Foreign Currency Exchange Contracts. In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the Fund
may enter into forward foreign currency exchange contracts. Additionally, the
Fund may enter into these contracts to hedge certain foreign currency assets.
Foreign currency exchange contracts are recorded at market value. Certain
risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts. Realized
gains or losses arising from such transactions are included in net realized
gain (loss) from foreign currency transactions.
Other. Investment security transactions are accounted for on a trade date
<PAGE>
basis. The Fund uses the specific identification method for determining
realized gain or loss on investments for both financial and federal income tax
reporting purposes. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income is recorded on an accrual
basis.
3. Purchases and Sales of Investment Securities. Purchases and sales of
investment securities (excluding short-term investments) for the period ended
October 31, 1995 were $17,988,756 and $1,618,499, respectively.
4. Advisory Fee and Other Transactions with Affiliates. The Trust, on
behalf of the Fund, employs 1838 Investment Advisors, L.P. (the "Investment
Adviser"), a Delaware limited partnership and registered investment adviser
under the 1940 Act, to furnish investment advisory services to the Fund
pursuant to an Investment Advisory Agreement with the Trust. The Investment
Adviser supervises the investments of the assets of the Fund in accordance
with its objective, policies and restrictions. The Fund's assets are managed
by MeesPierson 1838 Investment Advisors (the "Sub-Adviser") pursuant to a
Sub-Investment Advisory Agreement between the Investment Adviser and the
Sub-Adviser. The Sub-Adviser is compensated by the Investment Adviser for the
services it provides.
The Fund pays the Investment Adviser a monthly fee at the annual rate of 0.75%
of the average daily net assets of the Fund. The Investment Adviser has
voluntarily agreed to waive its advisory fee or reimburse the Fund monthly to
the extent that the Fund's total operating expenses will exceed 1.25% of the
average daily net assets of the Fund. This undertaking may be rescinded at
any time in the future. The advisory fee for the period ended October 31,
1995 amounted to $29,563, all of which was waived.
NOTES TO FINANCIAL STATEMENTS -- continued
4. Advisory Fee and Other Transactions with Affiliates -- continued
Rodney Square Management Corporation ("RSMC"), a wholly owned subsidiary of
Wilmington Trust Company ("WTC"), serves as Administrator to the Fund pursuant
to an Administration Agreement with the Trust. As Administrator, RSMC is
responsible for services such as financial reporting, compliance monitoring
and corporate management. For the services provided, RSMC receives a monthly
administration fee from the Trust at the annual rate of 0.15% of the average
daily net assets of the Trust on the first $50 million; 0.10% of such assets
in excess of $50 million to $100 million; 0.07% of such assets in excess of
$100 million to $200 million; and 0.05% of such assets in excess of $200
million. Each series pays its pro-rata portion based upon total Trust assets.
Such fees are subject to a minimum fee of $50,000 per year for one series and
<PAGE>
$15,000 minimum per year for each additional series. RSMC has agreed to waive
a portion of its fees. For the period ended October 31, 1995, RSMC's
administration fees amounted to $12,329, of which $9,247 was waived. At
October 31, 1995 Administration fees payable to RSMC amounted to $3,082.
Rodney Square Distributors, Inc. ("RSD"), a wholly owned subsidiary of WTC,
has been engaged pursuant to a Distribution Agreement with the Trust to assist
in securing purchasers for shares of the Fund. RSD also directly, or through
its affiliates, provides investor support services. RSD receives no
compensation for distribution of shares of the Fund, except for reimbursement
of out-of-pocket expenses.
RSMC serves as Accounting Agent to the Fund. As Accounting Agent, RSMC
determines the Fund's net asset value per share and provides accounting
services to the Fund pursuant to an Accounting Services Agreement with the
Trust. At October 31, 1995, Accounting fees payable to RSMC amounted to
$3,698.
RSMC also serves as the Fund's transfer agent pursuant to a Transfer Agency
Agreement with the Trust. For these services, RSMC receives a monthly fee
computed on the basis of the number of shareholder accounts that the Transfer
Agent maintains for the Fund during the month, and is reimbursed for
out-of-pocket expenses. At October 31, 1995, Transfer Agent fees payable to
RSMC amounted to $2,730.
The Trustees of the Trust who are "interested persons" of the Trust, the
Investment Adviser or its affiliates and all personnel of the Trust or the
Investment Adviser performing services related to research, statistical and
investment activities are paid by the Investment Adviser or its affiliates.
The fees and expenses payable to the "non-interested" Trustees amounted to
$4,500 on October 31, 1995.
NOTES TO FINANCIAL STATEMENTS -- continued
5. Fund Share Transactions. At October 31, 1995, there were an unlimited
number of shares of beneficial interest with a $0.001 par value, authorized.
Transactions in shares of the Fund for the period from August 3, 1995
(commencement of operations) through October 31, 1995 were as follows:
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
Shares sold 1,742,436 $17,357,801
Shares redeemed (7,172) (68,207)
--------- -----------
Net increase 1,735,264 $17,289,594
Shares outstanding:
Beginning of period 10,000
---------
End of period 1,745,264
=========
</TABLE>
6. Commitments. As of October 31, 1995, the Fund had entered into a
forward foreign currency exchange contract which contractually obligates the
Fund to deliver currencies at specified future dates. The open contract is as
follows:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts to Deliver In Exchange for Settlement Date U.S. $
<S> <C> <C> <C>
British Pound 1,806 U.S. $2,848 11/02/95 1
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
the 1838 Investment Advisors Funds
We have audited the accompanying statement of assets and liabilities,
including the schedule of net assets of the 1838 Investment Advisors Funds,
comprised of the 1838 International Equity Fund, as of October 31, 1995 and
the related statements of operations, changes in net assets and the financial
highlights for the period August 3, 1995 (commencement of operations) through
October 31, 1995. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based upon on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1995, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
1838 International Equity Fund as of October 31, 1995, the results of its
operations, the changes in its net assets and its financial highlights for
the period August 3, 1995 (commencement of operations) through October 31,
1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 30, 1995
TAX INFORMATION
<PAGE>
During the period ended October 31, 1995, the Fund recognized $36,568 of
foreign source income.
In January 1996, shareholders will receive federal income tax information on
all distributions paid to their accounts in the calendar year 1995. Please
consult a tax advisor if you have any questions about federal or state income
tax laws, or how to prepare your tax return.
<PAGE>
