Filed with the Securities and Exchange Commission on March 19, 1997.
1933 Act Registration File No. 33-87298
1940 Act File No. 811-8902
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____ |_|
Post-Effective Amendment No. 3 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4 |X|
1838 INVESTMENT ADVISORS FUNDS
(Exact Name of Registrant as Specified in Charter)
Five Radnor Corporate Center, Suite 320, 100 Matsonford Road, Radnor, PA 19087
-------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (610) 293-4300
Anna M. Bencrowsky, Vice President Copy to:
1838 Investment Advisors Funds Joseph V. Del Raso, Esq.
Five Radnor Corporate Center, Suite 320 Stradley, Ronon, Stevens & Young
100 Matsonford Road 2600 One Commerce Square
Radnor, PA 19087 Philadelphia, PA 19103
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ immediately upon filing pursuant to paragraph (b)]
[ on pursuant to paragraph (b)]
[ 60 days after filing pursuant to paragraph (a)(1)]
[ on pursuant to paragraph (a)(1)]
[ X 75 days after filing pursuant to paragraph (a)(2)]
--- ------------------------------------------------
[ on pursuant to paragraph (a)(2) of Rule 485.]
[If appropriate, check the following box:]
[ This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.]
Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. Registrant filed the notice required by Rule 24f-2 for its fiscal year
ended October 31, 1996 on or about December 19, 1996.
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Rule 481(a)
1838 INVESTMENT ADVISORS FUNDS
Items Required By Form N-1A
PART A - PROSPECTUS
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Cover Page Cover Page
2. Synopsis Synopsis, Expenses of the Funds
3. Condensed Financial Financial Highlights
Information Performance Information
4. General Description of Cover Page; The Trust, Investment
Registrant Objective and Policies, Risks in
Derivatives and Other Investment
Practices, Special Risk
Considerations, Investment
Restrictions
5. Management of the Fund Management of the Funds
6. Capital Stock and Other Shares of Beneficial Interest, Voting
Securities Rights and Shareholder Meetings,
Dividends, Distributions and Taxes
7. Purchase of Securities How to Purchase Shares
Being Offered Calculation of Net Asset Value
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
PART B - STATEMENT OF ADDITIONAL INFORMATION
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ----------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
13. Investment Objectives Cover, Investment Objective and
and Policies Policies, Investment Restrictions
14. Management of the Fund Trustees and Officers of the Trust
15. Control Persons and Principal Control Persons and Principal Holders
Holders of Securities of Securities
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Rule 481(a)
1838 INVESTMENT ADVISORS FUNDS
Items Required By Form N-1A (continued)
PART B - STATEMENT OF ADDITIONAL INFORMATION - Continued
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ----------------------
16. Investment Advisory and Investment Adviser,
Other Services Distributor Investment Manager
17. Brokerage Allocation Allocation of Portfolio Brokerage
18. Capital Stock and Other Not Applicable
Securities
19. Purchase, Redemption and Purchase of Shares, Redemptions
Pricing of Securities
Being Offered
20. Tax Status Taxation
21. Underwriters Distributor
22. Calculation of Performance Performance
Data
23. Financial Statements Financial Statements
PART C - OTHER INFORMATION
Information required to be included in Part C on Form N-1A is set forth
under the appropriate item, so numbered, in Part C of this Registration
Statement.
<PAGE>
[LOGO OMITTED]
INVESTMENT ADVISORS FUNDS
THE DATE OF THIS PROSPECTUS IS___________, 1997
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 has
established three series: 1838 International Equity Fund, 1838 Small Cap Equity
Fund and 1838 Fixed Income Fund. Each series of the Trust has a diversified
portfolio of assets and a specific investment objective and policies.
1838 International Equity Fund. The investment objective of the 1838
International Equity Fund (the "International Equity Fund") is capital
appreciation, with a secondary objective of income. The International Equity
Fund seeks to achieve its objective by investing in a diversified portfolio of
equity securities of issuers located in countries other than the United States.
Investments may be shifted among the various equity markets of the world outside
of the U.S., depending upon management's outlook with respect to prevailing
trends and developments. It is anticipated that a substantial portion of the
International Equity Fund's assets will be invested in the developed countries
of Europe and the Far East. A portion of the International Equity Fund's assets
also may be invested in developing countries.
1838 Small Cap Equity Fund. The investment objective of the 1838 Small Cap
Equity Fund (the "Small Cap Equity Fund") is long-term growth. The Small Cap
Equity 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 $1 billion or less (small cap), which are believed to be
undervalued and have good prospects for capital appreciation. The Small Cap
Equity Fund will invest in small capitalization companies using a value
approach.
1838 Fixed Income Fund. The investment objective of the 1838 Fixed Income
Fund (the "Fixed Income Fund") is maximum current income, with a secondary
objective of growth. The Fixed Income Fund seeks to achieve its objective by
investing, under normal circumstances, at least 65% of its assets in a
diversified portfolio of fixed income securities.
There can be no assurance that the investment objective of the
International Equity Fund, the Small Cap Equity Fund, or the Fixed Income Fund
will be achieved. (See "Investment Objectives and Policies" and "Special Risk
Considerations.")
This Prospectus sets forth concisely the information that a prospective
investor should know before investing. Investors should read and retain this
Prospectus for future reference. More information about each Fund has been filed
with the Securities and Exchange Commission, and is contained in the "Statement
of Additional Information," dated ___________, 1997 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.
<PAGE>
TABLE OF CONTENTS
SYNOPSIS..................................................................3
EXPENSES OF THE FUNDS.....................................................5
FINANCIAL HIGHLIGHTS......................................................6
THE TRUST.................................................................7
INVESTMENT OBJECTIVES AND POLICIES........................................7
OTHER INVESTMENT POLICIES................................................12
RISKS IN DERIVATIVES AND OTHER INVESTMENT PRACTICES......................13
SPECIAL RISK CONSIDERATIONS..............................................18
INVESTMENT RESTRICTIONS..................................................21
MANAGEMENT OF THE FUNDS..................................................22
CALCULATION OF NET ASSET VALUE...........................................25
HOW TO PURCHASE SHARES...................................................25
EXCHANGE OF SHARES.......................................................27
HOW TO REDEEM SHARES.....................................................27
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................................30
SHAREHOLDER ACCOUNTS.....................................................31
RETIREMENT PLANS.........................................................32
SHARES OF BENEFICIAL INTEREST, VOTING RIGHTS
AND SHAREHOLDER MEETINGS................................................32
PERFORMANCE..............................................................33
APPENDIX................................................................A-1
APPLICATION AND NEW ACCOUNT REGISTRATION...................................
2
<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 the
1838 International Equity Fund, the 1838 Small Cap Equity Fund and the 1838
Fixed Income Fund (each a "Fund" and collectively, the "Funds"). See "The Trust"
and "Shares of Beneficial Interest, Voting Rights and Shareholder Meetings."
Investment Objectives
The investment objective of the International Equity Fund is capital
appreciation, with a secondary objective of income. The International Equity
Fund seeks to achieve its objective by investing in a diversified portfolio of
equity securities of issuers located in countries other than the United States.
The investment objective of the Small Cap Equity Fund is long-term growth.
The Small Cap Equity 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 $1 billion or less (small cap),
which are believed to be undervalued and have good prospects for capital
appreciation.
The investment objective of the Fixed Income Fund is maximum current
income. The Fixed Income Fund seeks to achieve its objective by investing, under
normal circumstances, at least 65% of its assets in a diversified portfolio of
fixed income securities. 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 Funds. Rodney Square Distributors, Inc. ("RSD") is the
distributor for the Funds. Rodney Square Management Corporation ("Rodney
Square") is the administrator, transfer agent and dividend disbursing agent for
the Funds. See "Management of the Funds."
Purchase, Redemption and Exchange of Shares
Shares of the Funds may be purchased or redeemed at any time. The Funds do
not impose any sales load or 12b-1 Plan fees. The public offering price of
shares of each 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."
Shares of each 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," "Exchange of Shares," and
"Calculation of Net Asset Value."
Minimum Investment
The minimum initial investment is $1,000 and there is no minimum for
subsequent investments. See "How to Purchase Shares."
Investment Advisory Fees
The Investment Adviser manages the investment of the assets of each Fund in
accordance with each Fund's investment objective, 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 at the
annual rate of 0.75% of the International Equity Fund's average
3
<PAGE>
daily net assets, 0.75% of the Small Cap Equity Fund's average daily net
assets, and 0.50% of the Fixed Income Fund's average daily net assets. See
"Expenses of the Funds" and "Management of the Funds."
Risk Factors and Special Considerations
Investors should consider a number of factors:
1. 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 Objective and
Policies" and "Special Risk Considerations."
2. Securities prices in different countries are subject to different
economic, financial, political and social factors. Because each 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 a portfolio and the unrealized
appreciation or depreciation of investments insofar as U.S. investors
are concerned. Further, there will be costs attendant to converting
such currencies into U.S. dollars. See "Special Risk Considerations."
3. 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."
4. Fixed income securities generally are affected by general changes in
interest rates that may result in an increase or decrease in the value
of the obligations held by the Fixed Income Fund. The value of the
securities held by the Fixed Income Fund can be expected to vary
inversely with the changes in interest rates; as the rates decline,
market value tends to increase and vice versa.
5. Each 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 "Risks in
Derivatives and Other Investment Practices" and "Special Risk
Considerations."
6. Each 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 a Fund is the risk that the borrower defaults on its
obligation to return borrowed securities. See "Lending of Portfolio
Securities" under "Risks in Derivatives and Other Investment
Practices."
7. Each 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 "Risks
in Derivatives and Other Investment Practices."
4
<PAGE>
EXPENSES OF THE FUNDS
<TABLE>
<CAPTION>
International Small Cap Fixed
Equity Equity Income
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load
Imposed on Purchases................... None None None
Maximum Sales Load Imposed
on Reinvested Dividends................ None None None
Annual Operating Expenses
(as a percentage of average net assets)
Investment Advisory Expenses
(after fee waiver) (1)................. 0.27% 0.00% 0.30%
12b-1 Fees............................... None None None
Other Expenses
(after fee waivers and expense reimbursements) (2) 0.98% 1.25% 0.45%
Total Fund Operating Expenses
(after fee waivers and expense reimbursements) (3) 1.25% 1.25% 0.75%
</TABLE>
(1) The Investment Adviser has voluntarily agreed to waive its fees of
0.75% of the International Fund's average daily net assets, of which
0.48% was waived during the fiscal year ended October 31, 1996, so
that the Fund's total operating expenses will not exceed 1.25% of the
average daily net assets of the Fund.
The Investment Adviser has voluntarily agreed to waive its fee of
0.75% or reimburse the Small Cap Equity 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 would be 0.75% of the Fund's daily
net assets on an annualized basis.
The Investment Adviser has voluntarily agreed to waive its fees of
0.50% or reimburse the Fixed Income Fund monthly so that the Fund's
total operating expenses will not exceed 0.75% of the average daily
net assets of the Fund. Without such waiver or reimbursement, the
Investment Advisory Expenses are estimated to be 0.50% of the Fund's
average daily net assets on an annualized basis. The voluntary waivers
of the Investment Adviser's fees may be rescinded at any time.
(2) The Administrator, Transfer Agent, and the Accounting Agent
voluntarily agreed to waive a portion of their fees for the first 12
months following the International Equity Fund's commencement of
operations. The amount of "Other Expenses," absent the fee waivers and
reimbursements, would have been 1.05% for the International Equity
Fund and 3.88% for the Small Cap Equity Fund.
(3) Absent all expense waivers and reimbursements, the ratio of total
operating expenses to average daily net assets for the International
Equity Fund and Small Cap Equity Fund would have been 1.80% and 4.63%,
respectively, for the fiscal year ended October 31, 1996. Absent all
expense waivers and reimbursements, the ratio of total operating
expenses to average daily net assets is estimated to be 0.95% for the
Fixed Income Fund.
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 actual amounts incurred during the
most recent fiscal year for the International Equity Fund and the Small Cap
Equity Fund, but such amounts are estimated for the Fixed Income Fund.
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. 5 yrs. 10 yrs.
----- ------ ------ -------
International Equity Fund $13 $40 $69 $151
Small Cap Equity Fund $13 $40 N/A N/A
Fixed Income Fund $ 8 $24 N/A N/A
5
<PAGE>
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. The above example is based upon actual expenses for the International
Equity Fund for the fiscal period October 31, 1995 to October 31, 1996. Since
the Small Cap Equity Fund Portfolio began operations on June 17, 1996, and the
Fixed Income Fund has not begun operations as of the date of this Prospectus,
the Trust has not projected expenses for those Funds beyond the three year
period.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of the International
Equity and Small Cap Equity Funds outstanding throughout each period presented.
The figures in this table are audited and should be read in conjunction with
each Fund's financial statements and notes thereto, and the auditor's report
thereon, all of which are incorporated by reference into the Trust's Statement
of Additional Information. For further information regarding the International
Equity and Small Cap Equity Fund, see each Fund's Annual Report, which may be
obtained by contacting the Funds' Administrator.
<TABLE>
<CAPTION>
International Equity Fund
For the Period
For the August 3, 1995
Year Ended (Commencement of Operations)
October 31, 1996 through October 31, 1995
---------------- ---------------------------
<S> <C> <C>
Net Asset Value - Beginning of Period ........... $9.61 $10.00
----- ------
Investment Operations:
Net investment income ...................... 0.07 0.02
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions ............................. 0.80 (0.41)
---- -----
Total from investment operations ....... 0.87 (0.39)
---- -----
Distributions:
From net investment income.................... (0.04) --
----- -----
Net Asset Value - End of Period ................. $10.44 $9.61
====== =====
Total Return ................................... 9.11% (3.90)%
Ratios (to average net assets)-Supplemental Data:
Expenses(1)................................. 1.25% 1.25%*
Net investment income....................... 0.70% 1.02%*
Portfolio turnover rate.......................... 59.11% 42.21%*
Average commission rate paid..................... $0.0211 --
Net assets at end of period (000 omitted)........ $41,209 $16,764
</TABLE>
(1) Without waivers the annualized ratio of expenses to average daily net
assets would have been 1.80% and 2.60% for the period ending October 31,
1996, and October 31, 1995, respectively.
* Annualized.
6
<PAGE>
Small Cap Equity Fund
<TABLE>
<CAPTION>
For the Period
June 17, 1996
(Commencement of Operations)
through October 31, 1996
------------------------
<S> <C>
Net Asset Value-- Beginning of Period................ $10.00
------
Investment Operations:
Net investment loss............................... (0.02)
Net realized and unrealized loss
on investments.................................. (0.41)
-----
Total from investment operations.............. (0.43)
-----
Net Asset Value-- End of Period...................... 9.57
====
Total Return......................................... (4.30)%
Ratios (to average net assets)-- Supplemental Data:
Expenses(1)....................................... 1.25%*
Net investment loss............................... (0.52)%*
Portfolio turnover rate.............................. 94.38%*
Average commission rate paid......................... $0.0512
Net assets at end of period (000's omitted).......... $5,428
</TABLE>
(1) Without waivers the annualized ratio of expenses to average daily net
assets would have been 4.63% for the period.
* Annualized.
THE TRUST
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 and has established three
series: 1838 International Equity Fund, 1838 Small Cap Equity Fund and 1838
Fixed Income Fund. Each series of the Trust has a diversified portfolio of
assets.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Fund are set forth below.
The investment objective of each 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 a Fund will
achieve its objective.
International Equity Fund. The International Equity Fund's investment
objective is capital appreciation, with a secondary objective of income. The
Fund seeks to achieve its objective by investing in a diversified portfolio of
equity securities of issuers located in countries other than the United States.
Under normal conditions, at least 65% of the Fund's total assets will be
invested in the equity securities of issuers from at least three different
foreign countries. The Fund may employ a variety of investments and techniques
to hedge against market and currency risk. The Fund is designed for investors
seeking to complement their U.S. holdings through foreign equity investments and
should be considered as a vehicle for diversification and not as a balanced
investment program.
The Fund intends to reduce investment risk by allocating its investments
among the capital markets of a number of countries by investing in an
international portfolio of securities of foreign companies located throughout
the world. Specifically, the Fund intends to invest in the capital markets of
more than 20
7
<PAGE>
countries with emphasis on the largest markets of Japan, the United
Kingdom, France and Germany. While there are no prescribed limits on the
geographic allocation of the Fund's investments, management of the Fund
anticipates that a substantial portion of its assets will be invested in the
developed countries of Europe and the Far East. However, for the reasons stated
below, management of the Fund will give special attention to investment
opportunities in the developing countries of the world, including, but not
limited to, Eastern Europe, Latin America and the Far East. Although it is not
anticipated that a significant portion of the Fund's assets may be invested in
such developing countries, the Fund may invest without limitation in such
securities.
The allocation of the Fund's assets among the various foreign securities
markets will be based primarily on an assessment of the phase in the business
cycle and long-term growth potential of the various economies and the valuation
of each securities market, currency and taxation considerations and other
pertinent financial, social, national and political factors. Within such
allocations, the Investment Adviser will seek to identify equity investments in
each market which are expected to provide long-term capital appreciation which
equals or exceeds the performance benchmark of such market as a whole.
Up to 20% of the Fund's assets may be invested in developing countries.
This allocation of the Fund's assets reflects the belief that attractive
investment opportunities may result from an evolving long-term international
trend favoring more market-oriented economies, a trend that may especially
benefit certain developing countries with smaller capital markets. This trend
may be facilitated by local or international political, economic or financial
developments that could benefit the capital markets of such countries. Certain
such countries, particularly so-called "emerging" countries (such as Malaysia,
Mexico and Thailand), which may be in the process of developing more
market-oriented economies, may experience relatively high rates of economic
growth. Because of the general illiquidity of the capital markets in certain
developing countries, the Fund may invest in a relatively small number of
leading or relatively actively traded companies in such countries' capital
markets with the expectation that the investment experience of the securities of
such companies will substantially represent the investment experience of the
countries' capital markets as a whole.
The Fund currently does not intend to invest in developing countries that
were recently communist countries. If the Fund determines that it would be
beneficial to the Fund and its shareholders to invest in developing countries
that were recently communist countries, the Fund will notify shareholders that
it intends to invest in such countries, and will provide proper disclosure with
respect to such investments.
While the Fund primarily will emphasize investments in common stock, the
Fund may also invest in other equity securities consisting of preferred stocks,
debt securities which are convertible into or exchangeable for common stock, and
equity securities such as warrants or rights that are convertible into common
stock. The Fund reserves the right, as a temporary defensive measure and to
provide for redemptions, to hold cash or cash equivalents in U.S. dollars or
foreign currencies and short-term securities including money market securities.
Under certain adverse investment conditions, the Fund may restrict the markets
in which its assets will be invested and may increase the proportion of assets
invested in temporary defensive obligations of U.S. issuers. Under normal
conditions, however, at least 65% of the Fund's total assets will be invested in
the equity securities of issuers from at least three different foreign
countries. Investments made for temporary defensive purposes will be maintained
only during periods in which the Investment Adviser determines that economic or
financial conditions are adverse for holding or being fully invested in equity
securities of foreign issuers. A portion of the portfolio normally will be held
in U.S. dollars or short-term interest bearing U.S. dollar-denominated
securities to provide for possible redemptions.
8
<PAGE>
For purposes of the Fund's investment objective, an issuer ordinarily will
be considered to be located in the country under the laws of which it is
organized or where the primary trading market of its securities is located. The
Fund, however, may consider a company to be located in a country, without
reference to its domicile or to the primary trading market of its securities,
when at least 50% of its non-current assets, capitalization, gross revenues or
profits in any one of the two most recent fiscal years represents (directly or
indirectly through subsidiaries) assets or activities located in such country.
The Fund also may consider closed-end investment companies to be located in the
country or countries in which they primarily make their portfolio investments.
Small Cap Equity Fund. 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 $1 billion 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 $1 billion 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 $1 billion 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,
9
<PAGE>
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 Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group ("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."
Fixed Income Fund. The Fixed Income Fund's investment objective is maximum
current income, with a secondary objective of growth. The Fund seeks its
objective by investing, under normal circumstances, at least 65% of its assets
in a diversified portfolio of fixed income securities.
The Fund may invest in income-producing securities of all types, including
bonds, notes, mortgage and mortgage-backed securities, government and government
agency obligations, zero coupon securities, convertible securities, bank
certificates of deposit, fixed time deposits and bankers' acceptances, foreign
securities, indexed securities, and asset-backed securities. The Fund normally
will invest in investment-grade debt securities (including convertible
securities) and unrated securities determined by the Investment Adviser to be of
comparable quality. Investment grade categories are described under "Small
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Cap Equity Fund" above. The Fund may also invest up to 5% of its total
assets in lower-quality debt securities, sometimes referred to as "junk bonds".
Common stocks acquired through the exercise of conversion rights or
warrants, or the acceptance of exchange or similar offers, ordinarily will not
be retained by the Fund. An orderly disposition of these stocks will be effected
consistent with the judgment of the Investment Adviser as to the best price
available.
Under normal circumstances, at least 65% of the Fund will be invested in
fixed-income securities. The Fund has no restriction on maturity; however, it
normally invests in a broad range of maturities and generally maintains a
dollar-weighted average maturity of 7 to 12 years. The average maturity of the
Fund's investments will vary depending on market conditions. In making
investment decisions for the Fund, the Investment Adviser will consider factors
in addition to current yield, including preservation of capital, the potential
for realizing capital appreciation, maturity and yield to maturity. The
Investment Adviser will monitor the Fund's investment in particular securities
or in types of debt securities in response to its appraisal of changing economic
conditions and trends, and may sell securities in anticipation of a market
decline or purchase securities in anticipation of a market rise.
The Fund may invest in mortgage-backed, asset-backed and mortgage
pass-through securities. Mortgage pass-through securities are securities
representing interests in "pools" of mortgage loans secured by residential or
commercial real property in which payments of both interest and principal on the
securities are generally made monthly, in effect "passing through" monthly
payments made by the individual borrowers on the mortgage loans which underlie
the securities (net of fees paid to the issuer or guarantor of the securities).
Early repayment of principal on some mortgage-related securities (arising from
prepayments of principal due to sale of the underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose the Fund to
a lower rate of return upon reinvestment of principal. Also, if a security
subject to prepayment has been purchased at a premium, the value of the premium
would be lost in the event of prepayment. The value of some mortgage- or
asset-backed securities in which the Funds invest may be sensitive to changes in
prevailing interest rates, and, like the other investments of the Fund, the
ability of the Fund to successfully utilize these instruments may depend in part
upon the ability of the Investment Adviser to forecast interest rates and other
economic factors correctly. Like other fixed income securities, when interest
rates rise, the value of a mortgage-related security generally will decline;
however, when interest rates are declining, the value of mortgage-related
securities with prepayment features may not increase as much as other fixed
income securities.
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")); or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage-related securities created by
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non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers. The Fund will not invest more than 25% of its
total assets in mortgage-related securities not guaranteed by the U.S.
Government or by agencies or instrumentalities of the U.S. Government.
Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments. Similar to a bond, interest and pre-paid principal on a CMO are
paid, in most cases, semi-annually. CMOs may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured
into multiple classes, with each class bearing a different stated maturity.
Monthly payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class; investors holding the longer
maturity classes receive principal only after the first class has been retired.
CMOs that are issued or guaranteed by the U.S. Government or by any of its
agencies or instrumentalities will be considered U.S. Government securities by
the Fund, while other CMOs, even if collateralized by U.S. Government
securities, will have the same status as other privately issued securities for
purposes of applying the Fund's diversification tests.
Commercial mortgage-backed securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities developed more recently and in
terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage- or asset-backed securities.
Mortgage-related securities include securities other than those described
above that directly or indirectly represent a participation in, or are secured
by and payable from, mortgage loans on real property, such as CMO residuals or
stripped mortgage-backed securities ("SMBS"), and may be structured in classes
with rights to receive varying proportions of principal and interest.
A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest only, or
"IO" class), while the other class will receive all of the principal (the
principal-only, or "PO" class). The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including prepayments) on
the related underlying mortgage assets, and a rapid rate of principal payments
may have a material adverse effect on the Fund's yield to maturity from these
securities. The Fund has adopted a policy under which it will not invest more
than 5% of its net assets in any combination of IO, PO, or inverse floater
securities. The Fund may invest in other asset-backed securities that have been
offered to investors. For a discussion of the characteristics of some of these
instruments, see the Statement of Additional Information.
A more detailed list of securities that the Fixed Income Fund may invest
in, and the risks attendant thereto, is included in the Appendix to this
Prospectus.
OTHER INVESTMENT POLICIES
Depositary Receipts. Each Fund may invest in the securities of foreign
issuers in the form of American Depositary Receipts (ADRs), European
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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 a Fund
determines that other securities convertible into foreign securities are
available on the market, that 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.
Restricted Securities. Each 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, a 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. 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 each 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 a Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
securities.
When-Issued, Forward Delivery and Delayed Settlement Securities. The Small
Cap Equity 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 Small Cap
Equity 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 Small Cap Equity 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 Small Cap Equity Fund.
RISKS IN DERIVATIVES AND OTHER INVESTMENT PRACTICES
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
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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 each Fund may invest, and the risks associated
with those investments, see "Investment Objectives and Policies" in the Trust's
Statement of Additional Information.
Forward Foreign Currency Exchange Contracts
Each 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 a Fund as a result of exchange rate fluctuation, they will also limit any
gains that may otherwise have been realized. Each Fund will enter into such
contracts only to protect against the effects of fluctuating rates of currency
exchange and exchange control regulations. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the long-term investment decisions made with regard to overall diversification
strategies. However, the Investment Adviser believes that it is important to
have the flexibility to enter into such forward contracts when it determines
that the best interests of the performance of a Fund will thereby be served.
Except when a Fund enters into a forward contract for the purchase or sale of a
security denominated in a foreign currency, which requires no segregation, a
forward contract which obligates the Fund to buy or sell currency will generally
require the Trust's Custodian to hold an amount of that currency or liquid
securities denominated in that currency equal to the Fund's obligations, or to
segregate liquid high grade assets equal to the amount of the Fund's obligation.
If the value of the segregated assets declines, additional liquid high grade
assets will be segregated on a daily basis so that the value of the segregated
assets will be equal to the amount of such Fund's commitments with respect to
such contracts. 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, each 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. A 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. A 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 50% of the value of its
total assets. In addition, a 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
Each 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 a 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.
Each 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. Each Fund maintains liquid securities with its custodian
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equal to or greater than the exercise price of the underlying security. A
Fund will receive a premium for writing a put option which increases the Fund's
return. A 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
Each Fund is authorized to purchase put options to hedge against a decline
in the market value of its securities. By buying a put option a 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.
A 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
Each Fund may engage in transactions in stock index options and futures,
and related options on such futures. A 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. Each 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.
Each 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. A Fund may effect transactions
in stock index futures contracts in connection with equity securities in which
it invests.
Each 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 a 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.
Each Fund also has authority to purchase and write call and put options on
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. A Fund may purchase put options or write call
options on stock indices rather than selling the underlying futures contract in
anticipation of a decrease in the market value of its
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securities. Similarly, a Fund may purchase call options, or write put
options on 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.
Each 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
A 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.
A 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 (the "SEC") has
taken the position that purchased OTC options and the assets used as cover for
written OTC options are illiquid securities. Therefore, each 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 a Fund and
margin deposits on a 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 a 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 Funds and may be amended by the Trustees of the Trust without the
approval of the Funds' shareholders. However, a 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 each Fund provide that the futures trading activities described herein will
not result in a Fund being deemed a "commodity pool operator" under such
regulations if the Fund adheres to certain restrictions. In particular, a 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.
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When a 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 each 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, a Fund does not
necessarily pay the lowest commission or spread available. The Funds have no
obligation to deal with any broker or group of brokers in the execution of
transactions in portfolio securities. Under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), persons affiliated with a 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 a 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., a Fund
may consider sales of shares of such 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 each Fund will endeavor to
achieve the best net results in effecting its portfolio transactions.
Lending of Portfolio Securities
Each 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 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, a 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, a 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
the 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, a Fund may engage in a
substantial number of portfolio transactions. Although it is impossible to
predict the portfolio turnover rate, the Trust does not expect the portfolio
turnover rate to exceed 75% for the International Equity Fund, 100% for the
Small Cap Equity Fund, and 100% for the Fixed Income Fund. 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.
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Repurchase Agreements and Purchase and Sale Contracts
Each 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 a 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 a 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, a 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; such 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 a Fund but only constitute
collateral for the seller's obligation to pay the repurchase price. Therefore, a
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 such 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 a Fund would be dependent upon
intervening fluctuations of the market values of such securities and the accrued
interest on the securities. In such event, a 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 each Fund's investment restriction limiting investments in securities
that are not readily marketable to 15% of the Fund's total assets.
SPECIAL RISK CONSIDERATIONS
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 each 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 a Fund's
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
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withholding taxes. As a result, management of each 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
a 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 a Fund are uninvested and no return is earned
thereon. The inability of a Fund to make intended security purchases due to
settlement problems could result in temporary periods when assets of such Fund
are uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause such 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.
It is anticipated that a portion of the International Equity Fund's assets
may be invested in the developing countries of the world, including, but not
limited to, countries located in Eastern Europe, Latin America and the Far East.
The risks noted above as well as in "Restrictions on Foreign Investment" below
are often heightened for investments in developing countries.
Restrictions on Foreign Investment
Some countries prohibit or impose substantial restrictions on investments
in their capital markets, particularly their equity markets, by foreign entities
such as the Funds. As illustrations, certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
by foreign persons in a company to only a specific class of securities which may
have less advantageous terms than securities of the company available for
purchase by nationals.
A number of countries, such as South Korea, Taiwan and Thailand, have
authorized the formation of closed-end investment companies to facilitate
indirect foreign investment in their capital markets. In accordance with the
Investment Company Act, a Fund may invest up to 10% of its total assets in
securities of closed-end investment companies. This restriction on investments
in securities of closed-end investment companies may limit opportunities for a
Fund to invest indirectly in certain smaller capital markets. Shares of certain
closed-end investment companies may at times be acquired only at market prices
representing premiums to their net asset values. If a Fund acquires shares in
closed-end investment companies, shareholders would bear both their
proportionate share of expenses in such Fund (including investment advisory
fees) and, indirectly, the expenses of such closed-end investment companies. A
Fund also may seek, at its own cost, to create its own investment entities under
the laws of certain countries.
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In some countries, banks or other financial institutions may constitute a
substantial number of the leading companies or the companies with the most
actively traded securities. Also, the Investment Company Act prohibits a Fund
from investing in any equity security of an issuer which, in its most recent
fiscal year, derived more than 15% of its revenues from "securities related
activities," as defined by the rules thereunder, unless, immediately after
acquisition, the Fund holds neither more than 5% of any class of the issuer's
equity securities nor more than 10% of the issuer's debt securities, and no more
than 5% of the value of such Fund's total assets is invested in the securities
of such issuer. This provision may restrict the Fund's investments in certain
foreign banks and other financial institutions.
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
Small Cap Equity Fund's shares may be more volatile than the shares of a fund
that invests in larger capitalization stocks.
Fixed Income Securities
The market value of fixed-income securities will change in response to
interest rate changes and other factors. During periods of falling interest
rates, the value of outstanding fixed-income securities generally rises.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. Moreover, while securities with longer maturities
tend to produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
Changes by recognized agencies in the credit rating of any fixed-income security
and in the ability of an issuer to make payments of interest and principal also
affect the value of these investments. Changes in the value of portfolio
securities will not necessarily affect cash income derived from those securities
but will affect the net asset value of the Portfolio's shares.
Bonds rated Baa by Moody's or BBB by S&P, or with equivalent ratings, 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 grade bonds. Debt securities
rated lower than Baa by Moody's or BB by S&P, or with equivalent ratings,
(sometimes referred to as "junk bonds") have poor protection against default in
payment of principal and interest. These securities are often considered to be
speculative and involve greater risk of loss or price changes due to changes in
the issuer's capacity to pay. Market prices of lower-rated debt securities may
fluctuate more than those of higher-rated securities, and may decline
significantly in periods of general economic difficulty which may follow rising
interest rates. Unrated securities are not necessarily of lower quality than
rated securities, but they may not be attractive to as many buyers.
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Mortgage-Related Securities
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. Many mortgage-related securities are subject to
extension risk, meaning that their duration increases or decreases due to
changes in the rate of prepayment on underlying mortgages at precisely the time
that it may be most disadvantageous to the holder of the securities for such
changes to occur. To the extent that unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase.
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 a Fund being
unable to control losses by closing its position where a liquid secondary market
does not exist. The risk that a Fund will be unable to close out a futures
position or options contract will be minimized by such 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 options and futures transactions, 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
Each 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. A
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 a Fund. Such
leveraging increases such Fund's exposure to capital risk, and borrowed funds
are subject to interest costs which will reduce net income.
INVESTMENT RESTRICTIONS
Each 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, each Fund may not:
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 or, for the International Equity Fund, with respect to no
more than 25% of the Fund's total assets, to securities issued or
guaranteed by the government of any country which is a member of the
Organization for Economic Co-operation and Development (OECD).
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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.
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 assets of a Fund will not cause a violation
of the investment restrictions so long as percentage restrictions are observed
by such Fund at the time it purchases a security.
Nothing in the foregoing investment restrictions shall be deemed to
prohibit a 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 a 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 FUNDS
Board of Trustees
The Board of Trustees of the Trust consists of five individuals, three of
whom are not "interested persons" of the Fund as defined in the Investment
Company Act. The members of each 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 each Fund,
and appoint the officers who conduct the daily business of the Funds. The
Statement of Additional Information contains more information regarding the
Officers and Trustees of the Funds.
Investment Adviser
The Investment Adviser for the Funds 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 each Fund in
accordance with its objective, policies and restrictions.
For its services, the Investment Adviser is paid a monthly fee at the
annual rate as follows of each Fund's average daily net assets:
International Equity Fund...................0.75%
Small Cap Equity Fund.......................0.75%
Fixed Income Fund...........................0.50%
These fees are higher than that paid by most mutual funds for investment
advisory services, but management believes these fees are justified by the
additional investment research and analysis required in connection with
investing in equities on an international basis. These fees are subject to
reductions reflecting certain reductions in the fee of the Investment Adviser
pursuant to voluntary reductions in fees paid by each Fund.
W. Thacher Brown, the President, Chairman and a Trustee of the Trust, is
the President and a 39.5% shareholder of 1838 Investment Advisors, Inc. ("1838
Inc."), which is the managing general partner of the Adviser. Mr. Brown is also
an individual limited partner of the Investment Adviser.
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George W. Gephart, Jr., a Trustee and Vice President of the Fund, Anna M.
Bencrowsky, a Vice President, Treasurer and Secretary of the Fund, Johannes B.
van den Berg, a Vice President of the Fund, and Marcia Zercoe, a Vice President
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 January 1, 1997, the Investment Adviser managed
approximately $5 billion in client assets.
From August 3, 1995 (commencement of operations) through January 1, 1997,
the International Equity Fund had a Sub-Investment Advisory contract with
MeesPierson 1838 Investment Advisors (the "Prior Sub-Adviser") and the
Investment Adviser. The Board of Trustees voted to terminate this contract
effective January 1, 1997 due to a probable change in control of the Prior
Sub-Adviser. As of January 1, 1997, Johannes B. van den Berg, the Portfolio
Manager of the International Equity Fund and Managing Director of the Prior
Sub-Adviser, became an employee of the Investment Adviser and continues his role
as the Fund's Portfolio Manager.
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.
Johannes B. van den Berg, Principal of the Investment Adviser, is
principally responsible for the day-to-day management of the International
Equity Fund's portfolio. He was the Managing Director and Portfolio Manager of
the Prior Sub-Adviser and has served as Managing Director-International of MPCM
since 1993. From 1983 to 1993, Mr. van den Berg served at the Amsterdam office
of MeesPierson Capital Management, B.V. (formerly known as Pierson Capital
Management), including as Managing Director and Chief Investment Officer from
1990 to 1993. Since 1991, Mr. van den Berg has co-managed the World Property
Fund, a global real estate investment trust fund. Between 1987 and 1990, Mr. van
den Berg managed the European Growth Fund, a small cap European equity mutual
fund.
Edwin B. Powell, Principal of the Investment Adviser, will be principally
responsible for the day-to-day management of the Small Cap Equity 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.
Marcia Zercoe, Principal of the Investment Adviser, will be principally
responsible for the day-to-day management of the Fixed Income Fund's portfolio.
Prior to joining the Investment Advisor, Ms. Zercoe was Vice President and Head
of Fixed Income at FNB Maryland from 1994 to 1995, where she managed the ARK
Income Fund, an open-end fixed income mutual fund, and was Vice President and
Head of Fixed Income at Provident Capital Management, Philadelphia, PA from 1990
to 1994. While at Provident Capital Management (a subsidiary of PNC), Ms. Zercoe
managed the PNC Managed Income 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 each
Fund. RSD also directly, or through its affiliates, provides investor support
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services. RSD will receive no compensation for distribution of shares of
the Funds, 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"), a banking institution organized under the laws
of the State of Delaware. RSD has advised the Fund that RSD believes that it may
perform the services contemplated by its agreements 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
each Fund and also provides accounting services to the Funds.
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 .15%
of the average daily net assets of the Trust on the first $50 million; plus .10%
of such assets in excess of $50 million to $100 million; plus .07% of such
assets in excess of $100 million to $200 million; and .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 the
International Equity Fund, and $15,000 minimum per year for each additional
fund. Rodney Square also serves as Transfer Agent and Dividend Paying Agent of
the Funds.
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 International Equity Fund is Bankers Trust Company,
280 Park Avenue, New York, NY 10017. Bankers Trust Company employs foreign
sub-custodians to maintain the Fund's foreign assets outside the United States
subject to the Board of Trustees' annual review of those foreign custody
arrangements.
The custodian for the Small Cap Equity and Fixed Income Funds is Wilmington
Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, DE
19890-0001.
Expenses
Except as indicated above, each Fund is responsible for the payment of its
own 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
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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 each 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 a Fund's shares. The net asset value is determined by
dividing the value of a Fund's securities, plus any cash and other assets, less
all liabilities, by the number of shares outstanding. Expenses and fees of a
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 each Fund's net 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 a 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 a 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 each 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 each Fund are offered on a continuous basis by the Funds through
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 Funds and RSD reserve the right to reject any purchase order
and a Fund and RSD may suspend the offering of such Fund's shares. The minimum
initial investment is $1,000, with no minimum subsequent investment. Each 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:
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Purchases by Mail
You may purchase shares by sending a check drawn on a U.S. bank payable to
either the 1838 International Equity Fund, the 1838 Small Cap Equity Fund, or
the 1838 Fixed Income Fund, along with a completed Application, to 1838
Investment Advisors Funds, 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 Investment Advisors Funds, c/o Rodney Square Management
Corporation, 1105 N. Market St., 19th Floor, Wilmington, DE 19801. 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 Trust 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: [FUND NAME]
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 shares of a Fund through an Automatic Investment
Plan (the "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
a Fund's 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 a 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.
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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 each 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 Trust 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 Fund shares without charge on any day that
such 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.
Each Fund will honor redemption requests of shareholders who recently
purchased shares by check, but will not mail the proceeds until 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 a 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.
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In-Kind Redemption
Each 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 such Fund selling
assets under disadvantageous conditions and to the detriment of the remaining
shareholders of the Fund.
Pursuant to the Trust'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 Trust has elected, pursuant to Rule 18f-1 under the
Investment Company Act, to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of a 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 such 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 a Fund. In-kind payments
need not constitute a cross-section of a Fund's portfolio. Where a shareholder
has requested redemption of all or a part of the shareholder's investment, and
where a Fund completes such redemption in-kind, such 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 Investment
Advisors Funds, 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 Investment Advisors Funds, c/o Rodney Square Management
Corporation, 1105 N. Market Street, 19th Floor, Wilmington, DE 19801.
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.
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Neither the Funds nor their 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, each 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 a 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 Funds and Rodney Square reserve 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 Trust.
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 a 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.
Each 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). A 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
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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 International Equity Fund and the Small Cap Equity Fund will declare
and pay dividends annually to their shareholders of substantially all of their
net investment income, if any, earned during the year from their investments.
The Fixed Income Fund will declare and pay dividends quarterly to its
shareholders of substantially all of its net investment income, if any, earned
during each quarter from its investments. A Fund will distribute net realized
capital gains, if any, once with respect to each year. Expenses of each Fund,
including the advisory fee, are accrued each day. Reinvestments of dividends and
distributions in additional shares of each 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 will be treated as a separate entity for federal
income and excise tax purposes. Each 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, a 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.
Each 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 a Fund from
domestic (U.S.) sources.
Distributions paid by a 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. A 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 each Fund and received by the shareholder on December
31 of the calendar year in which they are declared.
A sale of shares of a 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
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on sale or exchange of a 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.
Each 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 a
Fund at the end of its fiscal year are invested in securities of foreign
corporations, a 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
each 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 a 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, a 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.
Each year, each Fund will mail information to shareholders on the tax
status of the Fund's dividends and distributions. Each Fund is required to
withhold 31% of taxable dividends, capital gains distributions, and redemptions
paid to shareholders who have not complied with Internal Revenue Service
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.
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. 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 Funds and to 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 each Fund rounded to the
nearest 1/1000th of a share.
In the interest of economy and convenience, the Trust does not issue share
certificates of the Funds. 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.
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RETIREMENT PLANS
Shares of each 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 account, 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 series 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 each 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 of the Trust, 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. As of February 28, 1997, Patterson &
Co. owned by virtue of shared or sole voting or investment power on behalf of
its underlying customer accounts 59.90% of the shares of the International
Equity Fund and may be deemed to be a controlling person of that Fund, under the
Investment Company Act. Also as of February 28, 1997, Poolside & Co. owned by
virtue of shared or sole voting or investment power on behalf of its underlying
customer accounts 30.54% of the shares of the Small Cap Equity Fund, and
Paterson & Co. and owned by virtue of shared or sole voting or investment power
on behalf of its underlying customer accounts 29.67% of the shares of the Small
Cap Equity Fund, and both may be deemed to be controlling persons under the
Investment Company Act.
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
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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 and yield data may from time to time be included in
advertisements about the Funds. 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 a Fund. Aggregate total return reflects the
total percentage change over the stated period.
Yield refers to the income generated by an investment in a Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the income
actually paid to shareholders.
The International Equity Fund may compare its investment performance to
appropriate market indices, such as Lipper Mutual Fund Indices, Financial Times
Goldman Sachs Europe-Asia Index, Morgan Stanley Capital International EAFE Index
and Morningstar, Inc., as well as to other appropriate mutual fund indices.
The Small Cap Equity 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.
The Fixed Income Fund may compare its investment performance to appropriate
market indices such as the Lehman Aggregate Index and the Lehman Government
Corporate Index, as well as to appropriate mutual fund indices. Each 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 a 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
a Fund, and the Fund's operating expenses. Investment performance also often
reflects the risk associated with a 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 a Fund
to calculate its performance. These factors should be considered when comparing
a Fund to other mutual funds and other investment vehicles.
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APPENDIX
The following are securities in which the Fixed Income Fund may invest in
accordance with its investment objectives and portfolios:
BANK OBLIGATIONS. Bank obligations include bankers' acceptances which are
negotiable obligations of a bank to pay a draft which has been drawn on it by a
customer; certificates of deposit which are negotiable, certificates
representing a commercial bank's obligation to repay funds deposited with it,
earning specified rates of interest over given periods or issued at a discount;
and time deposits which are non-negotiable deposits in a banking institution
earning a specified interest rate over a given period of time.
COMMERCIAL PAPER. Commercial paper is an obligation issued by a bank,
broker-dealer, corporation and other entities for purposes such as financing its
current operations.
CONVERTIBLE SECURITIES. Convertible securities are usually preferred stock
or bond issues that may be converted or exchanged by the holder into shares of
the underlying common stock at a stated exchange ratio. A convertible security
may also be subject to redemption by the issuer but only after a particular date
and under certain circumstances (including a specified-price) established upon
issue. If a convertible security held by the Fixed Income Fund is called for
redemption, that Fund could be required to tender it for redemption, convert it
to the underlying common stock, or sell it to a third party.
CORPORATE DEBT SECURITIES. Corporate debt securities include corporate
bonds, debentures, notes and other similar corporate debt instruments, including
convertible securities. Debt securities may be acquired with warrants attached.
Corporate income producing securities may also include forms of preferred or
preference stock. The rate of interest on a corporate debt security may be
fixed, floating or variable, and may vary inversely with respect to a reference
rate. See "Variable and Floating Rate Securities" below. The rate of return or
return of principal on some debt obligations may be linked or indexed to the
level of exchange rates between the U.S. dollar and a foreign currency or
currencies.
Investments in corporate debt securities that are rated below investment
grade (rated below Baa (Moody's) or BBB (S&P)) are described as "speculative"
both by Moody's and S&P. Such securities are sometimes referred to as "junk
bonds," and may be subject to greater market fluctuations, less liquidity and
greater risk of loss of income or principal, including a greater possibility of
default or bankruptcy of the issuer of such securities, than are more highly
rated debt securities. Moody's also describes securities rated Baa as having
speculative characteristics. The Investment Adviser seeks to minimize these
risks through diversification, in-depth credit analysis and attention to current
developments in interest rates and market conditions.
FOREIGN CURRENCY TRANSACTIONS. Foreign currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investments in different countries, actual or perceived changes in
interest rates and other complex factors, as seen from an international
perspective. Currency exchange rates also can be affected unpredictably by
intervention (or the failure to intervene) by U.S. or foreign governments or
central banks, by currency controls or political developments in the U.S. or
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abroad. Currencies in which the Fixed Income Funds' assets are denominated may
be devalued against the U.S. dollar, resulting in a loss to the Fund.
The Fund may buy and sell foreign currencies on a spot and forward basis to
reduce the risks of adverse changes in foreign exchange rates. 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. By entering into a forward foreign currency contract, the Fund "locks
in" the exchange rate between the currency it will deliver and the currency it
will receive for the duration of the contract. As a result, the Fund reduces its
exposure to changes in the value of the currency it will deliver and increases
its exposure to changes in the value of the currency it will exchange into. The
effect on the value of the Fund is similar to selling securities denominated in
one currency and purchasing securities denominated in another. Contracts to sell
foreign currency would limit any potential gain which might be realized by the
Fund if the value of the hedged currency increases. The Fixed Income may enter
into these contracts for the purpose of hedging against foreign exchange risk
arising from the Fund's investment or anticipated investment in securities
denominated in foreign currencies. The Fund also may enter into these contracts
for purposes of increasing exposure to a foreign currency or to shift exposure
to foreign currency fluctuations from one country to another. The Fund may use
one currency (or a basket of currencies) to hedge against adverse changes in the
value of another currency (or a basket of currencies) when exchange rates
between the two currencies are positively correlated. The Fund will segregate
assets determined to be liquid by the Investment Adviser in accordance with
procedures established by the Board of Trustees, in a segregated account to
cover forward currency contracts entered into for non-hedging purposes.
The Fixed Income Fund may invest in options on foreign currencies and
foreign currency futures and options thereon. The Funds also may invest in
foreign currency exchange related securities, such as foreign currency warrants
and other instruments whose return is linked to foreign currency exchange rates.
The Fund may invest in securities denominated in foreign currencies will use
these techniques to hedge at least 75% of its exposure to foreign currency. For
a description of these instruments, see "Risks in Derivatives and Other
Investment Practices" in the Prospectus, and see the Trust's Statement of
Additional Information.
HIGH YIELD SECURITIES ("JUNK BONDS"). Investing in high yield securities
involves special risks in addition to the risks associated with investments in
higher rated fixed income securities. High yield securities may be regarded as
predominately speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Analysis of the creditworthiness of
issuers of high yield securities may be more complex than for issuers of higher
quality debt securities, and the ability to achieve its investment objective
may, to the extent of its investments in high yield securities, be more
dependent upon such creditworthiness analysis than would be the case if the Fund
were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to interest
rate changes than more highly rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
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could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If the issuer of high yield securities
defaults, the Fund may incur additional expenses to seek recovery. In the case
of high yield securities structured as zero coupon or payment-in-kind
securities, the market prices of such securities are affected to a greater
extent by interest rate changes, and therefore tend to be more volatile than
securities which pay interest periodically and in cash.
The secondary markets on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations in
the daily net asset value of the Fund's shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities, especially in a thinly traded
market.
The use of credit ratings as the sale method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit ratings
in a timely fashion to reflect events since the security was last rated. The
Investment Adviser does not rely solely on credit ratings when selecting
securities for the Fund, and develops its own independent analysis of issuer
credit quality. If a credit rating agency changes the rating of a portfolio
security held by the Fund, the Fund may retain the portfolio security if the
Investment Adviser deems it in the best interest of shareholders.
MUNICIPAL OBLIGATIONS. Municipal obligations are issued to raise money for
a variety of public or private purposes, including general financing for state
and local governments, or financing for specific projects or public facilities.
They may be issued in anticipation of future revenues, and may be backed by the
full taxing power of a municipality, the revenues from a specific project, or
the credit of a private organization. The value of some or all municipal
securities may be affected by uncertainties in the municipal market related to
legislation or litigation involving the taxation of municipal securities or the
rights on municipal securities holders. The Fixed Income Fund may own a
municipal security directly or through a participation interest.
U.S. GOVERNMENT SECURITIES. U.S. Government securities may be backed by the
full faith and credit of the U.S. government as a whole or only by the issuing
agency. For example, securities, issued by the Federal Home Loan Banks and the
Federal Home Loan Mortgage Corporation are supported only by the credit of the
issuing agency, and not by the U.S. government. Securities issued by the Federal
Farm Credit System, the Federal Land Banks and the Federal National Mortgage
Association are supported by the agency's right to borrow money from the U.S.
Treasury under certain circumstances. U.S. Treasury securities and some agency
securities, such as those issued by the Federal Housing Administration and the
Government National Mortgage Association are backed by the full faith and credit
of the U.S. government and are the highest-quality government securities.
Still others, such as those of the Student Loan Marketing Association, are
supported only by the credit of the instrumentality. U.S. Government securities
include securities that have no coupons, or have been stripped of their
unmatured interest coupons, individual interest coupons from such securities
that trade separately, and evidences of receipt of such securities. Such
securities may pay no cash income, and are purchased at a deep discount from
their value at maturity. Because interest on zero coupon securities is not
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distributed on a current basis but is, in effect, compounded, zero coupon
securities tend to be subject to greater market risk than interest-paying
securities of similar maturities. Custodial receipts issued in connection with
so-called trademark zero coupon securities, such as CATs and TIGRS, are not
issued by the U.S. Treasury, and are therefore not U.S. Government securities,
although the underlying bond represented by such receipt is a debt obligation of
the U.S. Treasury. Other zero coupon Treasury securities (STRIPs and CUBES) are
direct obligations of the U.S. Government.
VARIABLE OR FLOATING RATE INSTRUMENTS. Variable or floating rate
instruments (including notes purchased directly from issuers) bear variable or
floating interest rates and may carry rights that permit holders to demand full
payment from issuers or certain financial intermediaries. Floating rate
securities have interest rates that change whenever there is a change in a
designated base rate, while variable rate instruments provide for a specified
periodic adjustment in the interest rate. These formulas are designed to result
in a market value for the instrument that approximates its par value. Many
variable and floating rate instruments also carry demand features that permit
the Fund to sell them at par value plus accrued interest on short notice.
ZERO COUPON DEBT. Zero coupon debt securities do not make regular interest
payments. Instead, they are sold at a deep discount from their face value. In
calculating its daily dividend, the Fund takes into account as income a portion
of the difference between these securities' purchase prices and their face
values. Because they do not pay current income, the prices of zero coupon debt
securities can be volatile when interest rates change.
1838 INVESTMENT ADVISORS FUNDS
STATEMENT OF ADDITIONAL INFORMATION DATED __________, 1997
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Five Radnor Corporate Center, Suite 320, 100 Matsonford Road, Radnor, PA 19087
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1838 Investment Advisors Funds (the "Trust") has established
three series: 1838 International Equity Fund (the "International Equity Fund"),
1838 Small Cap Equity Fund (the "Small Cap Equity Fund") and 1838 Fixed Income
Fund (the "Fixed Income Fund") (individually, a "Fund" and collectively, the
"Funds") each with its own investment objective. Information concerning each
Fund is included in the Trust's Prospectus dated ___________, 1997. No
investment in shares should be made without first reading the Prospectus. A copy
of the 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
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THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONNECTION WITH THE TRUST'S CURRENT PROSPECTUS DATED _________, 1997. RETAIN
THIS STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE.
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TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES AND POLICIES..........................................3
INVESTMENT RESTRICTIONS....................................................13
INVESTMENT ADVISER.........................................................15
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...................................................................22
GENERAL INFORMATION........................................................24
PERFORMANCE................................................................24
FINANCIAL STATEMENTS.......................................................27
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INVESTMENT OBJECTIVES AND POLICIES
Each Fund seeks to achieve its respective investment
objectives by making investments selected in accordance with its investment
policies and restrictions. Each Fund will vary its investment strategy as
described the Trust's Prospectus to achieve its objectives. This Statement of
Additional Information contains further information concerning the techniques
and operations of each Fund, the securities in which each will invest, and the
policies each will follow.
The following discussion of investment techniques and
instruments should be read in conjunction with the "Investment Objectives and
Policies" and "Special Risk Considerations" sections of the Prospectus.
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")
will effect portfolio transactions without regard to holding period if, in its
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, the Small Cap Equity Fund anticipates its portfolio turnover
rate should not exceed 100% under normal conditions, and the Fixed Income Fund
anticipates that its annual 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 fiscal
year ended October 31, 1996 was 59.11%, and the portfolio turnover rate for the
Small Cap Equity Fund for the period from June 17, 1996 (commencement of
operations) to October 31, 1996 was 94.38%. 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
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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 a
Fund's outstanding voting securities.
A Fund's ability and decision 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,
each 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.
Mortgaged-Backed and Asset-Backed Securities
Mortgage-backed securities in which the Fixed Income Fund will
invest generally either carry a guaranty from an agency of the U.S. Government
or a private issuer of the timely payment of principal and interest or are
sufficiently seasoned to be considered by the Adviser to be of investment grade
quality. Mortgage-backed securities differ from bonds in that the principal is
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paid back by the borrower over the length of the loan rather than returned in a
lump sum at maturity. Mortgage-backed securities are called "pass-through"
securities because both interest and principal payments (including pre-payments)
are passed through to the holder of the security. When prevailing interest rates
rise, the value of a mortgage-backed security may decrease as do other types of
debt securities. When prevailing interest rates decline, however, the value of
mortgage-backed securities may not rise on a comparable basis with other debt
securities because of the prepayment feature. Additionally, if a mortgage-backed
security is purchased at a premium above its principal value because its fixed
rate of interest exceeds the prevailing level of yields, the decline in price to
par may result in a loss of the premium in the event of prepayment.
CMOs are securities which are collateralized by mortgage
pass-through securities. Cash flows from the mortgage pass-through are allocated
to various tranches in a predetermined, specified order. Each tranch has a
"stated maturity" - the latest date by which the tranch can be completely
repaid, assuming no prepayments - and has an "average life" - the average time
to receipt of a principal payment weighted by the size of the principal payment.
Asset-backed securities are collateralized by shorter term
loans such as automobile loans, computer leases, or credit card receivables. The
payments from the collateral are passed through to the security holder. The
collateral behind asset-backed securities tends to have prepayment rates that do
not vary from interest rates. In addition, the short-term nature of the loans
reduces the impact of any change in prepayment level.
Risks
Due to the possibility that prepayments (on home mortgages,
automobile loans and other collateral) will alter the cash flow on CMOs and
asset-backed securities, it is not possible to determine in advance the actual
final maturity date or average life. Faster prepayment will shorten the average
life, and slower prepayments will lengthen it. However, it is possible to
determine what the range of that movement could be and to calculate the effect
that it will have on the price of the security. In selecting these securities,
the Investment Adviser looks for those securities that offer a higher yield to
compensate for any variation in average maturity.
Duration
Duration is a measure of the expected timing of the cash flows
(principal and interest) of a fixed income security. It was developed as a more
precise alternative to the concept of "term to maturity". Duration incorporates
a bond's yield, coupon interest payments, final maturity and call features into
one measure. Most debt obligations provide interest ("coupon") payments in
addition to a final ("par") payment at maturity. Some obligations also have call
provisions. Depending on the relative magnitude of these payments, the market
values of debt obligations may respond differently to changes in the level and
structure of interest rates.
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
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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 a Fund 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.
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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.
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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%, 20%, and
10% of the total assets of the International Equity Fund, the Small Cap Equity
Fund, and the Fixed Income Fund, respectively.
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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.
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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.
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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
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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
-12-
<PAGE>
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 the Trust'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 a 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 a 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 a 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 a 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
-13-
<PAGE>
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 331/3% 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, a 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 a
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 a
Fund may invest in securities of companies which invest in or
sponsor such programs.
-14-
<PAGE>
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
The Trust, on behalf of each Fund, entered into an investment
advisory agreement with the Investment Adviser, effective March 28, 1995 (March
3, 1997 for the Fixed Income Fund) (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, the International Equity Fund and Small Cap Equity Fund are
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, and the Fixed Income
Fund is obligated to pay the Investment Advisor a monthly fee equal to an annual
rate of .50% of the Fund's average daily net assets. The Investment Advisory
Agreements currently 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 and Small Cap Equity Fund are, the
Investment Advisor has voluntarily agreed to waive its advisory fee and/or
reimburse either Fund monthly to the extent that either Fund's total operating
expenses exceed 1.25% of its average daily net assets. With respect to the Fixed
Income Fund, the Investment Advisor has voluntarily agreed to waive its advisory
fee and/or reimburse the Fund monthly to the extend that the Fund's total
operating expenses exceed 0.75% of the Fund's 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 year ended October 31, 1996
amounted to $218,232, of which $138,238 was waived. For the period August, 3,
1995 (commencement of operations) through October 31, 1995, the advisory fee
payable amounted to $29,563, all of which was waived. The advisory fee payable
to the Investment Advisor in connection with services provided to the Small Cap
Equity Fund for the period June 17, 1996 (commencement of operations) through
October 31, 1996 amounted to $12,641, all of which was waived.
The Investment Advisory Agreements became effective on March
28, 1995 (and March 3, 1997 for the Fixed Income Fund) 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
-15-
<PAGE>
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.
ALLOCATION OF PORTFOLIO BROKERAGE
The Investment 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, by such member, broker, or dealer
when viewed in terms of either a particular transaction or the Investment
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 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 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.
The Investment 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 and for the fiscal
year ended October 31, 1996 paid $124,675 in brokerage commissions. During the
period June 17, 1996 through October 31, 1996, the Small Cap Equity Fund paid
$9,692 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.
16
<PAGE>
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 February 28, 1997, 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. 59.90%
P.O. Box 7829
Philadelphia, PA 19101
As of February 28, 1997, the following shareholders were known
to own of record more than 5% of the outstanding shares of the Small Cap Equity
Fund:
Name and Address Percentage Ownership
1838 Investment Advisors 6.52%
FBO 401k Small Cap Fund
100 Matsonford Road,
Five Radnor Corporate Center, Suite 320
Radnor, PA 19087
Richard B. Ryon Insurance 6.50%
200 Norwegian Street
Pottsville, PA 17901
Trustees of Upper Darby Police Pension Plan 8.44%
KDB Resources
12 South Monroe Street, Suite 301
Media, PA 19063
Patterson & Co. 29.67%
c/o Corestates Bank NA
530 Walnut Street
Philadelphia, PA 19106
Poolside & Co. 30.54%
1 Enterprise Drive
Quincy, MA 02171
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.
-18-
<PAGE>
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>
*W. Thacher Brown 49 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. 78 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 62 Trustee Managing Director, CIP, Inc.
20 Valley Stream Parkway (Investments) (1989 - Present);
Suite 265 Consultant, DBH, Inc. (1987-1993);
Malvern, PA 19355 Director; Airgas Inc.
(1986-present).
</TABLE>
-19-
<TABLE>
<CAPTION>
<PAGE>
Position and Office Principal Occupation
Name and Address Age with the Trust during the Past Five Years
---------------- --- -------------------- --------------------------
<S> <C> <C>
*George W. Gephart, Jr. 43 Trustee and Vice President Principal, 1838 Investment
Five Radnor Corporate Center, Advisors, L.P. (1988 - Present);
Suite 320 Chairman, Bryn Mawr Rehab Hospital
100 Matsonford Road (Past); and Director, Main Line
Radnor, PA 19087 Health Systems and Jefferson Health
Systems (Present).
Robert P. Hauptfuhrer 65 Trustee Chairman and CEO, Oryx Energy
100 Matsonford Road Company (1988-1994); Director, Oryx
Building 5, Suite 300 Energy Company (1988-1994),
Radnor, PA 19087 Director, Quaker Chemical Corp.
(1977-Present).
Johannes B. van den Berg 39 Vice President Principal and Portfolio Manager,
Five Radnor Corporate Center, 1838 Investment Advisors L.P. (1997
Suite 320 - Present); Managing Director and
100 Matsonford Road Portfolio Manager, MeesPierson 1838
Radnor, PA 19087 Investment Advisors (1994-1996);
President, MeesPierson Capital
Management, Inc. (1993 - Present);
Managing Director and Chief
Investment Officer, MeesPierson
Capital Management, B.V. (1983 -
1993); and Director, Asian
Selection Fund.
Edwin B. Powell 59 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).
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
Position and Office Principal Occupation
Name and Address Age with the Trust during the Past Five Years
---------------- --- -------------------- --------------------------
<S> <C> <C>
Marcia Zercoe 37 Vice President Principal and Portfolio Manager,
Five Radnor Corporate 1838 Investment Advisors, L.P.
Center, Suite 320 (1995 to Present); Vice President
100 Matsonford Road and Head of Fixed Income, FNB
Radnor, PA 19087 Maryland (1994 to 1995); Vice
President and Head of Fixed Income,
Provident Capital Management (1990
to 1994).
Anna M. Bencrowsky 45 Vice President, Director, Investment Advisory and
Five Radnor Corporate Center, Treasurer and Secretary Mutual Fund Operations, 1838
Suite 320 Investment Advisors, L.P. (1988 -
100 Matsonford Road Present); and Vice President and
Radnor, PA 19087 Secretary, 1838 Bond-Debenture
Trading Fund.
John J. Kelley 37 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 34 Assistant Secretary Senior Fund Administrator, Rodney
1100 N. Market Street Square Management Corporation (1994
Wilmington, DE 19890-0001 - Present); Legal Assistant,
Skadden, Arps, Slate, Meagher &
Flom (1989 - 1994).
------------------
</TABLE>
*Trustees who are "interested persons" as defined in the Investment
Company Act of 1940.
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 "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 year ended October 31, 1996 is set forth below:
<TABLE>
<CAPTION>
Total
Compensation from
Aggregate Pension or Retirement Trust and Fund
Compensation Benefits Accrued Complex
Name and Position from the Trust 1 Part of Fund Expenses 2 Paid to 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. $8,000 $0 $8,000
Trustee
Frank B. Foster, III $8,000 $0 $8,000
Trustee
Robert P. Hauptfuhrer $8,000 $0 $8,000
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, 1996, such fees and expenses amounted to $24,000. As of February 28,
1997, Trustees and officers owned less than 1% of the outstanding shares of the
Small Cap Equity Fund and 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,
-22-
<PAGE>
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
-23-
<PAGE>
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
unaudited semi-annual and audited 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.
-24-
<PAGE>
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.
-25-
<PAGE>
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 year
ended October 31, 1996 was 9.11%. The aggregate total return from inception of
the Fund (August 3, 1995) to October 31, 1996 was 4.85%. The average annual
return for the period was 3.86%. The Small Cap Fund's total return for the
period June 17, 1996 (commencement of operations) through October 31, 1996 was
(4.30)%.
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
Lehman Aggregate Index
Lehman Government Corporate 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.
-26-
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and the financial highlights for the
International Equity Fund and Small Cap Equity Fund for the fiscal year ended
October 31, 1996 as set forth in their respective Annual Reports to
shareholders, and the reports thereon of Coopers & Lybrand LLP, the Funds'
independent public accountants, and also appearing in the International Equity
Fund's and Small Cap Equity Fund's Annual Report, are incorporated herein by
reference.
-27-
<PAGE>
Form N-1A
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in the Prospectus (Part A):
Financial Highlights for the 1838 International Equity Fund
for the period August 3, 1995 through October 31, 1995 and
for the year ended October 31, 1996; and the Financial
Highlights for the 1838 Small Cap Equity Fund for the period
June 17, 1996 through October 31, 1996.
(i) Report of Independent Public Accountants dated
December 6, 1996.
Incorporated by reference to the Registrant's
Registration Statement on Form N-1A filed with the
U.S. Securities and Exchange Commission on January 31,
1997.
(ii) Audited Financial Statements of the 1838
International Equity Fund for the period ended
October 31, 1996.
Incorporated by reference to the Registrant's
Registration Statement on Form N-1A filed with the
U.S. Securities and Exchange Commission on January 31,
1997.
(iii) Report of Independent Public Accountants dated
December 6, 1996.
Incorporated by reference to the Registrant's
Registration Statement on Form N-1A filed with the
U.S. Securities and Exchange Commission on January 31,
1997.
(iv) Audited Financial Statements of the 1838 Small Cap
Equity Fund for the period ended October 31, 1996.
Incorporated by reference to the Registrant's
Registration Statement on Form N-1A filed with the
U.S. Securities and Exchange Commission on
January 31, 1997.
(b) Exhibits:
(1) Agreement and Declaration of Trust.
Incorporated by reference to Exhibit 1 to
Registrant's Registration Statement
on Form N-1A filed with the U.S. Securities and
Exchange Commission on December 13, 1994.
(2) By-laws.
Incorporated by reference to Exhibit 2 to
Registrant's Registration Statement on Form N-1A
filed with the U.S. Securities and Exchange
Commission on December 13, 1994.
<PAGE>
(3) Voting Trust Agreement:
Not Applicable.
(4) Specimen copy of each security to be
issued by the registrant.
Not Applicable.
(5) Investment Advisory Agreements:
(a)(i) Form of Investment Advisory Agreement
re: 1838 International Equity Fund series.
Incorporated by reference to Exhibit
5(a)(i) to Registrant's Registration
Statement on Form N-1A filed with the U.S.
Securities and Exchange Commission on
December 13, 1994.
(ii) Form of Investment Advisory Agreement re:
1838 Small Cap Equity Fund series.
Incorporated by reference to Exhibit
5(a)(ii) to Registrant's Registration
Statement on Form N-1A filed with the U.S.
Securities and Exchange Commission on
December 13, 1994.
(iii) Form of Investment Advisory Agreement re:
1838 Fixed Income Fund series.
(6) (a) DISTRIBUTION AGREEMENTS:
(i) Form of Distribution Agreement between the
Registrant and Rodney Square Distributors,
Inc.
Incorporated by reference to Exhibit 6(a)(i)
to Registrant's Registration Statement on
Form N-1A filed with the U.S. Securities and
Exchange Commission on December 13, 1994.
(b) DEALER AGREEMENTS:
Not applicable.
(7) BONUS, PROFIT SHARING AND PENSION CONTRACTS:
Not Applicable.
(8) CUSTODIAN AGREEMENT:
(a) Form of Custodial Agreement between the
Registrant and Wilmington Trust Company.
Incorporated by reference to Exhibit 8(a) to
Registrant's Registration Statement on Form
N-1A filed with the U.S. Securities and
Exchange Commission on December 13, 1994,
(b) Revised Schedule A to Form of Custodial
Agreement between the Registrant and
Wilmington Trust Company.
2
<PAGE>
(c) Form of Custodial Agreement between the
Registrant and Bankers Trust Company.
Incorporated by reference to Exhibit 8(b) to
Registrant's Registration Statement on Form
N-1A filed with the U.S. Securities and
Exchange Commission on March 8, 1995.
(9) OTHER MATERIAL CONTRACTS:
(a) Transfer Agency Agreement with Rodney Square
Management Corporation.
(b) Administration Agreement with Rodney Square
Management Corporation.
(c) Accounting Services Agreement with Rodney
Square Management Corporation.
(10) OPINION AND CONSENT OF COUNSEL AS TO THE LEGALITY
OF THE SECURITIES TO BE ISSUED:
(a) To be filed by the Registrant on a yearly
basis along with its Rule 24f-2 Notice.
(11) CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
(12) NOT APPLICABLE
(13) LETTER OF UNDERSTANDING RELATING TO INITIAL CAPITAL
Incorporated by reference to Exhibit 13 to
Registrant's Registration Statement on Form N-1A
filed with the U.S. Securities and Exchange
Commission on March 8, 1995.
(14) MODEL PLANS:
Not Applicable.
(15) PLANS UNDER RULE 12b-1:
Not Applicable.
(16) SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Incorporated by reference to Exhibit 16 to the
Registrant's Registration Statement on Form N-1A
filed with the U.S. Securities and Exchange
Commission on January 31, 1997.
(17) FINANCIAL DATA SCHEDULES
(a) 1838 International Equity Fund
Incorporated by reference to Exhibit 17 to
3
<PAGE>
the Registrant's Registration Statement on Form N-1A
filed with the U.S. Securities and Exchange
Commission on January 31, 1997.
(b) 1838 Small Cap Equity Fund Incorporated by reference
to Exhibit 17 to the Registrant's Registration
Statement on Form N-1A filed with the U.S.
Securities and Exchange Commission on January 31,
1997.
(18) NOT APPLICABLE
ITEM 25. PERSONS CONTROLLED OR UNDER COMMON CONTROL WITH THE REGISTRANT:
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES:
The number of record holders of securities of the Registrant
as of March 1, 1997 is as follows:
(1) (2)
Title of Class Number of Record Holders
-------------- ------------------------
1838 International
Equity Fund series 102
1838 Small Cap Equity
Fund series 18
ITEM 27. INDEMNIFICATION
Under the terms of the Delaware Business Trust Act and the
Registrant's Agreement and Declaration of Trust and By-Laws, no officer or
trustee of the Fund shall have any liability to the Trust or its shareholders,
except to the extent such limitation of liability is precluded by Delaware law,
the Agreement and Declaration of Trust, or the By-Laws.
Subject to the standards and restrictions set forth in the
Trust's Agreement and Declaration of Trust, the Delaware Business Trust Act,
section 3817, permits a business trust to indemnify and hold harmless any
trustee, beneficial owner, or other person from and against any and all claims
and demands whatsoever. Section 3803 protects a trustee, when acting in such
capacity, from personal liability to any person other than the business trust or
a beneficial owner for any act, omission, or obligation of the business trust or
any trustee thereof, except as otherwise provided in the Agreement and
Declaration of Trust.
The Agreement and Declaration of Trust provides that the
Trustees shall not be responsible or liable in any event for any neglect or
wrong-doing of any officer, agent, employee, Manager or Principal Underwriter of
the Fund, nor shall any Trustee be responsible for the act or omission of any
other Trustee. Subject to the provisions of the By-Laws, the Trust, out of its
assets, may indemnify and hold harmless each and every Trustee and officer of
4
<PAGE>
the Trust from and against any and all claims, demands, costs, losses, expenses,
and damages whatsoever arising out of or related to such Trustees' performance
of his or her duties as a Trustee or officer of the Trust; provided that nothing
in the Declaration of Trust shall indemnify, hold harmless or protect any
Trustee or officer from or against any liability to the Trust or any Shareholder
to which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
The By-Laws provide indemnification for each Trustee and
officer who was or is a party or is threatened to be made a party to any
proceeding, by reason of service in such capacity, to the fullest extent, if it
is determined that Trustee or officer acted in good faith and reasonably
believed: (a) in the case of conduct in his official capacity as an agent of the
Fund, that his conduct was in the Trust's best interests; (b) in all other
cases, that his conduct was at least not opposed to the Trust's best interests;
and (c) in the case of a criminal proceeding, that he had no reasonable cause to
believe the conduct of that person was unlawful. However, there shall be no
right to indemnification for any liability arising by reason of willful
misfeasance, bad faith, gross negligence, or the reckless disregard of the
duties involved in the conduct of the Trustee's or officer's office with the
Trust. Further, no indemnification shall be made:
(a) In respect of any proceeding as to which any Trustee
or officer shall have been adjudged to be liable on
the basis that personal benefit was improperly
received by him, whether or not the benefit resulted
from an action taken in the person's official
capacity; or
(b) In respect of any proceeding as to which any Trustee
or officer shall have been adjudged to be liable in
the performance of that person's duty to the Trust,
unless and only to the extent that the court in which
that action was brought shall determine upon
application that in view of all the relevant
circumstances of the case, that person is fairly and
reasonably entitled to indemnity for the expenses
which the court shall determine; however, in such
case, indemnification with respect to any proceeding
by or in the right of the Trust or in which liability
shall have been adjudged by reason of the disabling
conduct set forth in the preceding paragraph shall be
limited to expenses; or
(c) Of amounts paid in settling or otherwise disposing of
a proceeding, with or without court approval, or of
expenses incurred in defending a proceeding which is
settled or otherwise disposed of without court
approval, unless the required court approval set
forth in the By-Laws is obtained.
In any event, the Fund shall indemnify each officer and
Trustee against expenses actually and reasonably incurred in connection with the
successful defense of any proceeding to which each such officer or Trustee is a
party by reason of service in such capacity, provided that the Board of
Trustees, including a majority who are disinterested, non-party trustees, also
determines that such officer or Trustee was not liable by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of his or her
duties of office. The Trust shall advance to each officer and Trustee who is
made a party to a proceeding by reason of service in such capacity the expenses
incurred by such person in connection therewith, if (a) the officer or Trustee
affirms in writing that his good faith belief that he has met the standard of
conduct necessary for indemnification, and gives a written undertaking to repay
the amount of advance if it is ultimately determined that he has not met those
requirements, and (b) a determination that the facts then known to those making
the determination would not preclude indemnification.
5
<PAGE>
The Trustees and officers of the Fund are entitled and
empowered under the Declaration of Trust and By-Laws, to the fullest extent
permitted by law, to purchase errors and omissions liability insurance with
assets of the Fund, whether or not the Fund would have the power to indemnify
him against such liability under the Declaration of Trust or By-Laws.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers, the underwriter
or control persons of the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in that
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE
INVESTMENT ADVISER
1838 Investment Advisors, L.P.:
1838 Investment Advisors, L.P. ("Adviser") serves as
investment adviser of each Series of the Registrant.
Information as to the partners and officers of the Adviser is
included in its Form ADV, File No. 801-33025, filed on August
19, 1988 and most recently supplemented on March 15, 1996,
with the Securities and Exchange Commission. Such Form ADV is
incorporated by reference herein.
MeesPierson 1838 Investment Advisors:
MeesPierson 1838 Investment Advisors ("MeesPierson 1838") is a
general partnership whose two general partners are MeesPierson
Capital Management, Inc. and the Adviser. Their principal
address is 5 Radnor Corporate Center, Suite 320, 100
Matsonford Road, Radnor, PA 19087.
Item 29. PRINCIPAL UNDERWRITER:
(a) Rodney Square Distributors, Inc. ("RSD"), the
distributor for the Registrant's securities,
currently acts as distributor for the following
entities:
The Rodney Square Fund
The Rodney Square Multi-Manager Fund
The Rodney Square Tax-Exempt Fund
The Rodney Square Strategic Fixed-Income Fund
Heitman Real Estate Fund-Heitman/PRA Institutional Class
Kiewit Mutual Fund
The Olstein Funds
The Homestate Group
The Brazos Mutual Funds
6
<PAGE>
(b) The table below sets forth certain information as to
the Distributor's Directors, officers and Control
Persons:
Positions and Officers Positions and
Name and Principal with Rodney Square Offices with
Business Address Distributors, Inc. Registrant
- ------------------ ---------------------- -------------
Jeffrey O. Stroble President, Secretary, None
1105 North Market St. Treasurer & Director
Wilmington, DE 19890
Martin L. Klopping Director None
Rodney Square North
1100 North Market St.
Wilmington, DE 19890
Cornelius G. Curran Vice President None
1105 North Market St.
Wilmington, DE 19890
Item 30. LOCATION OF ACCOUNTS AND RECORDS:
Each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act and the Rules (17
CFR 270-31a-1 to 31a-3) promulgated thereunder, is maintained
by the Registrant, except for those maintained by the Fund's
administrator, transfer agent, dividend paying agent and
accounting services agent, Rodney Square Management
Corporation, at Rodney Square North, 1100 North Market Street,
Wilmington, DE 19890.
Item 31. MANAGEMENT SERVICES:
There are no management related service contracts not
discussed in Part A or Part B.
Item 32. UNDERTAKINGS
(a) Inapplicable.
(b) Registrant hereby undertakes to file a post-effective
amendment, using reasonably current financial
statements of the 1838 Fixed Income Fund, which need
not be certified, within four to six months from the
commencement of operations.
(c) The Registrant hereby undertakes to furnish each
person to whom a prospectus is delivered with a copy
of the Registrant's annual report for the fiscal year
ended October 31, 1996, upon request and without
charge.
(d) Registrant hereby undertakes, if requested to do so
by the holders of at least 10% of the Registrant's
outstanding shares, to call a meeting of shareholders
for the purpose of voting upon the question of
removal of a trustee or trustees and to assist in
communication with other shareholders, as directed by
Section 16(c) of the Investment Company Act of 1940.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, 1838 Investment Advisors Funds
has duly caused this Post-Effective Amendment to its Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Radnor, and the State of Pennsylvania, on the 12th day of March, 1997.
1838 INVESTMENT ADVISORS FUNDS
By: /s/ W. Thacher Brown
-------------------------------------
W. Thacher Brown, President
Pursuant to the requirements of the Securities Act of 1933, this Post
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- -----
/s/ W. Thacher Brown President and Trustee March 12, 1997
- ---------------------------
W. Thacher Brown
/s/ George W. Gephart, Jr. Vice President and Trustee March 12, 1997
- ---------------------------
George W. Gephart, Jr.
- --------------------------- Trustee March 12, 1997
Charles D. Dickey, Jr. *
- --------------------------- Trustee March 12, 1997
Frank B. Foster, III*
- --------------------------- Trustee March 12, 1997
Robert P. Hauptfurher*
/s/ Anna M. Bencrowsky Vice President March 12, 1997
- --------------------------- Secretary, Treasurer
Anna M. Bencrowsky (Principal Financial Officer)
* By: /s/ W. Thacher Brown
---------------------
W. Thacher Brown, Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith)
<PAGE>
POWER OF ATTORNEY
The undersigned officers and trustees of 1838 Investment Advisors Funds
(the "Fund") hereby appoints W. THACHER BROWN, GEORGE W. GEPHART, JR. and ANNA
M. BENCROWSKY (each with full power to act alone) as attorney-in-fact and agent,
in all capacities, to execute and to file any and all post-effective amendments
to the Fund's Registration Statement on Form N-1A under the Investment Company
Act of 1940, as amended, and under the Securities Act of 1933, as amended, and
all instruments necessary or desirable in connection therewith. Each of said
attorneys and agents have power and authority to do and perform in the name and
on behalf of each of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as each of the undersigned might or could do in person,
hereby ratifying and approving the act of said attorneys and agents and each of
them. This Power of Attorney may be executed in counterparts.
Signature Title Date
- --------- ----- ----
/s/ W. Thacher Brown President and Trustee January 12, 1996
- ---------------------------
W. Thacher Brown
/s/ George W. Gephart, Jr. Vice President and Trustee January 12, 1996
- ---------------------------
George W. Gephart, Jr.
/s/ Charles D. Dickey, Jr. Trustee January 12, 1996
- ---------------------------
Charles D. Dickey, Jr.
/s/ Frank B. Foster, III Trustee January 12, 1996
- ---------------------------
Frank B. Foster, III
/s/ Robert P. Hauptfurher Trustee January 12, 1996
- ---------------------------
Robert P. Hauptfurher
/s/ Anna M. Bencrowsky Vice President January 12, 1996
- --------------------------- Assistant Secretary,
Anna M. Bencrowsky Treasurer
<PAGE>
File No. 33-87298
File No. 811-8902
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 3
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 4
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
1838 INVESTMENT ADVISORS FUNDS
<PAGE>
EXHIBIT INDEX
Item 24(b)
Exhibit No. Exhibit
5(a)(iii) Investment Advisory Agreement re: 1838 Fixed Income Fund
(8)(a) Revised Schedule A to Form of Custodial Agreement between the
Registrant and Wilmington Trust Company
(9)(a) Transfer Agency Agreement with Rodney Square Management
Corporation
(9)(b) Administration Agreement with Rodney Square Management
Corporation
(9)(c) Accounting Services Agreement with Rodney Square Management
Corporation
(11) Consent of Certified Public Accountants
4
<PAGE>
Exhibit 5(a)(iii)
1838 INVESTMENT ADVISORS FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made by and between 1838 INVESTMENT ADVISORS FUNDS, a Delaware
business trust (hereinafter called the "Trust"), on behalf of 1838 FIXED INCOME
FUND (the "Fund"), and 1838 INVESTMENT ADVISORS, L.P., a Delaware limited
partnership (hereinafter called the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Trust has been organized and operates as an investment company
registered under the Investment Company Act of 1940 (the "1940 Act") and engages
in the business of investing and reinvesting its assets in securities, and the
Investment Adviser is a registered Investment Adviser under the Investment
Advisers Act of 1940 (the "Advisers Act") and engages in the business of
providing investment management services; and
WHEREAS, the Trust has selected the Investment Adviser to serve as the
investment adviser for the Fund effective as of the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and each of the parties hereto intending to be legally bound, it is agreed as
follows:
1. The Trust on behalf of the Fund hereby employs the Investment Adviser to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and officers of
the Trust for the period and on the terms hereinafter set forth. The Investment
Adviser hereby accepts such employment and agrees during such period to render
the services and assume the obligations herein set forth for the compensation
herein provided. The Investment Adviser shall for all purposes herein, be deemed
to be an independent contractor, and shall, unless otherwise expressly provided
and authorized, have no authority to act for or to represent the Trust or the
Fund in any way, or in any way be deemed an agent of the Trust or the Fund. The
Investment Adviser shall regularly make decisions as to what securities to
purchase and sell on behalf of the Fund and shall record and implement such
decisions and shall furnish the Board of Trustees of the Trust with such
information and reports regarding the Fund's investments as the Investment
Adviser deems appropriate or as the Trustees of the Trust may reasonably
request. Subject to compliance with the requirements of the 1940 Act, the
Investment Adviser may retain as a sub-adviser to the Fund, at the Investment
Adviser's own expense, any investment adviser registered under the Advisers Act.
2. The Fund shall conduct its own business and affairs and shall bear the
expenses and salaries necessary and incidental thereto including, but not in
limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records and procedures;
dealing with its own shareholders; the payment of dividends; transfer of stock,
<PAGE>
including issuance, redemption and repurchase of shares; preparation of share
certificates; reports and notices to shareholders; calling and holding of
shareholders' meetings; miscellaneous office expenses; brokerage commissions;
custodian fees; legal and accounting fees; and taxes. Partners and employees of
the Investment Adviser may be trustees, directors, officers and employees of the
funds of which the Investment Adviser serves as investment adviser. Partners and
employees of the Investment Adviser who are trustees, officers and/or employees
of the Trust shall not receive any compensation from the Trust for acting in
such dual capacity.
In the conduct of the respective businesses of the parties hereto and in
the performance of this Agreement, the Trust and Investment Adviser may share
facilities common to each, with appropriate proration of expenses between them.
3. (a) The Investment Adviser shall place and execute Fund orders for the
purchase and sale of portfolio securities with broker-dealers. Subject to the
primary objective of obtaining the best available prices and execution, the
Investment Adviser will place orders for the purchase and sale of portfolio
securities for the Fund with such broker-dealers as it may select from time to
time, including brokers who provide statistical, factual and financial
information and services to the Fund, to the Investment Adviser, or to any other
fund for which the Investment Adviser provides investment advisory services
and/or with broker-dealers who sell shares of the Fund or who sell shares of any
other fund for which the Investment Adviser provides investment advisory
services. Broker-dealers who sell shares of the funds of which the Investment
Adviser is investment adviser, shall only receive orders for the purchase or
sale of portfolio securities to the extent that the placing of such orders is in
compliance with the Rules of the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above and
subject to such policies and procedures as may be adopted by the Board of
Trustees and officers of the Trust, the Investment Adviser is authorized to pay
a member of an exchange, broker or dealer an amount of commission for effecting
a securities transaction in excess of the amount of commission another member of
an exchange, broker or dealer would have charged for effecting that transaction,
in such instances where the Investment Adviser has determined in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such member, broker or dealer,
viewed in terms of either that particular transaction or the Investment
Adviser's overall responsibilities with respect to the Fund and to other funds
for which the Investment Adviser exercises investment discretion.
4. As compensation for the services to be rendered to the Fund by the
Investment Adviser under the provisions of this Agreement, the Trust on behalf
of the Fund shall pay to the Investment Adviser from the Fund's assets an annual
fee equal to 0.50% of the daily average net assets of the Fund, payable on a
monthly basis.
<PAGE>
If this Agreement is terminated prior to the end of any calendar month, the
management fee shall be prorated for the portion of any month in which this
Agreement is in effect according to the proportion which the number of calendar
days, during which the Agreement is in effect, bears to the number of calendar
days in the month, and shall be payable within 10 days after the date of
termination.
5. The services to be rendered by the Investment Adviser to the Trust on
behalf of the Fund under the provisions of this Agreement are not to be deemed
to be exclusive, and the Investment Adviser shall be free to render similar or
different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby.
6. The Investment Adviser, its partners, employees, and agents may engage
in other businesses, may render investment advisory services to other investment
companies, or to any other corporation, association, firm or individual, and may
render underwriting services to the Trust on behalf of the Fund or to any other
investment company, corporation, association, firm or individual.
7. In the absence of willful misfeasance, bad faith, gross negligence, or a
reckless disregard of the performance of duties of the Investment Adviser to the
Fund, the Investment Adviser shall not be subject to liabilities to the Fund or
to any shareholder of the Fund for any action or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security, or otherwise.
8. The Trust agrees that, in the event that the Investment Adviser ceases
to be the Fund's investment adviser for any reason, the Trust will (unless the
Investment Adviser otherwise agrees in writing) promptly take all necessary
steps to propose to the Fund's shareholders at the next regular meeting that the
Fund change to a name not including the word "1838." The Trust agrees that the
word "1838" in the Fund's name is derived from the name of the Investment
Adviser and is the property of the Investment Adviser for trademark, copyright
and all other purposes and that therefore such word may be freely used by the
Investment Adviser as to other investment activities or other investment
products.
9. This Agreement shall be executed and become effective as of the date
written below if approved by the vote of a majority of the outstanding voting
securities of the Fund. It shall continue in effect for a period of two years
and may be renewed thereafter only so long as such renewal and continuance is
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
and the renewal hereof have been approved by the vote of a majority of the
Trustees of the Trust who are not parties hereto or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. No amendment to this Agreement shall be effective unless the terms
thereof have been approved by the vote of a majority of the outstanding voting
securities of the Fund and by the vote of a majority of Trustees of the Trust
<PAGE>
who are not parties to the Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
Notwithstanding the foregoing, this Agreement may be terminated by the Trust at
any time, without the payment of a penalty, on sixty days' written notice to the
Investment Adviser of the Trust's intention to do so, pursuant to action by the
Board of Trustees of the Trust or pursuant to a vote of a majority of the
outstanding voting securities of the Fund. The Investment Adviser may terminate
this Agreement at any time, without the payment of penalty on sixty days'
written notice to the Trust of its intention to do so. Upon termination of this
Agreement, the obligations of all the parties hereunder shall cease and
terminate as of the date of such termination, except for any obligation to
respond for a breach of this Agreement committed prior to such termination, and
except for the obligation of the Trust to pay to the Investment Adviser the fee
provided in Paragraph 4 hereof, prorated to the date of termination. This
Agreement shall automatically terminate in the event of its assignment. The
Investment Adviser will notify the Trust of any changes in the membership of the
Investment Adviser within a reasonable time after such change.
10. This Agreement shall extend to and bind the heirs,
executors, administrators and successors of the parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority of
the outstanding voting securities"; "interested persons"; and "assignment" shall
have the meaning defined in the 1940 Act.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the 28th day of March, 1995.
Attest: 1838 INVESTMENT ADVISORS FUNDS
- ------------------------- By:
-----------------------------------
W. Thacher Brown
President
Attest: 1838 INVESTMENT ADVISORS, L.P.
By: 1838 Investment Advisors, Inc.
Managing General Partner
- ------------------------- By:
-----------------------------------
W. Thacher Brown
President
EXHIBIT 8(a)
REVISED SCHEDULE A
1838 INVESTMENT ADVISORS FUNDS
DOMESTIC FEE SCHEDULE
For the services Custodian provides under this Custody Agreement, the
Trust, on behalf of the Fund(s) listed below, agrees to pay to the Custodian a
fee, payable monthly, expressed as follows:
NAME OF FUND(s) FEE SCHEDULE
1838 Fixed Income Fund An annual fee based upon the daily average
1838 Small Cap Equity Fund net asset value of each Fund as follows
subject to a $250 mimumum fee per month
and a $3,000 minimum fee per year per Fund:
0.02% on the first $50 million, and
0.015% on the assets in excess of $50
million, up to $100 million,
0.010% on the assets in excess of $100
million, subject to a minimum fee of
$250 per month,
plus, $12 per purchase, sale or
maturity of a portfolio security,
except those requiring physical
delivery, which will be charged at $50
per purchase, sale or maturity.
EXHIBIT 9(a)
1838 INVESTMENT ADVISORS FUNDS
RODNEY SQUARE MANAGEMENT CORPORATION
TRANSFER AGENCY AGREEMENT
THIS TRANSFER AGENCY AGREEMENT is made as of the 8th day of February,
1995, between 1838 Investment Advisors Funds, a Delaware business trust (the
"Trust"), having its principal place of business in Radnor, Pennsylvania and
Rodney Square Management Corporation, a corporation organized under the laws of
the State of Delaware ("Rodney Square"), having its principal place of business
in Wilmington, Delaware.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
and offers for public sale one or more distinct series of shares of beneficial
interest ("Series"), par value $0.001 per share, each corresponding to a
distinct portfolio;
WHEREAS, each share of a Series represents an undivided interest in the
assets, subject to the liabilities, allocated to that Series and each Series has
a separate investment objective and policies;
WHEREAS, at the present time, the Trust is in the process of
establishing two Series, 1838 International Equity Fund and 1838 Small Cap
Equity Fund, and anticipates it will establish additional Series in the future;
WHEREAS, the Trust desires to employ the services of Rodney Square to
serve as the Trust's transfer agent;
WHEREAS, Rodney Square is willing to furnish such services to the Trust
with respect to each Series listed in Schedule A to this Agreement (each a
"Fund" and two or more together, "Funds") on the terms and conditions
hereinafter set forth; and
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Trust and Rodney Square agree as follows:
1. Appointment. The Trust hereby appoints Rodney Square as transfer
agent, registrar and dividend disbursing agent for the shares of beneficial
interest of the Trust (the "Shares") and as servicing agent in connection with
the disbursements of dividends and distributions and as shareholders' servicing
agent for the Trust, each such appointment to take effect as of the date first
written above, and Rodney Square shall act as such and perform its obligations
thereof upon the terms and conditions hereafter set forth and in accordance with
the principles of principal and agent enunciated by the common law.
2. Documents. The Trust has furnished Rodney Square with copies
properly certified or authenticated of each of the following:
a. The Trust's Certificate of Trust filed with the Secretary of the
State of Delaware on December 12, 1994, and all amendments thereto and
restatements thereof;
b. The Trust's Agreement and Declaration of Trust and all amendments
thereto and restatements thereof.
<PAGE>
c. The Trust's By-laws and all amendments thereto and restatements
thereof (such By-laws, as presently in effect and as they shall from time to
time be amended or restated, are herein called "By-laws");
d. Resolutions of the Trust's Board of Trustees authorizing the
appointment of Rodney Square to provide certain transfer agency services to the
Trust and approving this Agreement;
e. The Trust's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act as filed with the Securities and Exchange
Commission ("SEC") on December 13, 1994;
f. The Trust's most recent Registration Statement on Form N-1A under
the Securities Act of 1933 (the "1933 Act") (File No. 33-87298) and under the
1940 Act (File No. 811-8902), as filed with the SEC relating to shares of
beneficial interest of the Trust, and all amendments thereto;
g. The Trust's most current Prospectus(es) and Statement(s) of
Additional Information relating to the Fund(s);
h. The Trust's Agreements listed on Schedule B attached to this
Agreement; and
i. If required, a copy of either (i) a filed notice of eligibility
to claim the exclusion from the definition of "commodity pool operator"
contained in Section 2(a)(1)(A) of the Commodity Exchange Act ("CEA") that is
provided in Rule 4.5 under the CEA, together with all supplements as are
required by the Commodity Futures Trading Commission ("CFTC"), or (ii) a letter
which has been granted the Trust by the CFTC which states that the Trust will
not be treated as a "pool" as defined in Section 4.10(d) of the CFTC's General
Regulations, or (iii) a letter which has been granted the Trust by the CFTC
which states that CFTC will not take any enforcement action if the Trust does
not register as a "commodity pool operator."
The Trust will furnish Rodney Square from time to time with copies,
properly certified or authenticated, of all additions, amendments or supplements
to the foregoing, if any.
3. Instructions Consistent with Declaration of Trust.
a. Unless otherwise provided in this Agreement, Rodney Square shall
act only upon Oral and Written Instructions. ("Oral Instructions" used in this
Agreement shall mean oral instructions actually received by Rodney Square from
an Authorized Person or from a person reasonably believed by Rodney Square to be
an Authorized Person. "Written Instructions" used in this Agreement shall mean
written instructions signed by two Authorized Persons delivered by hand, mail,
telegram, cable, telex or facsimile, and received by Rodney Square. "Authorized
Person" used in this Agreement means any officer of the Trust and any other
person, whether or not any such person is an officer of the Trust, duly
authorized by the Board of Trustees of the Trust to give Oral and Written
Instructions on behalf of the Fund(s) and certified by the Secretary or an
Assistant Secretary of the Trust or any amendment thereto as may be received by
Rodney Square from time to time.) Rodney Square in its capacity under this
Agreement may assume that any Oral or Written Instructions received hereunder
are not in any way inconsistent with any provisions of such Declaration of Trust
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<PAGE>
or By-laws or any vote, resolution or proceeding of the shareholders, or of the
Board of Trustees, or of any committee thereof.
b. Rodney Square shall be entitled to rely upon any Oral
Instructions and any Written Instructions actually received by Rodney Square
pursuant to this Agreement. The Trust agrees to forward to Rodney Square Written
Instructions confirming Oral Instructions in such manner that the Written
Instructions are received by Rodney Square, whether by hand delivery, telex,
facsimile or otherwise, by the close of business of the same day that such Oral
Instructions are given to Rodney Square. The Trust agrees that the fact that
such confirming Written Instructions are not received by Rodney Square shall in
no way affect the validity of the transactions or enforceability of the
transactions authorized by the Trust by giving Oral Instructions. The Trust
agrees that Rodney Square shall incur no liability to the Trust in acting upon
Oral Instructions given to Rodney Square hereunder concerning such transactions
provided such instructions reasonably appear to have been received from an
Authorized Person.
4. Transactions Not Requiring Instructions. In the absence of
contrary Written Instructions, Rodney Square is authorized to take the following
actions:
a. Issuance of Shares. Upon receipt of a purchase order from the
Distributor, as defined in the Distribution Agreement between the Trust and the
Distributor or a prospective shareholder for the purchase of Shares and
sufficient information to enable Rodney Square to establish a shareholder
account or to issue Shares to an existing shareholder account, and after
confirmation of receipt or crediting of Federal funds for such order from Rodney
Square's designated bank, Rodney Square shall issue and credit the account of
the investor or other record holder with Shares in the manner described in the
Prospectus. Rodney Square shall deposit all checks received from prospective
shareholders into an account on behalf of the Trust, and shall promptly transfer
all Federal funds received from such checks to the Custodian, as defined in the
Custodian Agreement between the Trust and the Custodian. (References herein to
"Custodian" shall also be construed to refer to a "Sub-Custodian" if such
appointment has been made.) If so directed by the Distributor, the confirmation
supplied to the shareholder to mark such issuance will be accompanied by a
Prospectus.
b. Transfer of Shares; Uncertificated Securities. Where a
shareholder does not hold a certificate representing the number of Shares in its
account and does provide Rodney Square with instructions for the transfer of
such Shares which include a signature guaranteed by a commercial bank, trust
company or member firm of a national securities exchange and such other
appropriate documentation to permit a transfer, then Rodney Square shall
register such Shares and shall deliver them pursuant to instructions received
from the transferor, pursuant to the rules and regulations of the SEC, and the
laws of the State of Delaware relating to the transfer of shares of beneficial
interest.
c. Share Certificates. If at any time the Fund issues share
certificates, the following provisions will apply:
(1) The Trust will supply Rodney Square with a sufficient supply
of share certificates representing Shares, in the form approved
from time to time by the Trustees of the Trust, and, from time to
time, shall replenish such supply upon request of Rodney Square.
Such share certificate shall be properly signed, manually or by
facsimile signature, by the duly authorized officers of the
Trust, and shall bear the corporate seal or facsimile thereof of
the Trust, and notwithstanding the death, resignation or removal
of any officer of the Trust, such executed certificates bearing
-3-
<PAGE>
the manual or facsimile signature of such officer shall remain
valid and may be issued to shareholders until Rodney Square is
otherwise directed by Written Instructions.
(2) In the case of the loss or destruction of any certificate
representing Shares, no new certificate shall be issued in lieu
thereof, unless there shall first have been furnished an
appropriate bond of indemnity issued by a surety company approved
by Rodney Square.
(3) Upon receipt of signed share certificates, which shall be in
proper form for transfer, and upon cancellation or destruction
thereof, Rodney Square shall countersign, register and issue new
certificates for the same number of Shares and shall deliver them
pursuant to instructions received from the transferor, the rules
and regulations of the SEC, and the laws of the State of Delaware
relating to the transfer of shares of beneficial interest.
(4) Upon receipt of the share certificates, which shall be in
proper form for transfer, together with the shareholder's
instructions to hold such share certificates for safekeeping,
Rodney Square shall reduce such Shares to uncertificated status,
while retaining the appropriate registration in the name of the
shareholder upon the transfer books.
(5) Upon receipt of written instructions from a shareholder of
uncertificated securities for a certificate in the number of
shares in its account, Rodney Square will issue such share
certificates and deliver them to the shareholder.
d. Redemption of Shares. Upon receipt of a redemption order from the
Distributor or a shareholder, Rodney Square shall redeem the number of Shares
indicated thereon from the redeeming shareholder's account and receive from the
Trust's Custodian and disburse pursuant to the instructions of a redeeming
shareholder or his or her agent the redemption proceeds therefor, or arrange for
direct payment of redemption proceeds by the Custodian to the redeeming
shareholder or as instructed by the shareholder or his or her agent, in
accordance with such procedures and controls as are mutually agreed upon from
time to time by and among the Trust, Rodney Square and the Trust's Custodian.
5. Authorized Issued and Outstanding Shares. The Trust agrees to notify
Rodney Square promptly of any change in the number of authorized Shares and of
any change in the number of Shares registered under the 1933 Act, as amended or
termination of the Trust's declaration under Rule 24f-2 of the 1940 Act. The
Trust has advised Rodney Square, as of the date hereof, of the number of Shares
(i) held in any redemption or repurchase account, and (ii) registered under the
1933 Act, as amended, which are unsold. In the event that the Trust shall
declare a stock dividend, a stock split or a reverse stock split, the Trust
shall deliver to Rodney Square a certificate, upon which Rodney Square shall be
entitled to rely for all purposes, certifying (i) the number of Shares involved,
(ii) that all appropriate corporate action has been taken, and (iii) that any
amendment to the Trust's Declaration of Trust which may be required has been
filed and is effective. Such certificate shall be accompanied by an opinion of
counsel to the Trust relating to the legal adequacy and effect of the
transaction.
-4-
<PAGE>
6. Dividends and Distributions.
a. The Trust shall furnish Rodney Square with appropriate evidence
of action by the Trust's Trustees authorizing the declaration and payment of
dividends and distributions as described in the Prospectus. After deducting any
amount required to be withheld by any applicable tax laws, rules and regulations
or other applicable laws, rules and regulations, Rodney Square shall in
accordance with the instructions in proper form from a shareholder and the
provisions of the Trust's Declaration of Trust and Prospectus, issue and credit
the account of the shareholder with Shares, or, if the shareholder so elects,
pay such dividends or distributions in cash to the shareholder in the manner
described in the Prospectus. In lieu of receiving from the Trust's Custodian and
paying to shareholders cash dividends or distributions, Rodney Square may
arrange for the direct payment of cash dividends and distributions to
shareholders by the Custodian, in accordance with such procedures and controls
as are mutually agreed upon from time to time by and among the Trust, Rodney
Square and the Trust's Custodian.
b. Rodney Square shall prepare, file with the Internal Revenue
Service and other appropriate taxing authorities, and address and mail to
shareholders such returns and information relating to dividends and
distributions paid by the Trust as are required to be so prepared, filed and
mailed by applicable laws, rules and regulations, or such substitute form of
notice as may from time to time be permitted or required by the Internal Revenue
Service. On behalf of the Trust, Rodney Square shall mail certain requests for
shareholders' certifications under penalties of perjury and pay on a timely
basis to the appropriate Federal authorities any taxes to be withheld on
dividends and distributions paid by the Trust, all as required by applicable
Federal tax laws and regulation.
c. In accordance with the Prospectus, resolutions of the Trust's
Trustees that are not inconsistent with this Agreement and are provided to
Rodney Square from time to time, and such procedures and controls as are
mutually agreed upon from time to time by and among the Trust, Rodney Square and
the Trust's Custodian, Rodney Square shall arrange for issuance of Shares
obtained through transfers of funds from shareholders' accounts at financial
institutions.
7. Communications with Shareholders.
a. Communications to Shareholders. Rodney Square will address and
mail all communications by the Trust to its shareholders, including reports to
shareholders, confirmations of purchases and sales of Shares, monthly
statements, dividend and distribution notices and proxy material for its
meetings of shareholders. Rodney Square will receive and tabulate the proxy
cards for shareholder meetings.
b. Correspondence. Rodney Square will answer such correspondence
from shareholders, securities brokers and others relating to its duties
hereunder and such other correspondence as may from time to time be mutually
agreed upon between Rodney Square and the Trust.
8. Services to be Performed. Rodney Square shall be responsible for
administering and/or performing transfer agent functions, for acting as service
agent in connection with dividend and distribution functions and for performing
shareholder account functions in connection with the issuance, transfer and
redemption or repurchase (including coordination with the Trust's custodian bank
in connection with shareholder redemption by check) of the Trust's Shares as set
forth in Schedule C to this Agreement. The details of the operating standards
and procedures to be followed shall be determined from time to time by agreement
between Rodney Square and the Trust and may be expressed in written schedules
which shall constitute attachments to this Agreement.
-5-
<PAGE>
9. Recordkeeping and Other Information.
a. Rodney Square shall maintain records of the accounts for each
Shareholder showing the items listed in Schedule D to this Agreement.
b. Rodney Square shall create and maintain all necessary records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the 1940 Act and the rules
thereunder and any applicable regulations of the Federal Deposit Insurance
Corporation ("FDIC") or any successor regulatory authority, as the same may be
amended from time to time, and those records pertaining to the various functions
performed by it hereunder. All records shall be the property of the Trust at all
times and shall be available for inspection and use by the Trust or the Trust's
authorized representatives. Upon reasonable request of the Trust, copies of such
records shall be provided by Rodney Square to the Trust or the Trust's
authorized representatives at the Trust's expense. Where applicable, such
records shall be maintained by Rodney Square for the periods and in the places
required by Rule 31a-2 under the 1940 Act and any applicable regulations of the
FDIC or any successor regulatory authority.
10. Audit, Inspection and Visitation. Rodney Square shall make
available during regular business hours all records and other data created and
maintained pursuant to this Agreement for reasonable audit and inspection by the
Trust or any person retained by the Trust. Upon reasonable notice by the Trust,
Rodney Square shall make available during regular business hours its facilities
and premises employed in connection with its performance of this Agreement for
reasonable visitation by the Trust, or any person retained by the Trust.
11. Right to Receive Advice.
a. Advice of Trust. If Rodney Square shall be in doubt as to any
action to be taken or omitted by it, it may request, and shall receive, from the
Trust directions or advice, including Oral or Written Instructions where
appropriate.
b. Advice of Counsel. If Rodney Square shall be in doubt as to any
question of law involved in any action to be taken or omitted by Rodney Square
in connection with Rodney Square's performance of its responsibilities under
this agreement, it may request advice from the regularly retained counsel for
the Trust at the Trust's expense.
c. Conflicting Advice. In case of conflict between directions,
advice or Oral or Written Instructions received by Rodney Square pursuant to
subsection a. of this Section and advice received by Rodney Square pursuant to
subsection b. of this Section, Rodney Square shall be entitled to rely on and
follow the advice received pursuant to the latter provision alone.
d. Protection of Rodney Square. Rodney Square shall be protected in
any action or inaction which it takes in reliance on any directions, advice or
Oral or Written Instructions received pursuant to subsections a. or b. of this
Section which Rodney Square, after receipt of any such directions, advice or
Oral or Written Instructions, in good faith believes to be consistent with such
directions, advice or Oral or Written Instructions, as the case may be. However,
nothing in this Section shall be construed as imposing upon Rodney Square any
obligation (i) to seek such direction, advice or Oral or Written Instructions,
or (ii) to act in accordance with such directions, advice or Oral or Written
Instructions when received, unless, under the terms of another provision of this
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<PAGE>
Agreement, the same is a condition to Rodney Square's properly taking or
omitting to take such action. Nothing in this subsection shall excuse Rodney
Square when an action or omission on the part of Rodney Square constitutes
willful misfeasance, bad faith, negligence or reckless disregard by Rodney
Square of its duties under this Agreement.
12. Compliance with Governmental Rules and Regulations. Except as
otherwise provided herein, the Advisor and/or the Trust assumes full
responsibility for ensuring that the Trust complies with all applicable
requirements of the 1933 Act, the Securities Exchange Act of 1934 (the "1934
Act"), the 1940 Act, the CEA and any laws, rules and regulations of governmental
authorities having jurisdiction.
13. Compensation.
a. Compensation for services and duties performed pursuant to this
Agreement is provided in Schedule A hereto. Certain other fees due and expenses
incurred pursuant to this Agreement are payable by the Trust or the shareholder
on whose behalf the service is performed and are also listed in Schedule A.
b. The Trust shall reimburse Rodney Square for all reasonable
out-of-pocket expenses incurred by Rodney Square or its agents in the
performance of its obligations hereunder. Such reimbursement for expenses
incurred in any calendar month shall be made on or before the tenth day of the
next succeeding month.
c. The term "out-of-pocket expenses" shall mean the following
expenses incurred by Rodney Square in the performance of its obligations
hereunder: the cost of stationery and forms (including but not limited to
checks, proxy cards, and envelopes), the cost of postage, the cost of insertion
of non-standard size materials in mailing envelopes and other special mailing
preparation by outside firms, the cost of first-class mailing insurance, the
cost of external electronic communications as approved by the Trustees (to
include telephone and telegraph equipment and an allocable portion of the cost
of personnel responsible for the maintenance of such equipment), toll charges,
data communications equipment and line charges and the cost of microfilming of
shareholder records (including both the cost of storage as well as charges for
access to such records). If Rodney Square shall undertake the responsibility for
microfilming shareholder records, it may be separately compensated therefor in
an amount agreed upon by the principal financial officer of the Trust and Rodney
Square, such amount not to exceed the amount which would be paid to an outside
firm for providing such microfilming services.
14. Use of Rodney Square's Name. The Trust shall not use the name of
Rodney Square or any of its affiliates in any Prospectus, SAI, sales literature
or other material relating to the Trust in a manner not approved prior thereto
by Rodney Square, provided, however, that Rodney Square shall approve all uses
of its and its affiliates' names that merely refer in accurate terms to their
appointments hereunder or that are required by the SEC or a state securities
commission and, provided further, that in no event shall such approval be
unreasonably withheld.
15. Use of Trust's Name. Rodney Square shall not use the name of the
Trust or the Funds of the Trust or material relating to the Trust or the Funds
on any checks, bank drafts, bank statements or forms for other than internal use
in a manner not approved prior thereto, provided, however, that the Trust shall
approve all uses of its name which merely refer in accurate terms to the
appointment of Rodney Square hereunder or which are required by the FDIC, the
SEC or a state securities commission, and, provided, further, that in no event
shall such approval be unreasonably withheld.
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<PAGE>
16. Liability of Rodney Square or Affiliates. Rodney Square and its
affiliates shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Trust in connection with the matters to which this
Agreement relates, except to the extent of a loss resulting from willful
misfeasance, bad faith, negligence or reckless disregard of their obligations
and duties under this Agreement. Any person, even though also an officer,
director, employee or agent of Rodney Square or any of its affiliates who may be
or become an officer or trustee of the Trust, shall be deemed, when rendering
services to the Trust as such officer or acting on any business of the Trust in
such capacity (other than services or business in connection with Rodney
Square's duties under this Agreement), to be rendering such services to or
acting solely for the Trust and not as an officer, trustee, employee or agent or
one under the control or direction of Rodney Square or any of its affiliates,
even though paid by one of those entities. Rodney Square shall not be liable or
responsible for any acts or omissions of any predecessor administrator or any
other persons having responsibility for matters to which this Agreement relates
nor shall Rodney Square be responsible for reviewing any such act or omissions.
Rodney Square shall, however, be liable for its own acts and omissions
subsequent to assuming responsibility under this Agreement as herein provided.
17. Security. Rodney Square represents and warrants that the various
procedures and systems which Rodney Square has implemented with regard to
safeguarding from loss or damage attributable to fire, theft or any other cause
(including provision for twenty-four hours a day restricted access) the Trust's
blank checks, records and other data and Rodney Square's records, data,
equipment, facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. The parties shall review such systems and procedures
on a periodic basis.
18. Insurance. Upon request Rodney Square shall provide the Trust with
details regarding its insurance coverage, and Rodney Square shall notify the
Trust should any of its insurance coverage be materially changed. Such
notification shall include the date of change and the reason or reasons
therefor. Rodney Square shall notify the Trust of any material claims against
it, whether or not they may be covered by insurance and shall notify the Trust
from time to time as may be appropriate of the total outstanding claims made by
Rodney Square under its insurance coverage.
19. Indemnification.
a. The Trust agrees to indemnify and hold harmless Rodney Square,
its directors, officers, employees, agents and representatives from all taxes,
charges, expenses, assessments, claims and liabilities including, without
limitation, liabilities arising under the 1940 Act, the 1933 Act, the 1934 Act
and any applicable state and foreign laws, and amendments thereto (the
"Securities Laws"), and expenses, including without limitation reasonable
attorneys' fees and disbursements arising directly or indirectly from any action
or omission to act which Rodney Square takes (i) at the request of or on the
direction of or in reliance on the advice of the Trust or (ii) upon Oral or
Written Instructions. Neither Rodney Square nor any of its nominees shall be
indemnified against any liability (or any expenses incident to such liability)
arising out of Rodney Square's or its directors', officers', employees', agents'
and representatives own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement.
-8-
<PAGE>
b. Rodney Square agrees to indemnify and hold harmless the Trust
from all taxes, charges, expenses, assessments, claims and liabilities arising
from Rodney Square's obligations pursuant to this Agreement (including, without
limitation, liabilities arising under the Securities Laws) and expenses,
including (without limitation) reasonable attorneys' fees and disbursements
arising directly or indirectly out of Rodney Square's or its directors',
officers', employees', agents' and representatives own willful misfeasance, bad
faith, negligence or reckless disregard of its duties and obligations under this
Agreement.
c. In order that the indemnification provisions contained in this
Section 19 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
20. Responsibility of Rodney Square. Rodney Square shall be under no
duty to take any action on behalf of the Trust except as specifically set forth
herein or as may be specifically agreed to by Rodney Square in writing. In the
performance of its duties hereunder, Rodney Square shall be obligated to
exercise care and diligence and to act in good faith and to use its best efforts
within reasonable limits in performing services provided for under this
Agreement. Rodney Square shall be responsible for its own negligent failure to
perform its duties under this Agreement, but to the extent that duties,
obligations and responsibilities are not expressly set forth in this Agreement,
Rodney Square shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or negligence on the part of Rodney
Square or reckless disregard by Rodney Square of such duties, obligations and
responsibilities. Without limiting the generality of the foregoing or of any
other provision of this Agreement, Rodney Square, in connection with its duties
under this Agreement, shall not be under any duty or obligation to inquire into
and shall not be liable for or in respect of (i) the validity or invalidity or
authority or lack thereof of any Oral or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this Agreement, and
which Rodney Square reasonably believes to be genuine; or (ii) delays or errors
or loss of data occurring by reason of circumstances beyond Rodney Square's
control, including acts of civil or military authority, national emergencies,
labor difficulties, fire, mechanical breakdown (except as provided in Section
21), flood or catastrophe, acts of God, insurrection, war, riots or failure of
the mails, transportation, communication or power supply, which circumstances
Rodney Square shall take minimal actions to minimize loss of data therefor.
21. Acts of God/Equipment Failure. Rodney Square shall not be liable
for delays or errors occurring by reason of circumstances beyond its control,
including but not limited to acts of civil or military authority, national
emergencies, labor difficulties, fire, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation, communication
or power supply. In the event of equipment breakdowns beyond its control, Rodney
Square shall, at no additional expense to the Trust, take reasonable steps to
minimize service interruptions but shall have no liability with respect thereto.
Rodney Square shall enter into and maintain in effect with appropriate parties
one or more agreements making reasonable provision for emergency use of
electronic data processing equipment to the extent appropriate equipment is
available.
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<PAGE>
22. Duration and Termination.
a. Neither this Agreement nor any provisions hereof may be changed,
waived, discharged or terminated orally, but only by written instrument which
shall make specific reference to this Agreement and which shall be signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.
b. This Agreement shall become effective as of the date first
written above, and unless terminated as provided, shall continue in force for
three (3) years from the date of its execution and thereafter from year to year.
This Agreement may be terminated after the initial three (3) year period as of
any anniversary date on ninety (90) days' written notice given to Rodney Square
or by Rodney Square on ninety (90) days' written notice given to the Trust;
provided, however, that the foregoing provisions of this Agreement may be
terminated immediately at any time in the event of a breach of any provision
thereof either by the Trust or by Rodney Square in the event that such breach
shall have remained unremedied for ninety (90) days or more after receipt of
written specification of such breach.
c. Upon the termination of this Agreement, the Trust shall pay to
Rodney Square such compensation as may be payable for the period prior to the
effective date of such termination, including reimbursement for any
out-of-pocket expenses reasonably incurred by Rodney Square to such date. In the
event that the Trust designates a successor to any of Rodney Square's
obligations hereunder, Rodney Square shall, at the expense and direction of the
Trust, transfer to such successor all relevant books, records and other data
established or maintained by Rodney Square under the foregoing provisions.
d. Upon the termination of this Agreement within the initial three
(3) year term by the Trust or the Trust's Board of Trustees, except if
terminated in accordance with Section 22(b) above, the Trust shall pay to Rodney
Square such compensation in liquidated damages in accordance with the fee
arrangements described in Schedule A attached hereto, as such schedule may be
amended from time to time.
23. Registration as a Transfer Agent. Rodney Square represents that it
is currently registered with the appropriate Federal agency for the registration
of transfer agents, and that it will remain so registered for the duration of
this Agreement. Rodney Square agrees that it will promptly notify the Trust in
the event of any material change in its status as a registered transfer agent.
Should Rodney Square fail to be registered with the FDIC or any successor
regulatory authority as a transfer agent at any time during this Agreement, the
Trust may, on written notice to Rodney Square, immediately terminate this
Agreement.
24. Appointment of Agents. Neither this Agreement nor any rights or
obligations hereunder may be assigned by Rodney Square without the written
consent of the Trust. Rodney Square may, however, at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust company,
which is itself qualified under the Securities Exchange Act of 1934 (the "1934
Act") to act as a transfer agent, as its agent to carry out such of the services
to be performed under this Agreement as Rodney Square may from time to time
direct; provided, however, that the appointment of any such agent shall not
relieve Rodney Square of any of its responsibilities or liabilities hereunder.
25. Delegation. On thirty (30) days' prior written notice to the Trust,
Rodney Square may assign any part or all its rights and delegate its duties
hereunder to any affiliate provided that (i) the delegate agrees with Rodney
Square to comply with all relevant provisions of the 1940 Act and applicable
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<PAGE>
rules and regulations; (ii) Rodney Square shall remain responsible for the
performance of all of its duties under this Agreement; (iii) Rodney Square and
such delegate shall promptly provide such information as the Trust may request;
and (iv) Rodney Square shall respond to such questions as the Trust may ask,
relative to the delegation, including (without limitation) the capabilities for
the delegate.
26. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
Rodney Square and the Trust shall regularly consult with each other
regarding Rodney Square's performance of its obligations and its compensation
hereunder. In connection therewith, the Trust shall submit to Rodney Square at a
reasonable time in advance of filing with the SEC copies of any amended or
supplemented registration statements (including exhibits) under the 1933 Act and
the 1940 Act, and a reasonable time in advance of their proposed use, copies of
any amended or supplemented forms relating to any plan, program or service
offered by the Trust. Any change in such material which would require any change
in Rodney Square's obligations hereunder shall be subject to Rodney Square's
approval, which shall not be unreasonably withheld. In the event that such
change materially increases the cost to Rodney Square of performing its
obligations hereunder, Rodney Square shall be entitled to receive reasonable
compensation therefor.
27. Notice. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed, postage prepaid, to the other party to this
Agreement at its principal place of business.
28. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
29. Governing Law. To the extent that state law has not been preempted
by the provisions of any law of the United States heretofore or hereafter
enacted, as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of
Delaware.
30. Shareholder Liability. Rodney Square acknowledges that it has
received notice of and accepts the limitations of liability set forth in the
Trust's Agreement and Declaration of Trust. Rodney Square agrees that the
Trust's obligations hereunder shall be limited to the Trust, and that Rodney
Square shall have recourse solely against the assets of the Fund with respect to
which the Trust's obligations hereunder relate and shall have no recourse
against the assets of any other Fund or against any shareholder, trustee,
officer, employee, or agent of the Trust.
31. Miscellaneous. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this agreement as of
the day and year first above written.
1838 INVESTMENT ADVISORS FUNDS
By: /s/ W. Thacher Brown
--------------------------------------
W. Thacher Brown, President
RODNEY SQUARE MANAGEMENT
CORPORATION
By: /s/ Martin Klopping
----------------------------------
Martin L. Klopping, President
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<PAGE>
TRANSFER AGENCY AGREEMENT
REVISED SCHEDULE A
1838 INVESTMENT ADVISORS FUNDS
FUND LISTING AND FEE SCHEDULE
For the services Rodney Square provides under the Transfer Agency Agreement
attached hereto, 1838 Investment Advisors Funds (the "Trust") agrees to pay
Rodney Square a fee for transfer agency services as follows, subject to a
minimum of $18,000 with respect to each Fund listed below, beginning at each
Fund's commencement of operations, per annum, plus out-of-pocket expenses, all
payable monthly:
Fee per Annum
Type of Fund/Account per Account
-------------------- -------------
Annual Dividend $10.00
Semi-Annual Dividend $10.00
Quarterly Dividend $10.00
Monthly Dividend $15.00
Daily Dividend $18.00
Fund Listing:
- -------------
1838 International Equity Fund
1838 Small Cap Equity Fund
1838 Fixed Income Fund
Out-of-Pocket Expenses:
- -----------------------
Out-of-pocket expenses shall be reimbursed by the Trust to Rodney Square
or paid directly by the Trust. Such expenses include but are not limited
to the following:
a. Toll-free lines (if required)
b. Forms, envelopes, checks, checkbooks
c. Postage (bulk, pre-sort, first-class at current prevailing rates)
d. Hardware/phone lines for remote terminal(s) (if required)
e. Microfiche/Microfilm
f. Wire fees for receipt or disbursement
g. Mailing fees
h. Cost of proxy solicitation, mailing and tabulation (if required)
i. Certificates issuance
j. Record retention storage
k. Development/programming costs/special projects - time and material
l. ACH transaction charges
m. "B" notice mailings
n. Locating lost shareholders in anticipation of escheating
A-1
<PAGE>
Additional Expenses (paid by shareholder):
Direct IRA/Keogh processing annual account fee
new account set-up fee
distribution fee
transfer out fee
Payment
The above will be billed within the first five (5) business days of each
month and will be paid by wire within five (5) business days of receipt.
LIQUIDATED DAMAGES:
Upon the termination of the attached Agreement within the initial three (3) year
term by the Trust or the Trust's Board of Trustees , the Trust shall pay to
Rodney Square liquidated damages with respect to each Fund in an amount equal to
six (6) months of minumum base fees, as determined in the manner set forth
above.
A-2
<PAGE>
TRANSFER AGENCY AGREEMENT
SCHEDULE B
1838 INVESTMENT ADVISORS FUNDS
TRUST AGREEMENTS SCHEDULE
1. The Investment Advisory Agreement between 1838 Investment
Advisors Funds, a Delaware business trust (the "Trust"), on behalf of 1838 Small
Cap Equity Fund (the "Small Cap Fund"), and 1838 Investment Advisors, L.P. (the
"Investment Advisor"), a Delaware limited partnership, dated March 28, 1995;
2. The Investment Advisory Agreement between 1838 Investment
Advisors Funds, a Delaware business trust (the "Trust"), on behalf of 1838
International Equity Fund (the "International Equity Fund"), and 1838 Investment
Advisors, L.P. (the "Investment Advisor"), a Delaware limited partnership, dated
March 28, 1995;
3. The Sub-Investment Advisory Agreement between the
Investment Advisor and MeesPierson 1838 Investment Advisors, a Delaware general
partnership, dated March 28, 1995;
4. The Accounting Services Agreement between the Trust and
Rodney Square Management Corporation, a Delaware corporation ("Rodney Square"),
dated February 8, 1995;
5. The Administration Agreement between the Trust and Rodney
Square, dated February 8, 1995;
6. The Custodian Agreement between the Trust and Wilmington
Trust Company, a Delaware corporation, relating to the custody of the Small Cap
Equity Fund, dated Februrary 8, 1995;
7. The Custodian Agreement between the Trust and Bankers Trust
Company, relating to the custody of the International Equity Fund, dated March
17, 1995; and
8. The Distribution Agreement between the Trust and Rodney
Square Distributors, Inc., a Delaware Corporation, dated February 8, 1995.
B-1
<PAGE>
TRANSFER AGENCY AGREEMENT
SCHEDULE C
1838 INVESTMENT ADVISORS FUNDS
SERVICES TO BE PERFORMED
Rodney Square will perform the following functions as transfer agent on an
ongoing basis with respect to each Fund:
a. furnish state-by-state registration reports;
b. provide toll-free lines for direct shareholder use, plus customer
liaison staff with on-line inquiry capacity;
c. mail duplicate confirmations to dealers and other financial
institutions ("Service Organization") of their clients' activity,
whether executed through the Service Organization or directly with
Rodney Square;
d. provide detail for underwriter or Service Organization confirmations
and other Service Organization shareholder accounting, in accordance
with such procedures as may be agreed upon between the Corporation and
Rodney Square;
e. provide shareholder lists and statistical information concerning
shareholder accounts to the Corporation;
f. provide timely notification of Fund activity and such other
information as may be agreed upon from time to time between Rodney
Square and the Fund or the Custodian, to the Corporation or the
Custodian; and
g. with respect to dividends and distributions, prepare and file
required reports with the Internal Revenue Service ("IRS"), prepare and
mail reports to shareholders as required by the IRS and described in
the Prospectus and Statement of Additional Information.
C-1
<PAGE>
TRANSFER AGENCY AGREEMENT
SCHEDULE D
THE 1838 INVESTMENT ADVISORS FUNDS
SHAREHOLDER RECORDS
Rodney Square shall maintain records of the accounts for each shareholder
showing the following information:
a. name, address and United States Tax Identification or Social
Security number;
b. number of Shares held and number of Shares for which certificates,
if any, have been issued, including certificate numbers and
denominations;
c. historical information regarding the account of each shareholder,
including dividends and distributions paid and the date and price for
all transactions on a shareholder's account;
d. any stop or restraining order placed against a shareholder's
account;
e. any correspondence relating to the current maintenance of a
shareholder's account;
f. information with respect to withholding; and,
g. any information required in order for Rodney Square to perform any
calculations contemplated or required by this Agreement.
D-1
Exhibit 9(b)
1838 INVESTMENT ADVISORS FUNDS
RODNEY SQUARE MANAGEMENT CORPORATION
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of the 8th day of February,
1995, between 1838 Investment Advisors Funds, a Delaware business trust (the
"Trust"), having its principal place of business in Radnor, Pennsylvania and
Rodney Square Management Corporation, a corporation organized under the laws of
the State of Delaware ("Rodney Square"), having its principal place of business
in Wilmington, Delaware.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company and
offers for public sale one or more distinct series of shares of beneficial
interest ("Series"), par value $0.001 per share, each corresponding to a
distinct portfolio;
WHEREAS, each share of a Series represents an undivided interest in the
assets, subject to the liabilities, allocated to that Series and each Series has
a separate investment objective and policies;
WHEREAS, at the present time, the Trust is in the process of
establishing two Series, 1838 International Equity Fund and 1838 Small Cap
Equity Fund, and anticipates it will establish additional Series in the future;
WHEREAS, the Trust desires to employ Rodney Square to provide certain
administrative services;
WHEREAS, Rodney Square is willing to furnish such services to the Trust
with respect to each Fund listed on Schedule A to this Agreement (each a "Fund"
and two or more together, "Funds") on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and Rodney Square agree as follows:
1. Appointment. The Trust hereby appoints Rodney Square to provide
certain administration services to the Fund for the period and on the terms set
forth in this Agreement. Rodney Square accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation provided
for in Section 9 of this Agreement.
2. Documents. The Trust has furnished Rodney Square with copies
properly certified or authenticated of each of the following:
a. The Trust's Certificate of Trust filed with the Secretary of the
State of Delaware on December 12, 1994, and all amendments thereto and
restatements thereof;
b. The Trust's Agreement and Declaration of Trust and all amendments
thereto and restatements thereof;
<PAGE>
c. The Trust's By-laws and all amendments thereto and restatements
thereof (such By-laws, as presently in effect and as they shall from time to
time be amended or restated, are herein called "By-laws");
d. Resolutions of the Trust's Board of Trustees authorizing the
appointment of Rodney Square to provide certain administration services to the
Trust and approving this Agreement;
e. The Trust's Notification of Registration filed pursuant to
Section 8(a) of the Investment Company Act of 1940 (the "1940 Act") as filed
with the Securities and Exchange Commission ("SEC") on December 13, 1994;
f. The Trust's most recent Registration Statement on Form N-1A under
the Securities Act of 1933 (the "1933 Act") (File No. 33-87298) and under the
1940 Act (File No. 811-8902), as filed with the SEC relating to shares of
beneficial interest of the Trust, and all amendments thereto;
g. The Trust's most current Prospectus(es) and Statement(s) of
Additional Information ("SAI") relating to the Fund(s);
h. The Trust's Agreements listed on Schedule B attached hereto; and
i. If required, a copy of either (i) a filed notice of eligibility
to claim the exclusion from the definition of "commodity pool operator"
contained in Section 2(a)(1)(A) of the Commodity Exchange Act ("CEA") that is
provided in Rule 4.5 under the CEA, together with all supplements as are
required by the Commodity Futures Trading Commission ("CFTC"), or (ii) a letter
which has been granted the Trust by the CFTC which states that the Trust will
not be treated as a "pool" as defined in Section 4.10(d) of the CFTC's General
Regulations, or (iii) a letter which has been granted the Trust by the CFTC
which states that CFTC will not take any enforcement action if the Trust does
not register as a "commodity pool operator."
The Trust will furnish Rodney Square from time to time with copies,
properly certified or authenticated, of all additions, amendments or supplements
to the foregoing, if any.
3. Fund Administration. Subject to the direction and control of the
Board of Trustees of the Trust and to the extent not otherwise the
responsibility of, or provided by, the Trust or other supply agents of the
Trust, Rodney Square shall provide the following administrative services:
a. (i) office facilities (which may be in Rodney Square's or its
affiliates' own offices);
(ii) non-investment related statistical and research
data;
(iii) executive and administrative services;
(iv) stationery and office supplies at Trust expense;
(v) corporate secretarial services, such as the preparation and
distribution of materials at Trust expense for meetings of
the Board of Trustees or shareholders; and
(vi) Trustees' and Officers' questionnaires.
<PAGE>
b. Prepare and file, if necessary, reports to shareholders of
the Trust and reports with the SEC, state securities commissions and Blue Sky
authorities including preliminary and definitive proxy materials, post-effective
amendments to the Trust's registration statement, Rule 24f-2 Notices, Form N-SAR
filings and prospectus supplements;
c. Monitor each Fund's compliance with the investment restrictions
and limitations imposed by the 1940 Act, and state Blue Sky laws and applicable
regulations thereunder, the fundamental and non-fundamental investment policies
and limitations set forth in the Prospectus and SAI, and the investment
restrictions and limitations necessary for each Fund of the Trust to qualify as
a regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code") or any successor statute;
d. Monitor sales of each Fund's shares and ensure that such shares
are properly, registered as required with the SEC and applicable state
authorities;
e. Prepare and distribute to appropriate parties notices announcing
the declaration of dividends and other distributions to shareholders;
f. Prepare financial statements and footnotes and other financial
information with such frequency and in such format as required to be included in
reports to shareholders and the SEC;
g. Review sales literature and file such with regulatory
authorities, as necessary;
h. Provide information regarding material developments in state
securities regulation; and
i. Provide personnel to serve as officers of the Trust if so elected
by the Board of Trustees.
4. Expenses of the Trust. The Trust agrees that it will pay all its
expenses other than those expressly stated to be payable by Rodney Square
hereunder, which expenses payable by the Trust shall include, without
limitation:
a. Fees payable for investment advisory services provided by the
Trust's Investment Adviser;
b. Fees payable for services provided by the Trust's independent
public accountants;
c. Fees payable for accounting services;
d. The cost of obtaining quotations for calculating the value of the
assets of each Fund;
e. Taxes levied against the Trust or any Fund;
f. Brokerage fees, mark-ups and commissions in connection with the
purchase and sale of portfolio securities;
<PAGE>
g. Costs, including the interest expense, of borrowing money;
h. Costs and/or fees incident to holding meetings of the Board of
Trustees and shareholders, preparation (including typesetting and printing
charges) and mailing of prospectuses, reports and proxy materials to the
existing shareholders of the Trust, filing of reports with regulatory bodies,
maintenance of the Trust's corporate existence, and registration of shares with
federal and state securities authorities;
i. Legal fees and expenses;
j. Costs of printing share certificates, if required, representing
shares of the Trust;
k. Fees payable to, and expenses of, members of the Board of
Trustees who are not "interested persons" of the Trust;
l. Out-of-pocket expenses incurred in connection with the provision
of administration, accounting, custodial and transfer agency services;
m. Premiums payable on the fidelity bond required by Section 17(g)
of the 1940 Act, and any other premiums payable on insurance policies related to
the Trust's business and the investment activities of its Funds;
n. Distribution fees, if any;
o. Service fees, if any, payable by each Fund to the Distributor for
providing personal services to the shareholders of each Fund and for maintaining
shareholder accounts for those shareholders;
p. Fees, voluntary assessments and other expenses incurred in
connection with the Trust's membership in investment company organizations; and
q. Such non-recurring expenses as may arise, including actions,
suits or proceedings to which the Trust is a party and the legal obligation
which the Trust may have to indemnify its Trust and officers with respect
thereto.
Except as otherwise agreed by Rodney Square, Rodney Square will not
reimburse the Trust for (or have deducted from its fees payable under this
Agreement) any Trust expenses in excess of any expense limitations imposed by
state securities commissions having jurisdiction over the sale of Fund shares.
<PAGE>
5. Recordkeeping and Other Information. Rodney Square shall create and
maintain all necessary records in accordance with all applicable laws, rules and
regulations, including, but not limited to, records required by Section 31(a) of
the 1940 Act and the rules thereunder, as the same may be amended from time to
time, pertaining to the various functions (described above) performed by it and
not otherwise created and maintained by another party pursuant to contract with
the Trust. All records shall be the property of the Trust at all times and shall
be available for inspection and use by the Trust or the Trust's authorized
representatives. Upon reasonable request of the Trust, copies of such records
shall be provided by Rodney Square to the Trust or the Trust's authorized
representatives at the Trust's expense. Where applicable, such records shall be
maintained by Rodney Square for the periods and in the places required by Rule
31a-2 under the 1940 Act.
6. Audit, Inspection and Visitation. Rodney Square shall make available
during regular business hours all records and other data created and maintained
pursuant to this Agreement for reasonable audit and inspection by the Trust or
any person retained by the Trust. Upon reasonable notice by the Trust, Rodney
Square shall make available during regular business hours its facilities and
premises employed in connection with its performance of this Agreement for
reasonable visitation by the Trust, or any person retained by the Trust.
7. Right to Receive Advice.
a. Advice of Trust. If Rodney Square shall be in doubt as to any
action to be taken or omitted by it, it may request, and shall receive, from the
Trust directions or advice, including oral or written instructions where
appropriate.
b. Advice of Counsel. If Rodney Square shall be in doubt as to any
question of law involved in any action to be taken or omitted by Rodney Square
in connection with Rodney Square's performance of its responsibilities under
this agreement, it may request advice from the regularly retained counsel for
the Trust at the Trust's expense.
c. Conflicting Advice. In case of conflict between directions,
advice or oral or written instructions received by Rodney Square, Rodney Square
shall be entitled to rely on and follow the advice received by written
instructions alone.
d. Protection of Rodney Square. Rodney Square shall be protected in
any action or inaction which it takes in reliance on any directions, advice or
oral or written instructions received pursuant to subsections a. or b. of this
Section which Rodney Square, after receipt of any such directions, advice or
oral or written instructions, in good faith believes to be consistent with such
directions, advice or oral or written instructions, as the case may be. However,
nothing in this Section shall be construed as imposing upon Rodney Square any
obligation (i) to seek such direction, advice or oral or written instructions,
or (ii) to act in accordance with such directions, advice or oral or written
instructions when received, unless, under the terms of another provision of this
Agreement, the same is a condition to Rodney Square's properly taking or
omitting to take such action. Nothing in this subsection shall excuse Rodney
Square when an action or omission on the part of Rodney Square constitutes
willful misfeasance, bad faith, negligence or reckless disregard by Rodney
Square of its duties under this Agreement.
<PAGE>
8. Compliance with Governmental Rules and Regulations. Except as
otherwise provided herein, the Advisor and/or the Trust assumes full
responsibility for ensuring that the Trust complies with all applicable
requirements of the 1933 Act, the Securities Exchange Act of 1934 (the "1934
Act"), the 1940 Act, the CEA and any laws, rules and regulations of governmental
authorities having jurisdiction.
9. Compensation. For the performance of its obligations under this
Agreement, the Trust shall pay Rodney Square an administrative fee with respect
to each Fund in accordance with the fee arrangements described in Schedule A
attached hereto, as such schedule may be amended from time to time.
Trust shall reimburse Rodney Square for all reasonable out-of-pocket
expenses incurred by Rodney Square or its agents in the performance of its
obligations hereunder. Such reimbursement for expenses incurred in any calendar
month shall be made on or before the tenth day of the next succeeding month.
10. Use of Rodney Square's Name. The Trust shall not use the name of
Rodney Square or any of its affiliates in any Prospectus, SAI, sales literature
or other material relating to the Trust in a manner not approved prior thereto
by Rodney Square; provided, however, that Rodney Square shall approve all uses
of its and its affiliates' names that merely refer in accurate terms to their
appointments hereunder or that are required by the SEC or a state securities
commission; and further provided, that in no event shall such approval be
unreasonably withheld.
11. Use of Trust's Name. Neither Rodney Square nor any of its
affiliates shall use the name of the Trust or material relating to the Trust on
any forms (including any checks, bank drafts or bank statements) for other than
internal use in a manner not approved prior thereto by the Trust; provided,
however, that the Trust shall approve all uses of its name that merely refer in
accurate terms to the appointment of Rodney Square hereunder or that are
required by the SEC or a state securities commission; and further provided, that
in no event shall such approval be unreasonably withheld.
12. Liability of Rodney Square or Affiliates. Rodney Square and its
affiliates shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Trust in connection with the matters to which this
Agreement relates, except to the extent of a loss resulting from willful
misfeasance, bad faith, negligence or reckless disregard of their obligations
and duties under this Agreement. Any person, even though also an officer,
director, employee or agent of Rodney Square or any of its affiliates who may be
or become an officer or trustee of the Trust, shall be deemed, when rendering
services to the Trust as such officer or acting on any business of the Trust in
such capacity (other than services or business in connection with Rodney
Square's duties under this Agreement), to be rendering such services to or
acting solely for the Trust and not as an officer, trustee, employee or agent or
one under the control or direction of Rodney Square or any of its affiliates,
even though paid by one of those entities. Rodney Square shall not be liable or
responsible for any acts or omissions of any predecessor administrator or any
other persons having responsibility for matters to which this Agreement relates
nor shall Rodney Square be responsible for reviewing any such act or omissions.
Rodney Square shall, however, be liable for its own acts and omissions
subsequent to assuming responsibility under this Agreement as herein provided.
<PAGE>
13. Indemnification.
a. The Trust agrees to indemnify and hold harmless Rodney
Square, its directors, officers, employees, agents and representatives from all
taxes, charges, expenses, assessments, claims and liabilities including, without
limitation, liabilities arising under the 1940 Act, 1933 Act, the 1934 Act and
any applicable state and foreign laws, and amendments thereto (the "Securities
Laws"), and expenses, including without limitation reasonable attorneys' fees
and disbursements arising directly or indirectly from any action or omission to
act which Rodney Square takes (i) at the request of or on the direction of or in
reliance on the advice of the Trust or (ii) upon oral or written instructions.
Neither Rodney Square nor any of its nominees shall be indemnified against any
liability (or any expenses incident to such liability) arising out of Rodney
Square's or its directors', officers', employees', agents' and representatives
own willful misfeasance, bad faith, negligence or reckless disregard of its
duties and obligations under this Agreement.
b. Rodney Square agrees to indemnify and hold harmless the Trust
from all taxes, charges, expenses, assessments, claims and liabilities arising
from Rodney Square's obligations pursuant to this Agreement (including, without
limitation, liabilities arising under the Securities Laws) and expenses,
including (without limitation) reasonable attorneys' fees and disbursements
arising directly or indirectly out of Rodney Square's or its directors',
officers', employees', agents' and representatives own willful misfeasance, bad
faith, negligence or reckless disregard of its duties and obligations under this
Agreement.
c. In order that the indemnification provisions contained in this
Section 13 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
14. Responsibility of Rodney Square. Rodney Square shall be under no
duty to take any action on behalf of the Trust except as specifically set forth
herein or as may be specifically agreed to by Rodney Square in writing. In the
performance of its duties hereunder, Rodney Square shall be obligated to
exercise care and diligence and to act in good faith and to use its best efforts
within reasonable limits in performing services provided for under this
Agreement. Rodney Square shall be responsible for its own negligent failure to
perform its duties under this Agreement, but to the extent that duties,
obligations and responsibilities are not expressly set forth in this Agreement,
Rodney Square shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or negligence on the part of Rodney
Square or reckless disregard by Rodney Square of such duties, obligations and
responsibilities. Without limiting the generality of the foregoing or of any
other provision of this Agreement, Rodney Square in connection with its duties
under this Agreement shall not be under any duty or obligation to inquire into
and shall not be liable for or in respect of (i) the validity or invalidity or
authority or lack thereof of any oral or written instruction, notice or other
instrument which conforms to the applicable requirements of this Agreement, and
which Rodney Square reasonably believes to be genuine; or (ii) delays or errors
or loss of data occurring by reason of circumstances beyond Rodney Square's
control, including acts of civil or military authority, national emergencies,
labor difficulties, fire, mechanical breakdown, flood or catastrophe, acts of
God, insurrection, war, riots or failure of the mails,
<PAGE>
transportation, communication or power supply, which circumstances Rodney Square
shall take minimal actions to minimize loss of data therefor.
15. Duration and Termination.
a. The provisions of this Agreement may not be changed, waived,
discharged or terminated orally, but only by written instrument that shall make
specific reference to this Agreement and that shall be signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
b. This Agreement shall become effective as of the date first
written above, and unless terminated as provided, shall continue in force for
three (3) years from the date of its execution and thereafter from year to year,
provided continuance after the three (3) year period is approved at least
annually by (i) the vote of the majority of the Trustees of the Trust and
(ii) the vote of a majority of those Trustees of the Trust who are not
interested persons of the Trust, and who are not parties to this Agreement or
interested persons of any party.
c. This Agreement may be terminated after the initial three (3) year
period as of any anniversary date on ninety (90) days' written notice given to
Rodney Square or by Rodney Square by ninety (90) days' written notice given to
the Trust; provided, however, that the foregoing provisions of this Agreement
may be terminated immediately at any time in the event of a breach of any
provision thereof either by the Trust or by Rodney Square in the event that such
breach shall have remained unremedied for ninety (90) days or more after receipt
of written specification of such breach.
d. Upon the termination of this Agreement, the Trust shall pay to
Rodney Square such compensation as may be payable for the period prior to the
effective date of such termination, including reimbursement for any
out-of-pocket expenses reasonably incurred by Rodney Square to such date. In the
event that the Trust designates a successor to any of Rodney Square's
obligations hereunder, Rodney Square shall, at the expense and direction of the
Trust, transfer to such successor all relevant books, records and other data
established or maintained by Rodney Square under the foregoing provisions.
e. Upon the termination of this Agreement within the initial three
(3) year term by the Trust or the Trust's Board of Trustees, except if
terminated in accordance with Section 15(c) above, the Trust shall pay to Rodney
Square such compensation in liquidated damages in accordance with the fee
arrangements described in Schedule A attached hereto, as such schedule may be
amended from time to time.
16. Appointment of Agents. Neither this Agreement nor any rights or
obligations hereunder may be assigned by Rodney Square without the written
consent of the Trust. Rodney Square may, however, at any time or times in its
discretion appoint (and may at any time remove) other parties as its agent to
carry out such of the provisions of this Agreement as Rodney Square may from
time to time direct; provided, however, that the appointment of any such agent
shall not relieve Rodney Square of any of its responsibilities or liabilities
hereunder.
17. Delegation. On thirty (30) days' prior written notice to the Trust,
Rodney Square may assign any part or all its rights and delegate its duties
hereunder to any affiliate provided that (i) the delegate agrees with Rodney
Square to comply with all relevant provisions of the 1940 Act and applicable
rules and regulations; (ii) Rodney Square shall remain responsible for the
performance of all
<PAGE>
of its duties under this Agreement; (iii) Rodney Square and such delegate shall
promptly provide such information as the Trust may request; and (iv) Rodney
Square shall respond to such questions as the Trust may ask, relative to the
delegation, including (without limitation) the capabilities for the delegate.
18. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
Rodney Square and the Trust shall regularly consult with each other
regarding Rodney Square's performance of its obligations and its compensation
under the foregoing provisions. In connection therewith, the Trust shall submit
to Rodney Square at a reasonable time in advance of filing with the SEC copies
of any amended or supplemented registration statement of the Trust (including
exhibits) under the 1933 Act and the 1940 Act, and, a reasonable time in advance
of their proposed use, copies of any amended or supplemented forms relating to
any plan, program or service offered by the Trust. Any change in such materials
that would require any change in Rodney Square's obligations under the foregoing
provisions shall be subject to the burdened party's approval, which shall not be
unreasonably withheld. In the event that a change in such documents or in the
procedures contained therein increases the cost to Rodney Square of performing
its obligations hereunder by more than an insubstantial amount, Rodney Square
shall be entitled to receive reasonable compensation therefor.
19. Notice. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed, postage prepaid, to the other party to this
Agreement at its principal place of business.
20. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
21. Governing Law. To the extent that state law has not been preempted
by the provisions of any law of the United States heretofore or hereafter
enacted, as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of
Delaware.
22. Shareholder Liability. Rodney Square acknowledges that it has
received notice of and accepts the limitations of liability set forth in the
Trust's Agreement and Declaration of Trust and By-Laws. Rodney Square agrees
that the Trust's obligations hereunder shall be limited to the Trust, and that
Rodney Square shall have recourse solely against the assets of the Fund with
respect to which the Trust's obligations hereunder relate and shall have no
recourse against the assets of any other Fund or against any shareholder,
Trustee, officer, employee, or agent of the Trust.
23. Miscellaneous. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement embodies the entire agreement and understanding between
the parties thereto with regard to administrative services. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed in two or more counterparts, each of
which, taken together shall constitute one and the same instruments.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
1838 INVESTMENT ADVISORS FUNDS
By: /s/ W. Thacher Brown
--------------------------------
W. Thacher Brown, President
RODNEY SQUARE MANAGEMENT
CORPORATION
By: /s/ Martin Klopping
--------------------------------
Martin L. Klopping, President
<PAGE>
ADMINISTRATION AGREEMENT
REVISED SCHEDULE A
1838 INVESTMENT ADVISORS FUNDS
FUND LISTING AND FEE SCHEDULE
For the services Rodney Square provides under the Administration
Services Agreement attached hereto, 1838 Investment Advisors Funds (the
"Trust"), on behalf of and with respect to each of the Funds listed below,
agrees to pay Rodney Square an administration fee calculated on total Trust
assets according to the Fee Schedule below, subject to a minimum fee of $50,000
per annum for the first Fund listed below, and a minimum fee of $15,000 per
annum for the second and further listed Funds, beginning at each Fund's
commencement of operations:
Listing of Funds
----------------
1838 International Equity Fund
1838 Small Cap Equity Fund
1838 Fixed Income Fund
Fee Schedule
------------
0.15% of total Trust net assets from $0 to $50 million, plus
0.10% of total Trust net assets in excess of $50 million
and up to $100 million, plus
0.07% of total Trust net assets in excess of $100 million
and up to $200 million, plus
0.05% of total Trust net assets in excess of $200 million
For each Fund, the higher of the minimum, or the Fund's pro rata portion of the
total Trust assets fee, will apply.
This administration fee shall be payable monthly, as soon as practicable
after the last day of each month, based on the average of the daily net assets
of the total Trust, as determined at the close of business on each day
throughout the month.
Out of pocket expenses shall be reimbursed by the Trust to Rodney
Square or paid directly by the Trust.
LIQUIDATED DAMAGES:
Upon the termination of the attached Agreement within the initial
three (3) year term by the Trust or the Trust's Board of Trustees, the Trust
shall pay to Rodney Square liquidated damages with respect to each Fund in an
amount equal to six (6) months of minimum base fees, as determined in the manner
set forth above.
A-1
<PAGE>
ADMINISTRATION SERVICES AGREEMENT
SCHEDULE B
1838 INVESTMENT ADVISORS FUNDS
TRUST AGREEMENTS SCHEDULE
1. The Investment Advisory Agreement between 1838 Investment
Advisors Funds, a Delaware business trust (the "Trust"), on behalf of 1838 Small
Cap Equity Fund (the "Small Cap Fund"), and 1838 Investment Advisors, L.P. (the
"Investment Advisor"), a Delaware limited partnership, dated March 28, 1995;
2. The Investment Advisory Agreement between 1838 Investment
Advisors Funds, a Delaware business trust (the "Trust"), on behalf of 1838
International Equity Fund (the "International Equity Fund"), and 1838 Investment
Advisors, L.P. (the "Investment Advisor"), a Delaware limited partnership, dated
March 28, 1995;
3. The Sub-Investment Advisory Agreement between the
Investment Advisor and MeesPierson 1838 Investment Advisors, a Delaware general
partnership, dated March 28, 1995;
4. The Accounting Services Agreement between the Trust and
Rodney Square Management Corporation, a Delaware corporation ("Rodney Square"),
dated February 8, 1995;
5. The Transfer Agency Agreement between the Trust and Rodney
Square, dated February 8, 1995;
6. The Custodian Agreement between the Trust and Wilmington
Trust Company, a Delaware corporation, relating to the custody of the Small Cap
Fund, dated February 8, 1995;
7. The Custodian Agreement between the Trust and Bankers Trust
Company, relating to the custody of the International Equity Fund, dated March
17, 1995; and
8. The Distribution Agreement between the Trust and Rodney
Square Distributors, Inc., a Delaware corporation, dated February 8, 1995.
B-1
Exhibit 9(c)
1838 INVESTMENT ADVISORS FUNDS
RODNEY SQUARE MANAGEMENT CORPORATION
ACCOUNTING SERVICES AGREEMENT
THIS ACCOUNTING SERVICES AGREEMENT made this 8th day February, 1995, by
and between 1838 Investment Advisors Funds, a Delaware business trust
(hereinafter the "Trust"), having its principal place of business in Radnor,
Pennsylvania, and Rodney Square Management Corporation, a corporation organized
under the laws of the State of Delaware (hereinafter "Rodney Square"), having
its principal place of business in Wilmington, Delaware.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
and offers for public sale one or more distinct series of shares of beneficial
interest ("Series"), par value $0.001 per share, each corresponding to a
distinct portfolio;
WHEREAS, each share of a Series represents an undivided interest in the
assets, subject to the liabilities, allocated to that Series and each Series has
a separate investment objective and policies;
WHEREAS, at the present time, the Trust is in the process of
establishing two Series, 1838 International Equity Fund and 1838 Small Cap
Equity Fund, and anticipates it will establish additional Series in the future;
WHEREAS, the Trust desires to employ Rodney Square to provide certain
accounting services;
WHEREAS, Rodney Square is willing to furnish such services to the Trust
with respect to each Fund listed on Schedule A to this Agreement (each a "Fund"
and two or more together, "Funds") on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and Rodney Square agree as follows:
1. Appointment. The Trust hereby appoints Rodney Square to provide
certain accounting services to the Fund for the period and on the terms set
forth in this Agreement. Rodney Square accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation provided
for in Section 12 of this Agreement. Rodney Square agrees to comply with all
relevant provisions of the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations thereunder, and to remain open for business on
any day on which the New York Stock Exchange, the Philadelphia branch office of
the Federal Reserve and Wilmington Trust Company are open for business.
2. Documents. The Trust has furnished Rodney Square with copies
properly certified or authenticated of each of the following:
a. The Trust's Certificate of Trust filed with the Secretary of the
State of Delaware on December 12, 1994, and all amendments thereto and
restatements thereof;
<PAGE>
b. The Trust's Agreement and Declaration of Trust and all amendments
thereto and restatements thereof;
c. The Trust's By-laws and all amendments thereto and restatements
thereof (such By-laws, as presently in effect and as they shall from time to
time be amended or restated, are herein called "By-laws");
d. Resolutions of the Trust's Board of Trustees authorizing the
appointment of Rodney Square to provide certain accounting services to the Trust
and approving this Agreement;
e. The Trust's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act as filed with the Securities and Exchange
Commission ("SEC") on December 13, 1994;
f. The Trust's most recent Registration Statement on Form N-1A under
the Securities Act of 1933 (the "1933 Act") (File No. 33-87298) and under the
1940 Act (File No. 811-8902), as filed with the SEC relating to shares of
beneficial interest of the Trust, and all amendments thereto;
g. The Trust's most current Prospectus(es) and Statement(s) of
Additional Information ("SAI") relating to the Fund(s);
h. The Trust's Agreements listed on Schedule B attached hereto;
i. If required, a copy of either (i) a filed notice of eligibility
to claim the exclusion from the definition of "commodity pool operator"
contained in Section 2(a)(1)(A) of the Commodity Exchange Act ("CEA") that is
provided in Rule 4.5 under the CEA, together with all supplements as are
required by the Commodity Futures Trading Commission ("CFTC"), or (ii) a letter
which has been granted the Trust by the CFTC which states that the Trust will
not be treated as a "pool" as defined in Section 4.10(d) of the CFTC's General
Regulations, or (iii) a letter which has been granted the Trust by the CFTC
which states that CFTC will not take any enforcement action if the Trust does
not register as a "commodity pool operator"; and
j. Schedule C identifying and containing the signatures of the
Trust's officers and other persons authorized ("Authorized Persons") to sign
"Written Instructions" (as used in this Agreement to mean written instructions
delivered by hand, mail, telegram, cable, telex or facsimile sending device and
received by Rodney Square, signed by two Authorized Persons) on behalf of the
Trust.
The Trust will furnish Rodney Square from time to time with copies,
properly certified or authenticated, of all additions, amendments or supplements
to the foregoing, if any.
3. Instructions Consistent with Declaration of Trust.
a. Unless otherwise provided in this Agreement, Rodney Square shall
act only upon Oral and Written Instructions. ("Oral Instructions" used in this
Agreement shall mean oral instructions actually received by Rodney Square from
an Authorized Person or from a person reasonably believed by Rodney Square to be
an Authorized Person. "Written Instructions" used in this Agreement shall mean
written instructions signed by two Authorized Persons delivered by hand, mail,
telegram, cable, telex or facsimile, and received by Rodney Square. "Authorized
Person" used in this Agreement
-2-
<PAGE>
means any officer of the Trust and any other person, whether or not any such
person is an officer of the Trust, duly authorized by the Board of Trustees of
the Trust to give Oral and Written Instructions on behalf of the Fund(s) and
certified by the Secretary or an Assistant Secretary of the Trust or any
amendment thereto as may be received by Rodney Square from time to time.) Rodney
Square in its capacity under this Agreement may assume that any Oral or Written
Instructions received hereunder are not in any way inconsistent with any
provisions of such Declaration of Trust or By-laws or any vote, resolution or
proceeding of the shareholders, or of the Board of Trustees, or of any committee
thereof.
b. Rodney Square shall be entitled to rely upon any Oral
Instructions and any Written Instructions actually received by Rodney Square
pursuant to this Agreement. The Trust agrees to forward to Rodney Square Written
Instructions confirming Oral Instructions in such manner that the Written
Instructions are received by Rodney Square, whether by hand delivery, telex,
facsimile or otherwise, by the close of business of the same day that such Oral
Instructions are given to Rodney Square. The Trust agrees that the fact that
such confirming Written Instructions are not received by Rodney Square shall in
no way affect the validity of the transactions or enforceability of the
transactions authorized by the Trust by giving Oral Instructions. The Trust
agrees that Rodney Square shall incur no liability to the Trust in acting upon
Oral Instructions given to Rodney Square hereunder concerning such transactions
provided such instructions reasonably appear to have been received from an
Authorized Person.
4. Fund Accounting.
a. Rodney Square shall provide the following accounting functions on
a daily basis:
(1) Journalize each Fund's investment, capital share and income
and expense activities;
(2) Verify investment buy/sell trade tickets when received from
the Advisor(s) and transmit trades to the Trust's Custodian
for proper settlement;
(3) Maintain individual ledgers for investment securities;
(4) Maintain historical tax lots for each security;
(5) Reconcile cash and investment balances of each Fund with the
Custodian, and provide the Advisor(s) with the beginning
cash balance available for investment purposes;
(6) Update the cash availability throughout the day as required
by the Advisor(s);
(7) Post to and prepare each Fund's Statement of Assets and
Liabilities and Statement of Operations;
(8) Calculate expenses payable pursuant to the Trust's various
contractual obligations;
-3-
<PAGE>
(9) Control all disbursements from the Trust on behalf of each
Fund and authorize such disbursements upon Written
Instructions;
(10) Calculate capital gains and losses;
(11) Determine each Fund's net income;
(12) At the Fund's expense obtain security market prices or if
such market prices are not readily available, then obtain
such prices from services approved by the Advisor(s), and in
either case calculate the market or fair value of each
Fund's investments;
(13) In the case of debt instruments with remaining maturities of
sixty (60) days or less, calculate the amortized cost value
of those instruments;
(14) Transmit or mail a copy of the portfolio valuations to the
Advisor(s);
(15) Compute the net asset value of each Fund;
(16) Compute each Fund's yields, total returns, expense ratios
and portfolio turnover rate; and
(17) Prepare and monitor the expense accruals and notify Trust
management of any proposed adjustments.
b. In addition, Rodney Square will:
(1) Prepare monthly financial statements, which will include
without limitation the Schedule of Investments, the
Statement of Assets and Liabilities, the Statement of
Operations, the Statement of Changes in Net Assets, the Cash
Statement, and the Schedule of Capital Gains and Losses;
(2) Prepare monthly security transactions listings;
(3) Prepare monthly broker security transactions summaries;
(4) Supply various Trust and Fund statistical data as requested
on an ongoing basis;
(5) Assist in the preparation of support schedules necessary for
completion of Federal and state tax returns;
(6) Assist in the preparation and filing of the Trust's annual
and semiannual reports with the SEC on Form N-SAR;
(7) Assist in the preparation and filing of the Trust's annual,
semiannual reports to shareholders and proxy statements;
-4-
<PAGE>
(8) Assist with the preparation of amendments to the Trust's
registration statements on Form N-1A and other filings
relating to the registration of shares of beneficial
interest;
(9) Monitor each Fund's status as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as
amended from time to time; and
(10) Determine the amount of dividends and other distributions
payable to shareholders as necessary to, among other things,
maintain the qualification as a regulated investment company
of each Fund of the Trust under the Code.
5. Recordkeeping and Other Information. Rodney Square shall create and
maintain all necessary records in accordance with all applicable laws, rules and
regulations, including, but not limited to, records required by Section 31(a) of
the 1940 Act and the rules thereunder, as the same may be amended from time to
time, pertaining to the various functions (described above) performed by it and
not otherwise created and maintained by another party pursuant to contract with
the Trust. All records shall be the property of the Trust at all times and shall
be available for inspection and use by the Trust or the Trust's authorized
representatives. Upon reasonable request of the Trust, copies of such records
shall be provided by Rodney Square to the Trust or the Trust's authorized
representatives at the Trust's expense. Where applicable, such records shall be
maintained by Rodney Square for the periods and in the places required by Rule
31a-2 under the 1940 Act.
6. Audit, Inspection and Visitation. Rodney Square shall make available
during regular business hours all records and other data created and maintained
pursuant to this Agreement for reasonable audit and inspection by the Trust or
any person retained by the Trust. Upon reasonable notice by the Trust, Rodney
Square shall make available during regular business hours its facilities and
premises employed in connection with its performance of this Agreement for
reasonable visitation by the Trust, or any person retained by the Trust.
7. Liaison With Accountants. Rodney Square shall act as liaison with
the Trust's independent public accountants and shall provide account analysis,
fiscal year summaries and other audit related schedules. Rodney Square shall
take all reasonable action in the performance of its obligations under this
Agreement to assure that the necessary information is made available to such
accountants for the expression of their opinion, as such may be required by the
Trust from time to time.
8. Confidentiality. Rodney Square agrees on behalf of itself and its
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and not to use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except, after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where Rodney Square may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Trust.
-5-
<PAGE>
9. Equipment Failure. In the event of equipment failures beyond Rodney
Square's control, Rodney Square shall, at no additional expense to the Trust,
take reasonable steps to minimize service interruptions but shall have no
liability with respect thereto. Rodney Square shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provision of emergency use of electronic data processing equipment to
the extent appropriate equipment is available.
10. Right to Receive Advice.
a. Advice of Trust. If Rodney Square shall be in doubt as to any
action to be taken or omitted by it, it may request, and shall receive, from the
Trust directions or advice, including Oral or Written Instructions where
appropriate.
b. Advice of Counsel. If Rodney Square shall be in doubt as to any
question of law involved in any action to be taken or omitted by Rodney Square
in connection with Rodney Square's performance of its responsibilities under
this agreement, it may request advice from regularly retained counsel for the
Trust at the Trust's expense.
c. Conflicting Advice. In case of conflict between directions,
advice or Oral or Written Instructions received by Rodney Square pursuant to
subsection a. of this Section and advice received by Rodney Square pursuant to
subsection b. of this Section, Rodney Square shall be entitled to rely on and
follow the advice received pursuant to the latter provision alone.
d. Protection of Rodney Square. Rodney Square shall be protected in
any action or inaction which it takes in reliance on any directions, advice or
Oral or Written Instructions received pursuant to subsections a. or b. of this
Section which Rodney Square, after receipt of any such directions, advice or
Oral or Written Instructions, in good faith believes to be consistent with such
directions, advice or Oral or Written Instructions, as the case may be. However,
nothing in this Section shall be construed as imposing upon Rodney Square any
obligation (i) to seek such direction, advice or Oral or Written Instructions,
or (ii) to act in accordance with such directions, advice or Oral or Written
Instructions when received, unless, under the terms of another provision of this
Agreement, the same is a condition to Rodney Square's properly taking or
omitting to take such action. Nothing in this subsection shall excuse Rodney
Square when an action or omission on the part of Rodney Square constitutes
willful misfeasance, bad faith, negligence or reckless disregard by Rodney
Square of its duties under this Agreement.
11. Compliance with Governmental Rules and Regulations. Except as
otherwise provided herein, the Advisor and/or the Trust assumes full
responsibility for ensuring that the Trust complies with all applicable
requirements of the 1933 Act, the Securities Exchange Act of 1934 (the "1934
Act"), the 1940 Act, the CEA and any laws, rules and regulations of governmental
authorities having jurisdiction.
12. Compensation. For the performance of its obligations under this
Agreement, the Trust shall pay Rodney Square an accounting fee with respect to
each Fund in accordance with the fee arrangements described in Schedule A
attached hereto, as such schedule may be amended from time to time.
The Trust shall reimburse Rodney Square for all reasonable
out-of-pocket expenses incurred by Rodney Square or its agents in the
performance of its obligations hereunder. Such reimbursement for expenses
incurred in any calendar month shall be made on or before the tenth day of the
next succeeding month.
-6-
<PAGE>
13. Use of Rodney Square's Name. The Trust shall not use the name of
Rodney Square or any of its affiliates in any Prospectus, SAI, sales literature
or other material relating to the Trust in a manner not approved prior thereto
by Rodney Square; provided, however, that Rodney Square shall approve all uses
of its and its affiliates' names that merely refer in accurate terms to their
appointments hereunder or that are required by the SEC or a state securities
commission; and further provided, that in no event shall such approval be
unreasonably withheld.
14. Use of Trust's Name. Neither Rodney Square nor any of its
affiliates shall use the name of the Trust or material relating to the Trust on
any forms (including any checks, bank drafts or bank statements) for other than
internal use in a manner not approved prior thereto by the Trust; provided,
however, that the Trust shall approve all uses of its name that merely refer in
accurate terms to the appointment of Rodney Square hereunder or that are
required by the SEC or a state securities commission; and further provided, that
in no event shall such approval be unreasonably withheld.
15. Liability of Rodney Square or Affiliates. Rodney Square and its
affiliates shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Trust in connection with the matters to which this
Agreement relates, except to the extent of a loss resulting from willful
misfeasance, bad faith, negligence or reckless disregard of their obligations
and duties under this Agreement. Any person, even though also an officer,
director, employee or agent of Rodney Square or any of its affiliates who may be
or become an officer or trustee of the Trust, shall be deemed, when rendering
services to the Trust as such officer or acting on any business of the Trust in
such capacity (other than services or business in connection with Rodney
Square's duties under this Agreement), to be rendering such services to or
acting solely for the Trust and not as an officer, director, employee or agent
or one under the control or direction of Rodney Square or any of its affiliates,
even though paid by one of those entities. Rodney Square shall not be liable or
responsible for any acts or omissions of any predecessor administrator or any
other persons having responsibility for matters to which this Agreement relates
nor shall Rodney Square be responsible for reviewing any such act or omissions.
Rodney Square shall, however, be liable for its own acts and omissions
subsequent to assuming responsibility under this Agreement as herein provided.
16. Indemnification.
a. The Trust agrees to indemnify and hold harmless Rodney Square,
its directors, officers, employees, agents and representatives from all taxes,
charges, expenses, assessments, claims and liabilities including, without
limitation, liabilities arising under the 1940 Act, the 1933 Act, the 1934 Act
and any applicable state and foreign laws, and amendments thereto (the
"Securities Laws"), and expenses, including without limitation reasonable
attorneys' fees and disbursements arising directly or indirectly from any action
or omission to act which Rodney Square takes (i) at the request of or on the
direction of or in reliance on the advice of the Trust or (ii) upon Oral or
Written Instructions. Neither Rodney Square nor any of its nominees shall be
indemnified against any liability (or any expenses incident to such liability)
arising out of Rodney Square's or its directors', officers', employees', agents'
and representatives own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement.
b. Rodney Square agrees to indemnify and hold harmless the Trust
from all taxes, charges, expenses, assessments, claims and liabilities arising
from Rodney Square's obligations pursuant to this Agreement (including, without
limitation, liabilities arising under the Securities Laws) and expenses,
including (without limitation) reasonable attorneys' fees and disbursements
arising directly or
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indirectly out of Rodney Square's or its directors', officers', employees',
agents' and representatives own willful misfeasance, bad faith, negligence or
reckless disregard of its duties and obligations under this Agreement.
c. In order that the indemnification provisions contained in this
Section 16 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
17. Responsibility of Rodney Square. Rodney Square shall be under no
duty to take any action on behalf of the Trust except as specifically set forth
herein or as may be specifically agreed to by Rodney Square in writing. In the
performance of its duties hereunder, Rodney Square shall be obligated to
exercise care and diligence and to act in good faith and to use its best efforts
within reasonable limits in performing services provided for under this
Agreement. Rodney Square shall be responsible for its own negligent failure to
perform its duties under this Agreement, but to the extent that duties,
obligations and responsibilities are not expressly set forth in this Agreement,
Rodney Square shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or negligence on the part of Rodney
Square or reckless disregard by Rodney Square of such duties, obligations and
responsibilities. Without limiting the generality of the foregoing or of any
other provision of this Agreement, Rodney Square in connection with its duties
under this Agreement shall not be under any duty or obligation to inquire into
and shall not be liable for or in respect of (i) the validity or invalidity or
authority or lack thereof of any Oral or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this Agreement, and
which Rodney Square reasonably believes to be genuine; or (ii) delays or errors
or loss of data occurring by reason of circumstances beyond Rodney Square's
control, including acts of civil or military authority, national emergencies,
labor difficulties, fire, mechanical breakdown (except as provided in Section
9), flood or catastrophe, acts of God, insurrection, war, riots or failure of
the mails, transportation, communication or power supply, which circumstances
Rodney Square shall take minimal actions to minimize loss of data therefor.
18. Duration and Termination.
a. The provisions of this Agreement may not be changed, waived,
discharged or terminated orally, but only by written instrument that shall make
specific reference to this Agreement and that shall be signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
b. This Agreement shall become effective as of the date first
written above, and unless terminated as provided, shall continue in force for
three (3) years from the date of its execution and thereafter from year to year,
provided continuance after the three (3) year period is approved at least
annually by (i) the vote of the majority of the Trustees of the Trust and
(ii) the vote of a majority of those Trustees of the Trust who are not
interested persons of the Trust, and who are not parties to this Agreement or
interested persons of any party.
c. This Agreement may be terminated after the initial three (3) year
period as of any anniversary date on ninety (90) days' written notice given to
Rodney Square or by Rodney Square by
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ninety (90) days' written notice given to the Trust; provided, however, that the
foregoing provisions of this Agreement may be terminated immediately at any time
in the event of a breach of any provision thereof either by the Trust or by
Rodney Square in the event that such breach shall have remained unremedied for
ninety (90) days or more after receipt of written specification of such breach.
d. Upon the termination of this Agreement, the Trust shall pay to
Rodney Square such compensation as may be payable for the period prior to the
effective date of such termination, including reimbursement for any
out-of-pocket expenses reasonably incurred by Rodney Square to such date. In the
event that the Trust designates a successor to any of Rodney Square's
obligations hereunder, Rodney Square shall, at the expense and direction of the
Trust, transfer to such successor all relevant books, records and other data
established or maintained by Rodney Square under the foregoing provisions.
e. Upon the termination of this Agreement within the initial three
(3) year term by the Trust or the Trust's Board of Trustees, except if
terminated in accordance with Section 18(c) above, the Trust shall pay to Rodney
Square such compensation in liquidated damages in accordance with the fee
arrangements described in Schedule A attached hereto, as such schedule may be
amended from time to time.
19. Appointment of Agents. Neither this Agreement nor any rights or
obligations hereunder may be assigned by Rodney Square without the written
consent of the Trust. Rodney Square may, however, at any time or times in its
discretion appoint (and may at any time remove) other parties as its agent to
carry out such of the provisions of this Agreement as Rodney Square may from
time to time direct; provided, however, that the appointment of any such agent
shall not relieve Rodney Square of any of its responsibilities or liabilities
hereunder.
20. Delegation. On thirty (30) days' prior written notice to the Trust,
Rodney Square may assign any part or all its rights and delegate its duties
hereunder to any affiliate provided that (i) the delegate agrees with Rodney
Square to comply with all relevant provisions of the 1940 Act and applicable
rules and regulations; (ii) Rodney Square shall remain responsible for the
performance of all of its duties under this Agreement; (iii) Rodney Square and
such delegate shall promptly provide such information as the Trust may request;
and (iv) Rodney Square shall respond to such questions as the Trust may ask,
relative to the delegation, including (without limitation) the capabilities for
the delegate.
21. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
22. Notice. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed, postage prepaid, to the other party to this
Agreement at its principal place of business.
23. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
24. Shareholder Liability. Rodney Square acknowledges that it has
received notice of and accepts the limitations of liability set forth in the
Trust's Agreement and Declaration of Trust and By-Laws. Rodney Square agrees
that the Trust's obligations hereunder shall be limited to the Trust, and that
Rodney Square shall have recourse solely against the assets of the Fund with
respect to which the Trust's
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obligations hereunder relate and shall have no recourse against the assets of
any other Fund or against any shareholder, Trustee, officer, employee, or agent
of the Trust.
25. Governing Law. To the extent that state law has not been preempted
by the provisions of any law of the United States heretofore or hereafter
enacted, as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of
Delaware.
26. Miscellaneous. Each Party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement embodies the entire agreement and understanding between
the parties thereto, and supersedes all matter hereof, provided that the parties
hereto may embody in one or more separate documents their agreement, if any,
with respect to Written and/or Oral Instructions. The captions in this Agreement
are included for convenience of reference only and in no way define or delimit
any of the provisions hereof or otherwise affect their construction or effect.
This Agreement may be executed in two or more counterparts, each of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF the parties have caused this instrument to be signed
on their behalf by their respective officers thereunto duly authorized all as of
the date first written above.
1838 INVESTMENT ADVISORS FUNDS
By: /s/ W. Thacher Brown
---------------------------------
W. Thacher Brown, President
RODNEY SQUARE MANAGEMENT
CORPORATION
By: /s/ Martin Klopping
---------------------------------
Martin L. Klopping, President
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ACCOUNTING SERVICES AGREEMENT
REVISED SCHEDULE A
1838 INVESTMENT ADVISORS FUNDS
FUND LISTING AND FEE SCHEDULE
A. For the services Rodney Square provides under the Accounting
Services Agreement attached hereto, 1838 Investment Advisors Funds (the
"Trust"), on behalf and with respect to each of the Funds listed below, agrees
to pay Rodney Square an accounting services fee calculated on each Fund's total
assets according to the Fee Schedule below, beginning at each Fund's
commencement of operations:
Listing of Fund(s)
------------------
1838 Small Cap Equity Fund
1838 Fixed Income Fund
Fee Schedule
------------
$40,000, plus
0.03% of Fund net assets in excess of $50
million and up to $100 million
0.02% of Fund net assets in excess of $100
million and up to $250 million
0.01% of Fund net assets in excess of $250
million
B. For the services Rodney Square provides under the Accounting
Services Agreement attached hereto, 1838 Investment Advisors Funds (the
"Trust"), on behalf of and with respect to each of the Fund(s) listed below,
agrees to pay Rodney Square an accounting services fee calculated on each Fund's
total assets according to the Fee Schedule below:
Listing of Fund(s)
------------------
1838 International Equity Fund
Fee Schedule
------------
$60,000, plus
0.03% of Fund net assets in excess of $40
million and up to $150 million 0.02% of Fund
net assets in excess of 150 million and up to
$250 million 0.01% of Fund net assets in excess
of $250 million
C. The foregoing accounting services fees shall be payable
monthly, as soon as practicable after the last day of each month, based on the
average of the daily net assets of each Fund, as determined at the close of
business on each day throughout the month.
D. Out of pocket expenses shall be reimbursed by the Trust to
Rodney Square or paid directly by the Trust.
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LIQUIDATED DAMAGES:
Upon the termination of the attached Agreement within the initial
three (3) year term by the Trust or the Trust's Board of Trustees, the Trust
shall pay to Rodney Square liquidated damages with respect to each Fund in an
amount equal to six (6) months of minimum base fees, as determined in the manner
set forth above, plus a pro rata reimbursement of start-up expenses not
otherwise paid for by the Trust (if any).
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ACCOUNTING SERVICES AGREEMENT
SCHEDULE B
1838 INVESTMENT ADVISOR FUNDS
TRUST AGREEMENTS SCHEDULE
1. The Investment Advisory Agreement between 1838 Investment
Advisors Funds, a Delaware business trust (the "Trust"), on behalf of 1838 Small
Cap Equity Fund (the "Small Cap Fund"), and 1838 Investment Advisors, L.P. (the
"Investment Advisor"), a Delaware limited partnership, dated March 28, 1995;
2. The Investment Advisory Agreement between 1838 Investment
Advisors Funds, a Delaware business trust (the "Trust"), on behalf of 1838
International Equity Fund (the "International Equity Fund"), and 1838 Investment
Advisors, L.P. (the "Investment Advisor"), a Delaware limited partnership, dated
March 28, 1995;
3. The Sub-Investment Advisory Agreement between the
Investment Advisor and MeesPierson 1838 Investment Advisors, a Delaware general
partnership, dated March 28, 1995;
4. The Administration Agreement between the Trust and Rodney
Square Management Corporation, a Delaware corporation ("Rodney Square"), dated
February 8, 1995;
5. The Transfer Agency Agreement between the Trust and Rodney
Square, dated February 8, 1995;
6. The Custodian Agreement between the Trust and Wilmington
Trust Company, a Delaware corporation, relating to the custody of the Small Cap
Fund, dated February 8, 1995;
7. The Custodian Agreement between the Trust and Bankers Trust
Company, relating to the custody of the International Equity Fund, dated March
17, 1995; and
8. The Distribution Agreement between the Trust and Rodney
Square Distributors, Inc., a Delaware corporation, dated February 8, 1995.
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ACCOUNTING SERVICES AGREEMENT
SCHEDULE C
1838 INVESTMENT ADVISORS FUNDS
AUTHORIZED PERSONS
The following persons have been duly authorized by the Board of
Trustees to give Oral and Written Instructions on behalf of the above-named
Trust:
Anna M. Bencrowsky /s/ Anna M. Bencrowsky
------------------------------
Edwin B. Powell /s/ Edwin B. Powell
(on behalf of the 1838 Small ------------------------------
Cap Equity Fund)
Johannes B. van den Berg /s/ Johannes B. van den Berg
(on behalf of the 1838 International ------------------------------
Equity Fund)
Laurie V. Brooks /s/ Laurie V. Brooks
------------------------------
John J. Kelley /s/ John J. Kelley
-------------------------------
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Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 3 to the Registration Statement under the Securities Act of 1933 on Form
N-1A (File No. 33-87298) of our reports dated December 6, 1996 accompanying the
financial statements and financial highlights of 1838 Investment Advisors Funds,
(consisting of the 1838 Small Cap Equity Fund and the 1838 International Equity
Fund) in the Statement of Additional Information. We also consent to the
reference to our Firm under the headings "General Information-Audits and
Reports" and "Financial Statements" in the Statement of Additional Information.
/s/ Coopers & Lybrand
- ----------------------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 17, 1997
