Post-Effective Amendment No. 4
Filed with the Securities and Exchange Commission on February 27, 1998.
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. 4 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5 |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
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(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 Pepper Hamilton LLP
100 Matsonford Road 3000 Two Logan Square
Radnor, PA 19087 Eighteenth and Arch Streets
(Name and Address of Agent for Service) Philadelphia, PA 19103
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on March 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
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[ ]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.
<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
Registrant Cover Page; The Trust, Investment 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
Securities Shares of Beneficial Interest, Voting
Rights and Shareholder Meetings,
Dividends, Distributions and Taxes
7. Purchase of Securities
Being Offered How to Purchase Shares; Calculation of
Net Asset Value
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
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<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
Item Caption in Statement of
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
and Policies Cover, Investment Objective and Policies,
Investment Restrictions
14. Management of the Fund Trustees and Officers of the Trust
15. Control Persons and
Principal Holders of
Securities Control Persons and Principal Holders of
Securities
16. Investment Advisory and
Other Services Investment Adviser, Distributor
Investment Manager
17. Brokerage Allocation Allocation of Portfolio Brokerage
18. Capital Stock and Other
Securities Not Applicable
19. Purchase, Redemption and
Pricing of Securities
Being Offered Purchase of Shares, Redemptions
20. Tax Status Taxation
21. Underwriters Distributor
22. Calculation of
Performance Data Performance
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.
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<PAGE>
1838
INVESTMENT ADVISORS FUNDS
THE DATE OF THIS PROSPECTUS IS MARCH 1, 1998
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 March 1, 1998 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>
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TABLE OF CONTENTS
Page
SYNOPSIS.......................................................................3
EXPENSES OF THE FUNDS..........................................................5
FINANCIAL HIGHLIGHTS...........................................................6
THE TRUST......................................................................8
INVESTMENT OBJECTIVES AND POLICIES.............................................8
OTHER INVESTMENT POLICIES.....................................................13
RISKS IN DERIVATIVES AND OTHER INVESTMENT PRACTICES...........................14
SPECIAL RISK CONSIDERATIONS...................................................19
INVESTMENT RESTRICTIONS.......................................................22
MANAGEMENT OF THE FUNDS.......................................................22
CALCULATION OF NET ASSET VALUE................................................25
HOW TO PURCHASE SHARES........................................................26
EXCHANGE OF SHARES............................................................27
HOW TO REDEEM SHARES..........................................................27
DIVIDENDS, DISTRIBUTIONS AND TAXES............................................30
SHAREHOLDER ACCOUNTS..........................................................32
RETIREMENT PLANS..............................................................32
SHARES OF BENEFICIAL INTEREST, VOTING RIGHTS AND SHAREHOLDER MEETINGS.........32
PERFORMANCE...................................................................33
APPENDIX......................................................................34
2
<PAGE>
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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. Declaration Distributors, Inc. is the distributor for the
Funds. Declaration Service Company is the administrator, transfer agent,
accounting 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."
3
<PAGE>
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 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>
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EXPENSES OF THE FUNDS
<TABLE>
<CAPTION>
International Small Cap Fixed
Equity Equity Income
Fund Fund Fund
------------- --------- ------
<S> <C> <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).................................... 0.56% 0.16% 0.0%
12b-1 Fees................................................. None None None
Other Expenses
(after expense reimbursements)........................... 0.69% 1.09% 0.75%
Total Fund Operating Expenses
(after fee waivers and expense reimbursements)(2)........ 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 0.19% was waived
during the fiscal year ended October 31, 1997, 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.
The voluntary waivers of the Investment Adviser's fees and expense
reimbursements may be rescinded at any time.
(2) 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 1.44% and 1.84%, respectively, for the
fiscal year ended October 31, 1997. Absent all expense waivers and
reimbursements, the ratio of total operating expenses to average daily net
assets is estimated to be 2.12% 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 Funds 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.
5
<PAGE>
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.
<TABLE>
<CAPTION>
1 yr. 3 yrs. 5 yrs. 10 yrs.
----- ------ ------ -------
<S> <C> <C> <C> <C>
International Equity Fund $13 $40 $69 $151
Small Cap Equity Fund $13 $40 $69 $151
Fixed Income Fund $ 8 $24 N/A N/A
</TABLE>
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 AND SMALL CAP EQUITY FUND FOR THE FISCAL YEAR ENDED OCTOBER 31,
1997. SINCE THE FIXED INCOME FUND COMMENCED OPERATIONS ON SEPTEMBER 2, 1997, THE
TRUST HAS NOT PROJECTED EXPENSES FOR SUCH FUND BEYOND THE THREE YEAR PERIOD.
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FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of the International
Equity, Small Cap Equity and Fixed Income 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, Small Cap Equity and Fixed Income Funds, see each
Fund's Annual Report, which may be obtained by contacting the Funds'
Administrator.
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Fiscal Years
or Period Ended
October 31,
1997 1996 1995+
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE -- BEGINNING OF PERIOD...................... $ 10.44 $ 9.61 $ 10.00
------- ------- -------
Investment Operations:
Net investment income..................................... 0.02 0.07 0.02
Net realized and unrealized gain (loss) on investment and
foreign currency transactions........................... 1.57 0.80 (0.41)
------- ------- -------
Total from investment operations...................... 1.59 0.87 (0.39)
------- ------- -------
Distributions:
From net investment income................................ (0.04) (0.04) --
------- ------- -------
NET ASSET VALUE -- END OF PERIOD............................ $ 11.99 $ 10.44 $ 9.61
======= ======= =======
TOTAL RETURN................................................ 15.23% 9.11% (3.90)%***
Ratios (to average net assets)/Supplemental Data:
Expenses(1)............................................... 1.25% 1.25% 1.25%*
Net investment income..................................... 0.28% 0.70% 1.02%*
Portfolio turnover rate..................................... 92.33% 59.11% 42.21%*
Average commission rate paid................................ $0.0308 $0.0211 --
Net assets at end of period (000's omitted)................. $51,046 $41,209 $16,764
</TABLE>
6
<PAGE>
SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
For the Fiscal
Years or Period
Ended October 31,
1997 1996+
------- -------
<S> <C> <C>
NET ASSET VALUE -- BEGINNING OF PERIOD...................... $ 9.57 $ 10.00
------- -------
INVESTMENT OPERATIONS:
Net investment income (loss).............................. (0.02) (0.02)
Net realized and unrealized gain (loss) on investment and
foreign currency transactions........................... 3.62 (0.41)
------- -------
Total from investment operations........................ 3.60 (0.43)
------- -------
Distributions:
From net investment income................................ (0.09) --
------- -------
NET ASSET VALUE -- END OF PERIOD............................ $ 13.08 $ 9.57
======= =======
TOTAL RETURN................................................ 37.81% (4.30)%***
Ratios (to average net assets)/Supplemental Data:
Expenses(2)............................................... 1.25% 1.25%*
Net investment income..................................... (0.27)% (0.52)%*
Portfolio turnover rate..................................... 67.66% 94.38%*
Average commission rate paid................................ $0.0595 $0.0512
Net assets at end of period (000's omitted)................. $28,923 $ 5,428
</TABLE>
FIXED INCOME FUND
<TABLE>
<CAPTION>
For the
Period ended
October 31, 1997
----------------
<S> <C>
NET ASSET VALUE -- BEGINNING OF PERIOD...................... $ 10.00
INVESTMENT OPERATIONS:
Net investment income..................................... 0.06
Net realized and unrealized gain on investment............ 0.21
Total from investment operations........................ 0.27
NET ASSET VALUE -- END OF PERIOD............................ $ 10.27
=======
TOTAL RETURN................................................ 2.70%***
Ratios (to average net assets)/Supplemental Data:
Expenses(3)............................................... 0.75%*
Net investment income..................................... 5.83%*
Portfolio turnover rate..................................... 39.12%**
Net assets at end of period (000's omitted)................. $32,537
</TABLE>
<TABLE>
<C> <S>
* Annualized.
** Not annualized.
*** The total return has not been annualized.
+ The International Equity Fund commenced operations on August
3, 1995. The Small Cap Equity Fund commenced operations on
June 17, 1996. The Fixed Income Fund commenced operations on
September 2, 1997.
(1) Without waivers the annualized ratio of expenses to average
daily net assets would have been 1.44%, 1.80% and 2.60% for
the fiscal years ended October 31, 1997, 1996 and the period
ended October 31, 1995, respectively.
(2) Without waivers the annualized ratio of expenses to average
daily net assets would have been 1.84% and 4.63% for the
fiscal year ended October 31, 1997 and the period ended
October 31, 1996, respectively.
(3) Without waivers and reimbursements the annualized ratio of
expenses to average daily net assets would have been 2.12%
for the period ended October 31, 1997.
</TABLE>
7
<PAGE>
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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.
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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 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.
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.
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.
8
<PAGE>
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.
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.
9
<PAGE>
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 up to
15% of its assets in illiquid securities, including restricted securities, as
described below, and publicly traded stocks with limited marketability.
Higher risks are often associated with investment in the securities of
small capitalization companies. See "Special Risk Considerations."
In addition to the investments described above, the Fund's investments may
include, but are not limited to, those described below.
While the Fund will remain primarily invested in common stocks, it may, for
temporary defensive purposes, invest in reserves without limitation. Reserves in
which the Fund may invest are cash or short-term cash equivalents, including
Treasury obligations, direct obligations of federal agencies, and high quality,
private sector short-term instruments. The Fund may also establish and maintain
reserves as the Investment Adviser believes is advisable to facilitate the
Fund's cash flow needs (e.g., redemptions, expenses, and purchases of portfolio
securities). The Fund's reserves will be invested in domestic and foreign money
market instruments rated within the top two credit categories by a national
rating organization or, if unrated, the Investment Adviser's equivalent.
While the Fund has no current intention to do so, the Fund may invest in
debt or preferred equity securities convertible into or exchangeable for equity
securities and warrants. The Fund may purchase both rated and unrated
convertible debt securities, depending upon prevailing market and economic
conditions. Debt securities rated as investment grade means that they have a
rating of Baa or better as determined by Moody's or BBB by S&P, or are of
comparable quality. These are the highest ratings or categories as defined by
Moody's and S&P. Debt securities that are rated Baa by 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
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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, asset-backed securities, and inverse floater
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 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.
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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 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
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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.
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OTHER INVESTMENT POLICIES
DEPOSITARY RECEIPTS. Each Fund may invest in the securities of foreign
issuers in the form of American Depositary Receipts (ADRs), European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs) or other securities
convertible into securities of foreign issuers such as convertible preferred
stock, convertible bonds and warrants or rights convertible into common stock.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. If 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 tradable 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/ILLIQUID 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 tradable 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.
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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.
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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 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. The Small Cap Equity Fund does not currently invest
in derivatives, and has no present intention of doing so. If the Small Cap
Equity Fund invests in derivatives at any time, it will be for hedging purposes
only.
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. A
forward contract which obligates a 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 assets equal to the amount of the Fund's obligation. If the
value of the segregated assets declines, additional liquid 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
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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 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.
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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 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
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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.
When a Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash and liquid securities 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 Conduct
Rules 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.
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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.
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 at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
Under such agreements, the other party agrees, upon entering into the contract
with 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
18
<PAGE>
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.
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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 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.
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<PAGE>
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. Further, the
economies of individual developing countries may differ favorably or unfavorably
from the United States economy in growth of domestic product, rate of inflation,
currency depreciation, capital reinvestment, resource self sufficiency and
balance of payments position. Economies of developing countries generally are
heavily dependent upon international trade and have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been or may
continue to be adversely affected by economic conditions in the countries with
which they trade.
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.
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
20
<PAGE>
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.
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.
21
<PAGE>
Options and futures transactions in foreign markets are also subject to the
risk factors associated with foreign investments generally, as discussed above.
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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.
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. Provided that a dealer or
institutional trading market in such securities exists, restricted securities
are not treated as illiquid securities for purposes of a Fund's investment
limitations.
The International Equity Fund may invest up to 25% of its assets in
securities issued or guaranteed by non-U.S. governments, but will invest only in
securities issued or guaranteed by the governments of countries which are
members of the Organization for Economic Co-operation and Development (OECD).
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 warrants or other contract rights distributed to the Fund by the
issuer, as long as the Fund will continue to be a diversified investment company
as defined in the Investment Company Act and continues to meet the
diversification requirements of the Internal Revenue Code of 1986, as amended.
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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.
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<PAGE>
INVESTMENT ADVISER
The Investment Adviser for the Funds is 1838 Investment Advisors, L.P., a
Delaware limited partnership and investment adviser registered 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
following annual rates of each Fund's average daily net assets:
<TABLE>
<S> <C>
International Equity Fund 0.75%
Small Cap Equity Fund 0.75%
Fixed Income Fund 0.50%
</TABLE>
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. 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, Edwin B. Powell, 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 February 1, 1998, the Investment
Adviser managed approximately $5.46 billion in client assets.
The Investment Adviser, 1838 Inc. and MeesPierson Capital Management Inc.
("MPCM"), a 24.9% limited partner of the Investment Adviser and indirect wholly
owned subsidiary of MeesPierson N.V., located at Five Radnor Corporate Center,
Suite 320, 100 Matsonford Road, Radnor, PA 19087, have entered into a purchase
agreement whereby MPCM has the option to purchase from 1838 Inc. a limited
partnership interest representing an additional 5.1% of the Investment Adviser.
Under the terms of the purchase agreement, MPCM may not exercise its option
prior to December 31, 1998.
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 also is a Director of MeesPierson 1838 Investment
Advisors 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.
23
<PAGE>
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
Declaration Distributors, Inc. (the "Distributor"), 555 North Lane, Suite
6160, Conshohocken, PA 19428, has been engaged pursuant to a distribution
agreement, to assist in securing purchasers for shares of each Fund. The
Distributor also directly, or through its affiliates, provides investor support
services. The Distributor will receive no compensation for distribution of
shares of the Funds, except for reimbursement of out-of-pocket expenses.
ADMINISTRATOR, TRANSFER AGENT, DIVIDEND PAYING AGENT AND CUSTODIAN
Declaration Service Company ("Declaration"), 555 North Lane, Suite 6160,
Conshohocken, PA 19428, serves as Administrator, Transfer Agent, Shareholder
Servicing Agent and Dividend Paying Agent of each Fund and also provides
accounting services to the Funds.
As Administrator, Declaration supplies office facilities, non-investment
related statistical and research data, stationery and office supplies, executive
and administrative services, internal auditing and regulatory compliance
services. Declaration 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.
Declaration performs certain budgeting and financial reporting and compliance
monitoring activities. For the services provided as Administrator, Declaration
receives an administration fee from the Trust payable monthly at the annual rate
of $20,000 for the Small Cap Equity Fund, $20,000 for the Fixed Income Fund and
$27,500 for the International Equity Fund. Additionally, Declaration receives an
annual fee based on the combined assets of all three Funds as follows: 0.0% of
the first $50 million of net assets; 0.04% of the next $50 million of net
assets; 0.02% of the next $100 million of net assets and 0.01% of net assets in
excess of $200 million.
As Accounting Agent, Declaration determines each Fund's net asset value per
share and provides accounting services to the Funds pursuant to an Accounting
Services Agreement with the Trust. For the services provided as Accounting
Agent, Declaration receives a fee from the Trust at the annual rate of $25,000
for the International Equity Fund and $17,500 for each of the Small Capital
Equity and Fixed Income Funds.
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.
As of the date of this Prospectus, 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. However, CoreStates Bank, N.A.,
located at 530 Walnut Street, Philadelphia, PA 19101, will become the custodian
for the Small Cap Equity and Fixed Income Funds as of March 9, 1998.
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<PAGE>
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 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.
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CALCULATION OF NET ASSET VALUE
Declaration 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 administration 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
Declaration 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.
25
<PAGE>
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HOW TO PURCHASE SHARES
Shares of each Fund are offered on a continuous basis by the Funds through
the Distributor and may be purchased by mail or wire at the net asset value next
determined after receipt by Declaration, upon acceptance of the purchase order
in proper form by the Distributor. The Funds and the Distributor reserve the
right to reject any purchase order, and a Fund and the Distributor 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:
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 Declaration Service Company, P.O. Box 844,
Conshohocken, PA 19428. A purchase order sent by overnight mail should be sent
to 1838 Investment Advisors Funds, c/o Declaration Service Company, 555 North
Lane, Suite 6160, Conshohocken, PA 19428. 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 Declaration at (800) 884-1838. Once you have an account number,
instruct your bank to wire federal funds to:
Declaration Service Company
C/O CoreStates Bank, N.A.
Philadelphia, PA
ABA # 031000011
ATTENTION: [FUND NAME]
DDA # 1420560674
FURTHER CREDIT [SHAREHOLDER NAME AND ACCOUNT NUMBER]
If you make an initial purchase by wire, you must promptly forward a
completed Application to Declaration 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, Declaration, 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
26
<PAGE>
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 Declaration at (800) 884-1838.
ADDITIONAL PURCHASE INFORMATION
Purchase orders for shares of a Fund which are received by Declaration and
accepted by the Distributor prior to the close of regular trading hours on the
Exchange (generally 4:00 p.m. Eastern time) on any day that the Fund calculates
its net asset value, are priced according to the net asset value determined on
that day. Purchase orders received by Declaration and accepted by the
Distributor 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 Declaration, upon acceptance of the
purchase order by the Distributor.
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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 Declaration 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 more information about exchanges, or to place exchange orders,
contact Declaration at (800) 884-1838. 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.
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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 Declaration of a redemption request meeting the
requirements described below. Redemption proceeds are normally sent on the next
business day following receipt and acceptance by Declaration 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.
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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
Declaration 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 Declaration after the
close of the Exchange are effective as of the time the net asset value per share
is next determined.
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 Declaration Service Company, P.O. Box 844, Conshohocken, PA
19428. A redemption order sent by overnight mail should be sent to 1838
Investment Advisors Funds, c/o Declaration, 555 North Lane, Suite 6160,
Conshohocken, PA 19428.
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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. For an
Application for Telephone Redemptions, check the appropriate box on the
Application or call Declaration at (800) 884-1838. The Application for Telephone
Redemptions describes the telephone redemption procedures in more detail and
requires certain information that will be used to identify the shareholder when
a telephone redemption request is made.
Neither the 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 Declaration by telephone, you may make a redemption request by
mail. The Funds and Declaration 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
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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
Declaration at (800) 884-1838. Under the Plan, shareholders may automatically
redeem a portion of their Fund shares monthly, bimonthly, quarterly,
semi-annually or annually. The minimum withdrawal available is $100. The
redemption of Fund shares will be effected at their net asset value at the close
of the Exchange on or about the 25th day of the month. If you expect to purchase
additional Fund shares, it may not be to your advantage to participate in the
Systematic Withdrawal Plan because contemporaneous purchases and redemptions may
result in adverse tax consequences.
For more information on redemption services, contact Declaration.
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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 Declaration in writing thirty days
prior to the 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.
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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 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.
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SHAREHOLDER ACCOUNTS
Declaration, 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. For its services as Transfer Agent, Declaration
receives a fee from the Trust at the annual rate of $12,000 per Fund.
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 Declaration
by calling (800) 884-1838.
The IRA custodian receives an annual fee of $10.00 per account, which fee
is paid directly to the custodian by the IRA shareholder. If the fee is not paid
by the date due, shares of the Fund held in the IRA account will be redeemed
automatically for purposes of making the payment.
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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 gives 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 January 30, 1998, Patterson &
Co. owned by virtue of shared or sole voting or investment power on behalf of
its underlying customer accounts 62.55% 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 January 30, 1998, Poolside & Co. owned by
virtue of shared or sole voting or investment power on behalf of its underlying
customer accounts 25% of the shares of the Small Cap Equity
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Fund, and Patterson & Co. owned by virtue of shared or sole voting or investment
power on behalf of its underlying customer accounts 31.81% of the shares of the
Small Cap Equity Fund, and both may be deemed to be controlling persons under
the Investment Company Act. As of January 30, 1998, Patterson & Co. owned by
virture of shared or sole voting or investment power on behalf of its underlying
customer accounts 61.17% of the Fixed Income Fund and may be deemed to be a
controlling person of the Fund 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 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.
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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 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
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"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.
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 and 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
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
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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
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.
36
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I N V E S T M E N T A D V I S E R
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1838 INVESTMENT ADVISORS, L.P.
FIVE RADNOR CORPORATE CENTER
SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
U N D E R W R I T E R
- --------------------------------------------------------------------------------
DECLARATION DISTRIBUTORS, INC.
555 NORTH LANE
SUITE 6160
CONSHOHOCKEN, PA 19428
S H A R E H O L D E R S E R V I C E S
- --------------------------------------------------------------------------------
DECLARATION SERVICE COMPANY
555 NORTH LANE
SUITE 6160
CONSHOHOCKEN, PA 19428
C U S T O D I A N S
- --------------------------------------------------------------------------------
BANKERS TRUST COMPANY
280 PARK AVENUE
NEW YORK, NY 10017
WILMINGTON TRUST COMPANY
RODNEY SQUARE NORTH
1100 N. MARKET STREET
WILMINGTON, DE 19890
L E G A L C O U N S E L
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PEPPER HAMILTON LLP
3000 TWO LOGAN SQUARE
PHILADELPHIA, PA 19103
A U D I T O R S
- --------------------------------------------------------------------------------
COOPERS & LYBRAND L.L.P.
2400 ELEVEN PENN CENTER
PHILADELPHIA, PA 19103
ET01
1838
INVESTMENT ADVISORS FUNDS
--------------------------
INTERNATIONAL EQUITY FUND
SMALL CAP EQUITY FUND
FIXED INCOME FUND
PROSPECTUS
MARCH 1, 1998
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1998
- -------------------------------------------------------------------------------
Five Radnor Corporate Center, Suite 320, 100 Matsonford Road, Radnor, PA 19087
- -------------------------------------------------------------------------------
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 March 1, 1998. 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. Declaration Distributors, Inc.
Five Radnor Corporate Center, Suite 320 555 North Lane
100 Matsonford Road Suite 6160
Radnor, PA 19087 Conshohocken, PA 19428
(610) 293-4300 (800) 884-1838
- ----------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ IN CONNECTION WITH THE TRUST's CURRENT PROSPECTUS DATED MARCH 1, 1998.
RETAIN THIS STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE.
- ----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES AND POLICIES..........................................3
INVESTMENT RESTRICTIONS....................................................11
INVESTMENT ADVISER.........................................................13
ALLOCATION OF PORTFOLIO BROKERAGE..........................................13
DISTRIBUTOR................................................................14
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES........................14
PURCHASE OF SHARES.........................................................15
REDEMPTIONS................................................................16
TRUSTEES AND OFFICERS OF THE TRUST.........................................16
TAXATION...................................................................19
GENERAL INFORMATION........................................................20
PERFORMANCE................................................................20
FINANCIAL STATEMENTS.......................................................22
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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 in 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 periods 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 rates for the fiscal
years ended October 31, 1996 and 1997 were 59.11% and 92.33%, respectively. The
portfolio turnover rates for the Small Cap Equity Fund for the period from June
17, 1996 (commencement of operations) to October 31, 1996 and the fiscal year
ended October 31, 1997 were 94.38% and 67.66%, respectively. The portfolio
turnover rate for the Fixed Income Fund for the period September 2, 1997
(commencement of operations) through October 31, 1997 was 39.12%. 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).
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such as
the Funds. If such restrictions should be reinstituted, it might become
necessary for a Fund to invest all or substantially all of its assets in U.S.
securities. In such event, the Fund would review its investment objective and
policies to determine whether changes are appropriate. Any changes in the
investment objective or fundamental policies set forth under "Investment
Restrictions" below would require the approval of the holders of a majority of a
Fund's outstanding voting securities.
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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.
Mortgage-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
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.
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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 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 occur.
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
-5-
<PAGE>
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.
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.
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Futures Contracts
Each Fund may enter into futures contracts for the purposes of
hedging, remaining fully invested and reducing transaction costs. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security at a specified future time and at a
specified price. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. Government Agency.
Although most futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith initial margin deposit in
cash or acceptable securities with a broker or custodian to initiate and
maintain open positions in futures contracts. An initial margin deposit is
intended to assure completion of the contract (delivery or acceptance of the
underlying security) if it is not terminated prior to the specified delivery
date. Minimal initial margin requirements are established by the futures
exchange and may be changed. Brokers may establish initial deposit requirements
which are higher than the exchange minimums. Futures contracts are customarily
purchased and sold on initial margin that may range upward from less than 5% of
the value of the contract being traded. After a futures contract position is
opened, the value of the contract is marked to market daily. A second type of
deposit called variation margin is used to adjust the futures position account
for the daily marked to market variations. If the marked to market value
declines, additional deposits in cash are required to balance this decline
(variation margin). Conversely, if the marked to market value increases,
deposits in cash may be withdrawn from the account to the extent of the increase
(variation margin). Variation margin payments are made to and from the futures
broker for as long as the contract remains open. The Funds expect to earn
interest income on their initial margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade and use
futures contracts with the expectation of realizing profits from a fluctuation
in interest rates. The Funds intend to use futures contracts only for hedging
purposes.
Regulations of the CFTC applicable to the Funds require that all of its
futures transactions constitute bona fide hedging transactions or that the
Funds' commodity futures and option positions be for other purposes, to the
extent that the aggregate initial margins and premiums required to establish
such non-hedging positions do not exceed five percent of the liquidation value
of each Fund. Each Fund will only sell futures contracts to protect securities
it owns against price declines or purchase contracts to protect against an
increase in the price of securities it intends to purchase. As evidence of this
hedging interest, each Fund expects that approximately 75% of its futures
contracts purchases will be "completed," that is, equivalent amounts of related
securities will have been purchased or are being purchased by the Fund upon sale
of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control a Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
a Fund will incur commission expenses in both opening and closing out future
positions, these costs are lower than transaction costs incurred in the purchase
and sale of the underlying securities.
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Restrictions on the Use of Futures Contracts
A Fund 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.
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.
-8-
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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 reserve of cash or liquid securities denominated in U.S. dollars or
non-U.S. currencies with a securities depository with a value equal to or
greater than the exercise price of the underlying securities. By writing a put,
a Fund will be obligated to purchase the underlying security at a price that may
be higher than the market value of that security at the time of exercise for as
long as the option is outstanding. Each Fund may engage in closing transactions
in order to terminate put options that it has written.
Purchasing Options
A put option may be purchased to partially limit the risks of the value of
an underlying security or the value of a commitment to purchase that security
for forward delivery. The amount of any appreciation in the value of the
underlying security will be partially offset by the amount of the premium paid
for the put option and any related transaction costs. Prior to its expiration, a
put option may be sold in a closing sale transaction and profit or loss from a
sale will depend on whether the amount received is more or less than the premium
paid for the put option plus the related transaction costs. A closing sale
transaction cancels out a Fund's position as purchaser of an option by means of
an offsetting sale of an identical option prior to the expiration of the option
it has purchased. In certain circumstances, a Fund may purchase call options on
securities held in its investment portfolio on which it has written call options
or on securities which it intends to purchase.
Options on Foreign Currencies
The Funds may purchase and write options on foreign currencies for hedging
purposes in a manner similar to that in which futures contracts on foreign
currencies, or forward contracts, will be utilized. For example, a decline in
the dollar value of a foreign currency in which portfolio 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.
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Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Fund may purchase call options thereon. The purchase
of such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit to a Fund deriving from purchases of foreign currency options will
be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, a Fund could sustain losses on transactions in foreign
currency options which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
Each Fund may write options on foreign currencies for the same types of
hedging purposes. For example, where a Fund anticipates a decline in the dollar
value of foreign currency denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option, write a call option
on the relevant currency. If the anticipated decline occurs, the option will
most likely not be exercised, and the diminution in value of portfolio
securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, a Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, a Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
Each Fund may write covered call options on foreign currencies. A call
option written on a foreign currency by a Fund is "covered" if the Fund owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by the Custodian)
upon conversion or exchange of other foreign currency held in its portfolio. A
call option is also covered if a Fund has a call on the same foreign currency
and in the same principal amount as the call written where the exercise price of
the call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or liquid 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 liquid 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
-10-
<PAGE>
participants will not be available. For example, there are no daily price
fluctuation limits, and adverse market movements could therefore continue to an
unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default.
Furthermore, a liquid secondary market in options traded on a national
securities exchange may be more readily available than in the over-the-counter
market, potentially permitting a Fund to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in the event of adverse
market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options of foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options of foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in a Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
INVESTMENT RESTRICTIONS
In addition to those set forth in 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.
-11-
<PAGE>
3. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or
reorganization, or by purchase in the open market or 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 on margin. Also, engaging in futures transactions and related
options will not be deemed a short sale or maintenance of a short
position in securities.
7. Make loans to other persons (except as provided in (8) below);
provided that for purposes of this restriction the acquisition of
bonds, debentures, or other corporate debt securities and investment
in government obligations, short-term commercial paper, certificates
of deposit, bankers' acceptances, repurchase agreements and any
fixed-income obligations in which the Fund may invest consistent with
its investment objective and policies shall not be deemed to be the
making of a loan.
8. Lend its portfolio securities in excess of 33-1/3% of its total
assets, taken at market value; provided that such loans shall be made
in accordance with the guidelines set forth below.
9. Borrow amounts in excess of 20% of its total assets, taken at market
value, and then only from banks as a temporary measure for
extraordinary or emergency purposes such as the redemption of Fund
shares. Utilization of borrowings may exaggerate increases or
decreases in an investment company's net asset value. However, 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
-12-
<PAGE>
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.
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. With respect to the
International Equity Fund and Small Cap Equity Fund, 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 extent that the Fund's total operating
expenses exceed 0.75% of the Fund's average daily net assets. The advisory fees
payable to the Investment Advisor in connection with the services provided to
the International Equity Fund for the years ended October 31, 1996 and 1997
amounted to $218,232 and $372,918, respectively, of which $138,238 and $93,801,
respectively were waived. For the period August, 3, 1995 (commencement of
operations) through October 31, 1995, the advisory fee payable amounted to
$29,563, all of
-13-
<PAGE>
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 and for the
fiscal year ended October 31, 1997 amounted to $12,641 and $142,555,
respectively, $12,641 and $112,370 of which were waived. The advisory fees
payable to the Investment Advisor in connection with services provided to the
Fixed Income Fund for the period September 2, 1997 (commencement of operation)
through October 31, 1997 amounted to $15,545, 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 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, imposes 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 years
ended October 31, 1996 and 1997 paid $124,675 and $190,009, respectively in
brokerage commissions. During the period June 17, 1996 through October 31, 1996,
the Small Cap Equity Fund paid $9,692 and for the fiscal year ended October 31,
1997 paid $60,836 in brokerage commissions. During the period September 2, 1997
(commencement of operations) through October 31, 1997, the Fixed Income Fund
paid $0 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.
-14-
<PAGE>
DISTRIBUTOR
Declaration Distributors, Inc. serves as the Distributor of each Fund's
shares pursuant to a Distribution Agreement with the Trust. Under the terms of
the Distribution Agreement, the Distributor agrees to assist in securing
purchasers for shares of the Funds. The Distributor will receive no compensation
for distribution of shares of the Funds, except for reimbursement of
out-of-pocket expenses.
The Distribution Agreement provides that the Distributor, 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 in March 1998, and
will remain in effect an initial 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 a 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 the Distributor,
or (ii) by the Distributor on sixty (60) days' written notice to the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of January 30, 1998, 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. 62.55%
P.O. Box 7829
Philadelphia, PA 19101
-15-
<PAGE>
As of January 30, 1998, 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
Trustees of Upper Darby 8.05%
Police Pension Plan
KDB Resources
12 South Monroe Street, Suite 301
Media, PA 19063
Patterson & Co. 31.81%
c/o CoreStates Bank, NA
530 Walnut Street
Philadelphia, PA 19106
Poolside & Co. 24.89%
1 Enterprise Drive
Quincy, MA 02171
As of January 30, 1998, 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
Patterson & Co. 61.17%
c/o CoreStates Bank, N.A.
530 Walnut Street
Philadelphia, PA 19106
Saxon & Co. 10.22%
FBO Independence Seaport Museum
P.O. Box 7780-1888
Philadelphia, PA 19182
MAC & Co. 5.72%
P.O. Box 3198
Pittsburgh, PA 15230
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<PAGE>
PURCHASE OF SHARES
Tax-Deferred Retirement Plans
Shares of each Fund are available to all types of tax-deferred retirement
plans such as IRAs, employer-sponsored defined contribution plans (including
401(k) plans) and tax-sheltered custodial accounts described in Section
403(b)(7) of the Internal Revenue Code of 1986, as amended. Qualified investors
benefit from the tax-free compounding of income dividends and capital gains
distributions.
Individual Retirement Accounts (IRA)
Individuals, who are not active participants (and, when a joint return is
filed, who do not have a spouse who is an active participant) in an employer
maintained retirement plan are eligible to contribute on a deductible basis to
an IRA account. The IRA deduction is also retained for individual taxpayers and
married couples with adjusted gross incomes not in excess of certain specified
limits. All individuals who have earned income may make nondeductible IRA
contributions to the extent that they are not eligible for a deductible
contribution. Income earned by an IRA account will continue to be tax deferred.
A special IRA program is available for employers under which the employers may
establish IRA accounts for their employees in lieu of establishing tax-qualified
retirement plans. Known as SEP-IRAs (Simplified Employee Pension-IRA), they free
the employer of many of the recordkeeping requirements of establishing and
maintaining a tax-qualified retirement plan trust.
If you are entitled to receive a distribution from a qualified retirement
plan, you may rollover all or part of that distribution into a Fund's IRA. Your
rollover contribution is not subject to the limits on annual IRA contributions.
You can continue to defer federal income taxes on your contribution and on any
income that is earned on that contribution.
REDEMPTIONS
Under normal circumstances, you may redeem your shares at any time without
a fee. The redemption price will be based upon the net asset value per share
next determined after receipt of the redemption request, provided it has been
submitted in the manner described in the Prospectus of each Fund. See "How to
Redeem Shares" in the Prospectus. The redemption price may be more or less than
your cost, depending upon the net asset value per share at the time of
redemption.
Payment for shares tendered for redemption is made by check within seven
days after receipt and acceptance of your redemption request by Declaration,
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.
-17-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Position and Office Principal Occupation
Name and Address Age with the Trust During the Past Five Years
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*W. Thacher Brown 50 President, Chairman and President and Chief Executive
Five Radnor Corporate Center, Trustee Officer, 1838 Investment Advisors,
Suite 320 L.P. (1988 - Present); President and
100 Matsonford Road 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. 79 Trustee Retired. Formerly Chairman and CEO
1 Tower Bridge of Scott Paper Company (retired as
West Conshohocken, PA 19428 CEO 1983; retired as Director, 1988);
Formerly Director of General Electric
Company (retired 1991).
- --------------------------------------------------------------------------------------------------------------
Frank B. Foster, III 63 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).
- --------------------------------------------------------------------------------------------------------------
*George W. Gephart, Jr. 45 Trustee and Vice President Principal, 1838 Investment Advisors,
Five Radnor Corporate Center, L.P. (1988 - Present); Chairman, Bryn
Suite 320 Mawr Rehab Hospital (Past); and
100 Matsonford Road Director, Main Line Health Systems
Radnor, PA 19087 and Jefferson Health Systems
(Present).
- --------------------------------------------------------------------------------------------------------------
Robert P. Hauptfuhrer 66 Trustee Chairman and CEO, Oryx Energy Company
100 Matsonford Road (1988-1994); Director, Oryx Energy
Building 5, Suite 300 Company (1988-1994), Director, Quaker
Radnor, PA 19087 Chemical Corp. (1977-Present).
- --------------------------------------------------------------------------------------------------------------
Johannes B. van den Berg 40 Vice President Principal and Portfolio Manager, 1838
Five Radnor Corporate Center, Investment Advisors L.P. (1997 -
Suite 320 Present); Managing Director and
100 Matsonford Road Portfolio Manager, MeesPierson 1838
Radnor, PA 19087 Investment Advisors (1994-Present);
President, MeesPierson Capital
Management, Inc. (1993 - Present);
Director and Chief Investment
Officer, MeesPierson Capital
Management, B.V. (1983 -1993); and
Director, Asian Selection Fund.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Position and Office Principal Occupation
Name and Address Age with the Trust During the Past Five Years
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Edwin B. Powell 60 Vice President Principal and Portfolio Manager, 1838
Five Radnor Corporate Center, Investment Advisors, L.P. (1994 -
Suite 320 Present); Vice President and
100 Matsonford Road Portfolio Manager, Provident Capital
Radnor, PA 19087 Management (1987 - 1994).
- --------------------------------------------------------------------------------------------------------------
Marcia Zercoe 38 Vice President Principal and Portfolio Manager, 1838
Five Radnor Corporate Center, Suite Investment Advisors, L.P. (1995 to
320 Present); Vice President and Head of
100 Matsonford Road Fixed Income, FNB Maryland (1994 to
Radnor, PA 19087 1995); Vice President and Head of
Fixed Income, Provident Capital
Management (1990 to 1994).
- --------------------------------------------------------------------------------------------------------------
Anna M. Bencrowsky 46 Vice President, Treasurer Director, Investment Advisory and
Five Radnor Corporate Center, 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.
- --------------------------------------------------------------------------------------------------------------
</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.
-19-
<PAGE>
Information relating to the compensation paid to the Trustees of the Trust
for the fiscal year ended October 31, 1997 is set forth below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Pension or Total
Retirement Compensation
Aggregate Benefits from Trust and
Compensation Accrued Part of Fund Complex
Name and Position from the Trust(1) 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. Trustee $10,500 $0 $10,500
- --------------------------------------------------------------------------------------------------------------
Frank B. Foster, III Trustee $10,500 $0 $10,500
- --------------------------------------------------------------------------------------------------------------
Robert P. Hauptfuhrer Trustee $10,500 $0 $10,500
- --------------------------------------------------------------------------------------------------------------
</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, 1997, such fees and
expenses amounted to $31,500. As of February 28, 1998, Trustees and
officers owned less than 1% of the outstanding shares of the Small Cap
Equity Fund, International Equity Fund and Fixed Income 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) distribute at least 90% of its
dividends, interest and certain other taxable income each year; and (iii) at the
end of each fiscal quarter maintain at least 50% of the value of its total
assets in cash, government securities, securities of other regulated investment
companies, and other securities of issuers which represent, with respect to each
issuer, no more than 5% of the value of a Fund's total assets and 10% of the
outstanding voting securities of such issuer, and with no more than 25% of its
assets invested in the securities (other than those of the government or other
regulated investment companies) of any one issuer or of two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades and businesses.
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<PAGE>
To the extent a Fund qualifies for treatment as a regulated investment
company, it will not be subject to federal income tax on income and net capital
gains paid to shareholders in the form of dividends or capital gains
distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of a
Fund's "required distributions" over actual distributions in any calendar year.
Generally, the "required distribution" is 98% of a fund's ordinary income for
the calendar year plus 98% of its capital gain net income recognized during the
one-year period ending on October 31 plus undistributed amounts from prior
years. The Funds intend to make distributions sufficient to avoid imposition of
the excise tax. Distributions declared by the Funds during October, November or
December to shareholders of record during such month and paid by January 31 of
the following year will be taxable to shareholders in the calendar year in which
they are declared, rather than the calendar year in which they are received.
Each Fund will provide an information return to shareholders describing the
federal tax status of the dividends paid by the Fund during the preceding year
within 60 days after the end of each year as required by present tax law.
Individual shareholders will receive Form 1099-DIV and Form 1099-B as required
by present tax law during January of each year. If the Fund makes a distribution
after the close of its fiscal year which is attributable to income or gains
earned in such earlier fiscal year, then the Fund shall send a notice to its
shareholders describing the amount and character of such distribution within 60
days after the close of the year in which the distribution is made. Shareholders
should consult their tax advisors concerning the state or local taxation of such
dividends, and the federal, state and local taxation of capital gains
distributions.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action at any time, and retroactively.
Dividends and distributions also may be subject to state and local taxes.
Federal Tax Treatment of Forward Currency and Futures Contracts
Except for transactions the Funds have identified as hedging transactions,
each Fund is required for federal income tax purposes to recognize as income for
each taxable year its net unrealized gains and losses on forward currency and
futures contracts as of the end of each taxable year as well as those actually
realized during the year. In most cases, any such gain or loss recognized with
respect to a regulated futures contract is considered to be 60% long-term
capital gain or loss and 40% short-term capital gain or loss without regard to
the holding period of the contract. Realized gain or loss attributable to a
foreign currency forward contract is treated as 100% ordinary income.
Furthermore, foreign currency futures contracts which are intended to hedge
against a change in the value of securities held by a Fund may affect the
holding period of such securities and, consequently, the nature of the gain or
loss on such securities upon disposition.
In order for each Fund to continue to qualify for federal income tax
treatment as a regulated investment company under the Code, at least 90% of each
Fund's gross income for a taxable year must be derived from certain qualifying
income, i.e., dividends, interest, income derived from loans of securities and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other related income, including gains from options, futures and
forward contracts, derived with respect to its business investing in stock,
securities or currencies. Any net gain realized from the closing out of futures
contracts will, therefore, generally be qualifying income for purposes of the
90% requirement.
-21-
<PAGE>
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.
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).
-22-
<PAGE>
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.
The Fixed Income Fund's current yield for the 30-day period ended October
31, 1997 was 5.74%.
As the following formula indicates, the average annual total return is
determined by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
annualizing the result. The calculation assumes the maximum sales load is
deducted from the initial $1,000 purchase order and that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The quotation assumes the account was completely
redeemed at the end of each one, five and ten-year period and assumes the
deduction of all applicable charges and fees. According to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10-year periods,
determined at the end of the 1, 5 or 10-year periods (or
fractional portion thereof).
The International Equity Fund's total return for the fiscal year ended
October 31, 1997 was 15.23%. The aggregate total return from inception of the
Fund (August 3, 1995) to October 31, 1997 was 8.77%, and the average annual
return for the period was 20.82%. The Small Cap Fund's total return for the
fiscal year ended October 31, 1997 was 37.81%. The Small Cap Fund's aggregate
total returns for the period June 17, 1996 (commencement of operations) through
October 31, 1997 was 31.97%, and the average annual return for the period was
22.35%. The Fixed Income Fund's total return for the period from September 2,
1997 through October 31, 1997 was 2.70%.
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
-23-
<PAGE>
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.
FINANCIAL STATEMENTS
The audited financial statements and the financial highlights for the
International Equity Fund, Small Cap Equity Fund and Fixed Income Fund for the
fiscal year or period ended October 31, 1997 as set forth in their respective
Annual Reports to shareholders, and the reports thereon of Coopers & Lybrand
LLP, the Funds' independent public accountants, also appearing in the Annual
Reports, are incorporated herein by reference.
-24-
<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 fiscal years ended
October 31, 1996 and 1997; Financial Highlights for
the 1838 Small Cap Equity Fund for the period June
17, 1996 through October 31, 1996 and for the fiscal
year ended October 31, 1997; and Financial Highlights
for the 1838 Fixed Income Fund for the period
September 2, 1997 through October 31, 1997.
(i) Report of Independent Public Accountants dated
December 12, 1997. Incorporated by reference to the
Registrant's Annual Report to Shareholders filed with
the U.S. Securities and Exchange Commission in
January 1998.
(ii) Audited Financial Statements of the 1838
International Equity Fund for the period ended
October 31, 1996 and for the year ended October 31,
1997. Incorporated by reference to the Registrant's
Annual Report to Shareholders filed with the U.S.
Securities and Exchange Commission on January 1998.
(iii) Audited Financial Statements of the 1838 Fixed Income
Fund for the period ended October 31, 1997,
Incorporated by reference to the Registrant's Annual
Report to Shareholders filed with the U.S. Securities
and Exchange Commission in January 1998.
(iv) Audited Financial Statements of the 1838 Small Cap
Equity Fund for the period ended October 31, 1996 and
for the year ended October 31, 1997. Incorporated by
reference to the Registrant's Annual Report to
Shareholders filed with the U.S. Securities and
Exchange Commission in January 1998.
(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.
(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.
<PAGE>
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 Declaration
Distributors, Inc.
Filed herewith.
(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.
(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) Investment Company Services Agreement with
The Declaration Group, Inc.
Filed herewith.
(10) OPINION AND CONSENT OF COUNSEL AS TO THE LEGALITY
OF THE SECURITIES TO BE ISSUED:
Not applicable.
-2-
<PAGE>
(11) CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
Filed herewith.
(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
Filed herewith.
(17) FINANCIAL DATA SCHEDULES
Filed herewith.
(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 January 30, 1998 is as follows:
(1) (2)
Title of Class Number of Record Holders
-------------- ------------------------
1838 International
Equity Fund series 114
1838 Small Cap Equity
Fund series 44
1838 Fixed Income
Fund Series 20
-3-
<PAGE>
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 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 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.
-4-
<PAGE>
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.
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) Declaration Distributors, Inc., the distributor for the Registrant's
securities, currently acts as distributor for the following entities:
Pauze U.S. Government Total Return Bond Fund
Pauze U.S. Government Intermediate Term Bond Fund
Pauze U.S. Government Short Term Bond Fund
Pauze Tombstone Fund
-5-
<PAGE>
The Noah Fund
JWB Aggressive Growth
The Declaration Cash Account
The Michigan Heritage Fund
Henssler Funds, Inc.
(b) The Distributor's officers are listed below. The address of each
person is 555 North Lane, Suite 6160, Conshohocken, PA 19428.
David F. Ganley, Vice President
Martin M. Whalen, Vice President
Linda K. Coyne, Secretary
Terence P. Smith, President
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.
(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, 1997, 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.
-6-
<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,
certifies that it meets all of the requirements for effectiveness of this
Post-Effective Amendment pursuant to Rule 485(b) under the Securities Act of
1933 and 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 26th
day of February, 1998.
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ W. Thacher Brown President and Trustee February 26, 1998
- ---------------------------------
W. Thacher Brown
/s/ George W. Gephart, Jr. Vice President and Trustee February 26, 1998
- ---------------------------------
George W. Gephart, Jr.
/s/ Charles B. Dickey, Jr.
- --------------------------------- Trustee February 26, 1998
Charles D. Dickey, Jr. *
/s/ Frank B. Foster, III
- --------------------------------- Trustee February 26, 1998
Frank B. Foster, III*
/s/ Robert P. Hauptfuhrer
- --------------------------------- Trustee February 26, 1998
Robert P. Hauptfuhrer*
/s/ Anna M. Bencrowsky Vice President February 26, 1998
- --------------------------------- 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)
</TABLE>
-7-
<PAGE>
File No. 33-87298
File No. 811-8902
EXHIBITS TO FORM N-1A POST-EFFECTIVE AMENDMENT NO. 4
Exhibit No. Description
- ----------- -----------
24(b)(6)(a) Form of Distribution Agreement
24(b)(9)(a) Investment Company Services Agreement
24(b)(11) Consent of Certified Public Accountants
24(b)(16) Schedules for Computation of Performance
27 Financial Data Schedules
-8-
1838 Investment Advisors Funds
Distribution Agreement
THIS DISTRIBUTION AGREEMENT (the "Agreement") is made as of the First
day of March, 1998 by and among 1838 Investment Advisors Funds (the "Trust"), a
Delaware Trust, 1838 Investment Advisors L.P. (the "Adviser"), a Delaware
Limited Partnership, and Declaration Distributors, Inc. (the "Distributor"), a
Pennsylvania corporation (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and has registered its shares of common stock (the "Shares") under the
Securities Act of 1933, as amended (the "1933 Act") in one or more distinct
series of Shares (the "Portfolio" or "Portfolios");
WHEREAS, the Adviser has been appointed investment adviser to the
Trust;
WHEREAS, the Distributor is a broker-dealer registered with the U.S.
Securities and Exchange Commission (the "SEC") and a member in good standing of
the National Association of Securities Dealers, Inc. (the "NASD");
WHEREAS, the Trust, the Adviser and the Distributor desire to enter
into this Agreement pursuant to which the Distributor will provide distribution
services to the Portfolios of the Trust identified on Schedule A, as may be
amended from time to time, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust, the Adviser and the Distributor,
intending to be legally bound hereby, agree as follows:
<PAGE>
1. APPOINTMENT OF DISTRIBUTOR. The Trust hereby appoints the
Distributor as its exclusive agent for the distribution of the Shares, and the
Distributor hereby accepts such appointment under the terms of this Agreement.
The Trust shall not sell any Shares to any person except to fill orders for the
Shares received through the Distributor; provided, however, that the foregoing
exclusive right shall not apply: (i) to Shares issued or sold to investors on
applications received and accepted by the Trust; (ii) to Shares issued or sold
in connection with the merger or consolidation of any other investment company
with the Trust or the acquisition by purchase or otherwise of all or
substantially all of the assets of any investment company or substantially all
of the outstanding shares of any such company by the Trust; (iii) to Shares
which may be offered by the Trust to its shareholders for reinvestment of cash
distributed from capital gains or net investment income of the Trust; or (iv) to
Shares which may be issued to shareholders of other funds who exercise any
exchange privilege set forth in the Trust's Prospectus. Notwithstanding any
other provision hereof, the Trust may terminate, suspend, or withdraw the
offering of the Shares whenever, in its sole discretion, it deems such action to
be desirable, and the Distributor shall process no further orders for Shares
after it receives notice of such termination, suspension or withdrawal.
2. TRUST DOCUMENTS. The Trust has provided the Administrator with
properly certified or authenticated copies of the following Trust related
documents in effect on the date hereof: the Trust's organizational documents,
including Agreement and Declaration of Trust and By-Laws; the Trust's
Registration Statement on Form N-1A, including all exhibits thereto; the Trust's
most current Prospectus and Statement of Additional Information; and resolutions
of the Trust's Board of Trustees authorizing the appointment of the Distributor
and approving this Agreement. The Trust shall promptly provide to the
Distributor copies, properly certified or authenticated, of all amendments or
supplements to the foregoing. The Trust shall provide to the Distributor copies
of all other information which the Distributor may reasonably request for use in
connection with the distribution of Shares, including, but not limited to, a
certified copy of all financial statements prepared for the Trust by its
independent public accountants. The Trust shall also supply the Distributor with
such number of copies of the current Prospectus, Statement of Additional
Information and shareholder reports as the Distributor shall reasonably request.
3. DISTRIBUTION SERVICES. The Distributor shall sell and repurchase
Shares as set forth below, subject to the registration requirements of the 1933
Act and the rules and regulations
2
<PAGE>
thereunder, and the laws governing the sale of securities in the various states
("Blue Sky Laws"):
a. The Distributor, as agent for the Trust, shall sell Shares to the
public against orders therefor at the public offering price, which shall be the
net asset value of the Shares then in effect.
b. The net asset value of the Shares shall be determined in the
manner provided in the then current Prospectus and Statement of Additional
Information. The net asset value of the Shares shall be calculated by the Trust
or by another entity on behalf of the Trust. The Distributor shall have no duty
to inquire into or liability for the accuracy of the net asset value per Share
as calculated.
c. Upon receipt of purchase instructions, the Distributor shall
transmit such instructions to the Trust or its transfer agent for registration
of the Shares purchased.
d. The Distributor shall also have the right to take, as agent for
the Trust, all actions which, in the Distributor's judgment, are necessary to
effect the distribution of Shares.
e. Nothing in this Agreement shall prevent the Distributor or any
"affiliated person" from buying, selling or trading any securities for its or
their own account or for the accounts of others for whom it or they may be
acting; provided, however, that the Distributor expressly agrees that it shall
not for its own account purchase any Shares of the Trust except for investment
purposes and that it shall not for its own account sell any such Shares except
for redemption of such Shares by the Trust, and that it shall not undertake
activities which, in its judgment, would adversely affect the performance of its
obligations to the Trust under this Agreement.
f. The Distributor, as agent for the Trust, shall repurchase Shares
at such prices and upon such terms and conditions as shall be specified in the
Prospectus.
4. DISTRIBUTION SUPPORT SERVICES. In addition to the sale and
repurchase of Shares, the Distributor shall perform the distribution support
services set forth on Schedule B attached hereto, as may be amended from time to
time. Such distribution support services shall include: Review of sales and
marketing literature and submission to the NASD; NASD recordkeeping; and
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quarterly reports to the Trust's Board of Trustees. Such distribution support
services may also include: fulfillment services, including telemarketing,
printing, mailing and follow-up tracking of sales leads; and licensing Adviser
or Trust personnel as registered representatives of the Distributor and related
supervisory activities.
5. REASONABLE EFFORTS. The Distributor shall use all reasonable efforts
in connection with the distribution of Shares. The Distributor shall have no
obligation to sell any specific number of Shares and shall only sell Shares
against orders received therefor. The Trust shall retain the right to refuse at
any time to sell any of its Shares for any reason deemed adequate by it.
6. COMPLIANCE. In furtherance of the distribution services being
provided hereunder, the Distributor and the Trust agree as follows:
a. The Distributor shall comply with the Code of Conduct of the NASD
and the securities laws of any jurisdiction in which it sells, directly or
indirectly, Shares.
b. The Distributor shall require each dealer with whom the
Distributor has a selling agreement to conform to the applicable provisions of
the Trust's most current Prospectus and Statement of Additional Information,
with respect to the public offering price of the Shares.
c. The Trust agrees to furnish to the Distributor sufficient copies
of any agreements, plans, communications with the public or other materials it
intends to use in connection with any sales of Shares in a timely manner in
order to allow the Distributor to review, approve and file such materials with
the appropriate regulatory authorities and obtain clearance for use. The Trust
agrees not to use any such materials until so filed and cleared for use by
appropriate authorities and the Distributor.
d. The Distributor, at its own expense, shall qualify as a broker or
dealer, or otherwise, under all applicable Federal or state laws required to
permit the sale of Shares in such states as shall be mutually agreed upon by the
parties; provided, however that the Distributor shall have no obligation to
register as a broker or dealer under the Blue Sky Laws of any jurisdiction if it
determines that registering or maintaining registration in such jurisdiction
would be uneconomical.
e. The Distributor shall not, in connection with any sale or
solicitation of a sale of the Shares, or make or authorize any representative,
service organization, broker or dealer to make, any representations concerning
the Shares except those contained in the Trust's most current Prospectus
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covering the Shares and in communications with the public or sales materials
approved by the Distributor as information supplemental to such Prospectus.
7. EXPENSES. Expenses shall be allocated as follows:
a. The Trust shall bear the following expenses: preparation, setting
in type, and printing of sufficient copies of the Prospectus and Statement of
Additional Information for distribution to existing shareholders; preparation
and printing of reports and other communications to existing shareholders;
distribution of copies of the Prospectus, Statement of Additional Information
and all other communications to existing shareholders; registration of the
Shares under the Federal securities laws; qualification of the Shares for sale
in the jurisdictions mutually agreed upon by the Trust and the Distributor;
transfer agent/shareholder servicing agent services; supplying information,
prices and other data to be furnished by the Trust under this Agreement; and any
original issue taxes or transfer taxes applicable to the sale or delivery of the
Shares or certificates therefor.
b. The Adviser shall pay all other expenses incident to the sale and
distribution of the Shares sold hereunder, including, without limitation:
printing and distributing copies of the Prospectus, Statement of Additional
Information and reports prepared for use in connection with the offering of
Shares for sale to the public; advertising in connection with such offering,
including public relations services, sales presentations, media charges,
preparation, printing and mailing of advertising and sales literature; data
processing necessary to support a distribution effort; distribution and
shareholder servicing activities of broker-dealers and other financial
institutions; filing fees required by regulatory authorities for sales
literature and advertising materials; any additional out-of-pocket expenses
incurred in connection with the foregoing and any other costs of distribution.
8. COMPENSATION. For the distribution and distribution support services
provided by the Distributor pursuant to the terms of the Agreement, the Adviser
shall pay to the Distributor the compensation set forth in Schedule A attached
hereto, which schedule may be amended from time to time. The Adviser shall also
reimburse the Distributor for its out-of-pocket expenses related to the
performance of its duties hereunder, including, without limitation,
telecommunications charges, postage and delivery charges, record retention
costs, reproduction charges and traveling and lodging expenses incurred by
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officers and employees of the Distributor. The Trust shall pay the Distributor's
monthly invoices for distribution fees and out-of-pocket expenses within five
days of the respective month-end. If this Agreement becomes effective subsequent
to the first day of the month or terminates before the last day of the month,
the Trust shall pay to the Distributor a distribution fee that is prorated for
that part of the month in which this Agreement is in effect. All rights of
compensation and reimbursement under this Agreement for services performed by
the Distributor as of the termination date shall survive the termination of this
Agreement.
9. USE OF DISTRIBUTOR'S NAME. The Trust shall not use the name of the
Distributor or any of its affiliates in the Prospectus, Statement of Additional
Information, sales literature or other material relating to the Trust in a
manner not approved prior thereto in writing by the Distributor; provided,
however, that the Distributor shall approve all uses of its and its affiliates'
names that merely refer in accurate terms to their appointments or that are
required by the Securities and Exchange Commission (the "SEC") or any state
securities commission; and further provided, that in no event shall such
approval be unreasonably withheld.
10. USE OF TRUST'S NAME. Neither the Distributor 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 the Distributor hereunder or that are
required by the SEC or any state securities commission; and further provided,
that in no event shall such approval be unreasonably withheld.
11. LIABILITY OF DISTRIBUTOR. The duties of the Distributor shall be
limited to those expressly set forth herein, and no implied duties are assumed
by or may be asserted against the Distributor hereunder. The Distributor 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 or gross negligence, or reckless disregard of its obligations and duties
under this Agreement. As used in this Section 9 and in Section 10 (except the
second paragraph of Section 10), the term "Distributor" shall include trustees,
officers, employees and other agents of the Distributor.
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12. INDEMNIFICATION OF DISTRIBUTOR. The Trust shall indemnify and hold
harmless the Distributor against any and all liabilities, losses, damages,
claims and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and investigation expenses incident thereto) which the
Distributor may incur or be required to pay hereafter, in connection with any
action, suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which the Distributor may be involved as
a party or otherwise or with which the Distributor may be threatened, by reason
of the offer or sale of the Trust shares prior to the effective date of this
Agreement.
Any trustee, officer, employee, shareholder or agent of the
Distributor who may be or become an officer, Trustee, employee or agent of the
Trust, shall be deemed, when rendering services to the Trust or acting on any
business of the Trust (other than services or business in connection with the
Distributor's duties hereunder), to be rendering such services to or acting
solely for the Trust and not as a trustee, officer, employee, shareholder or
agent, or one under the control or direction of the Distributor, even though
receiving a salary from the Distributor.
The Trust agrees to indemnify and hold harmless the Distributor, and
each person, who controls the Distributor within the meaning of Section 15 of
the 1933 Act, or Section 20 of the Securities Exchange Act of 1934, as amended
("1934 Act"), against any and all liabilities, losses, damages, claims and
expenses, joint or several (including, without limitation, reasonable attorneys'
fees and disbursements and investigation expenses incident thereto) to which
they, or any of them, may become subject under the 1933 Act, the 1934 Act, the
1940 Act or other Federal or state laws or regulations, at common law or
otherwise, insofar as such liabilities, losses, damages, claims and expenses (or
actions, suits or proceedings in respect thereof) arise out of or relate to any
untrue statement or alleged untrue statement of a material fact contained in a
Prospectus, Statement of Additional Information, supplement thereto, sales
literature or other written information prepared by the Trust and provided by
the Trust to the Distributor for the Distributor's use hereunder, or arise out
of or relate to any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading. The Distributor (or any person controlling the Distributor)
shall not be entitled to indemnity hereunder for any liabilities, losses,
damages, claims or expenses (or actions, suits or proceedings in respect
thereof) resulting from (i) an untrue statement or omission or alleged untrue
statement or omission made in the Prospectus, Statement of Additional
Information, or supplement, sales or other literature, in reliance upon and in
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conformity with information furnished in writing to the Trust by the Distributor
specifically for use therein or (ii) the Distributor's own willful misfeasance,
bad faith, gross negligence or reckless disregard of its duties and obligations
in the performance of this Agreement.
The Distributor agrees to indemnify and hold harmless the Trust, and
each person who controls the Trust within the meaning of Section 15 of the 1933
Act, or Section 20 of the 1934 Act, against any and all liabilities, losses,
damages, claims and expenses, joint or several (including, without limitation
reasonable attorneys' fees and disbursements and investigation expenses incident
thereto) to which they, or any of them, may become subject under the 1933 Act,
the 1934 Act, the 1940 Act or other Federal or state laws, at common law or
otherwise, insofar as such liabilities, losses, damages, claims or expenses
arise out of or relate to any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus or Statement of Additional Information
or any supplement thereto, or arise out of or relate to any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if based upon
information furnished in writing to the Trust by the Distributor specifically
for use therein.
A party seeking indemnification hereunder (the "Indemnitee") shall
give prompt written notice to the party from whom indemnification is sought
("Indemnitor") of a written assertion or claim of any threatened or pending
legal proceeding which may be subject to indemnity under this Section; provided,
however, that failure to notify the Indemnitor of such written assertion or
claim shall not relieve the Indemnitor of any liability arising from this
Section. The Indemnitor shall be entitled, if it so elects, to assume the
defense of any suit brought to enforce a claim subject to this Indemnity and
such defense shall be conducted by counsel chosen by the Indemnitor and
satisfactory to the Indemnitee; provided, however, that if the defendants
include both the Indemnitee and the Indemnitor, and the Indemnitee shall have
reasonably concluded that there may be one or more legal defenses available to
it which are different from or additional to those available to the Indemnitor
("conflict of interest"), the Indemnitor shall not have the right to elect to
defend such claim on behalf of the Indemnitee, and the Indemnitee shall have the
right to select separate counsel to defend such claim on behalf of the
Indemnitee. In the event that the Indemnitor elects to assume the defense of any
suit pursuant to the preceding sentence and retains counsel satisfactory to the
Indemnitee, the Indemnitee shall bear the fees and expenses of additional
counsel retained by it, except for reasonable investigation costs which shall be
borne by the Indemnitor. If the Indemnitor (i) does not elect to assume the
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defense of a claim, (ii) elects to assume the defense of a claim but chooses
counsel that is not satisfactory to the Indemnitee or (iii) has no right to
assume the defense of a claim because of a conflict of interest, the Indemnitor
shall advance or reimburse the Indemnitee, at the election of the Indemnitee,
reasonable fees and disbursements of any counsel retained by Indemnitee,
including reasonable investigation costs.
13. DUAL EMPLOYEES. The Adviser agrees that only its employees who are
registered representatives of the Distributor ("dual employees") shall offer or
sell Shares of the Portfolios and further agrees that the activities of any such
employees as registered representatives of the Distributor shall be limited to
offering and selling Shares. If there are dual employees, one employee of the
Adviser shall register as a principal of the Distributor and assist the
Distributor in monitoring the marketing and sales activities of the dual
employees. The Adviser shall maintain errors and omissions and fidelity bond
insurance policies providing reasonable coverage for its employees activities
and shall provide copies of such policies to the Distributor. The Adviser shall
indemnify and hold harmless the Distributor against any and all liabilities,
losses, damages, claims and expenses (including reasonable attorneys' fees and
disbursements and investigation costs incident thereto) arising from or related
to the Adviser's employees' activities as registered representatives of the
Distributor, including, without limitation, any and all such liabilities,
losses, damages, claims and expenses arising from or related to the breach by
such dual employees of any rules or regulations of the NASD or SEC.
14. FORCE MAJEURE. The Distributor shall not be liable for any delays
or errors occurring by reason of circumstances not reasonably foreseeable and
beyond its control, including, but not limited, to acts of civil or military
authority, national emergencies, work stoppages, fire, flood, catastrophe, acts
of God, insurrection, war, riot or failure of communication or power supply. In
the event of equipment breakdowns which are beyond the reasonable control of the
Distributor and not primarily attributable to the failure of the Distributor to
reasonably maintain or provide for the maintenance of such equipment, the
Distributor shall, at no additional expense to the Trust, take reasonable steps
in good faith to minimize service interruptions, but shall have no liability
with respect thereto.
15. SCOPE OF DUTIES. The Distributor and the Trust shall regularly
consult with each other regarding the Distributor's performance of its
obligations and its compensation under the foregoing provisions. In connection
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therewith, the Trust shall submit to the Distributor 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 1940 Act and
the 1933 Act, and at 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 the Distributor's obligations under the foregoing provisions shall be subject
to the Distributor's approval. In the event that a change in such documents or
in the procedures contained therein increases the cost or burden to the
Distributor of performing its obligations hereunder, the Distributor shall be
entitled to receive reasonable compensation therefore.
16. DURATION. This Agreement shall become effective as of the date
first above written, and shall continue in force for two years from that date
and thereafter from year to year, provided continuance is approved at least
annually by either (i) the vote of a majority of the Trustees of the Trust, or
by the vote of a majority of the outstanding voting securities 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 such party, cast in person at a meeting called for the
purpose of voting on the approval.
17. TERMINATION. This Agreement shall terminate as follows:
a. This Agreement shall terminate automatically in the event of its
assignment.
b. This Agreement shall terminate upon the failure to approve the
continuance of the Agreement after the initial two year term as set forth in
Section 14 above.
c. This Agreement shall terminate at any time upon a vote of the
majority of the Trustees who are not interested persons of the Trust or by a
vote of the majority of the outstanding voting securities of the Trust, upon not
less than 60 days prior written notice to the Distributor.
d. Any Party may terminate this Agreement upon not less than 60
days prior written notice to the other Parties.
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Upon the termination of this Agreement, the Trust shall pay to the
Distributor such compensation and out-of-pocket expenses as may be payable for
the period prior to the effective date of such termination. In the event that
the Trust designates a successor to any of the Distributor's obligations
hereunder, the Distributor shall, at the expense and direction of the Trust,
transfer to such successor all relevant books, records and other data
established or maintained by the Distributor pursuant to the foregoing
provisions.
Sections 7, 8, 9, 10, 11, 12, 13, 14, 15, 17, 21, 22, 24, 25 and 26
shall survive any termination of this Agreement.
18. AMENDMENT. The terms of this Agreement shall not be waived,
altered, modified, amended or supplemented in any manner whatsoever except by a
written instrument signed by the Distributor and the Trust and shall not become
effective unless its terms have been approved by the majority of the Trustees of
the Trust or by a "vote of majority of the outstanding voting securities" of the
Trust and by a majority of those Trustees who are not "interested persons" of
the Trust or any party to this Agreement.
19. NON-EXCLUSIVE SERVICES. The services of the Distributor rendered to
the Trust are not exclusive. The Distributor may render such services to any
other investment company.
20. DEFINITIONS. As used in this Agreement, the terms "vote of a
majority of the outstanding voting securities," "assignment," "interested
person" and "affiliated person" shall have the respective meanings specified in
the 1940 Act and the rules enacted thereunder as now in effect or hereafter
amended.
21. CONFIDENTIALITY. The Distributor shall treat confidentially and as
proprietary information of the Trust all records and other information relating
to the Trust and prior, present or potential shareholders and shall not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except as may be required by
administrative or judicial tribunals or as requested by the Trust.
22. NOTICE. Any notices and other communications required or permitted
hereunder shall be in writing and shall be effective upon delivery by hand or
upon receipt if sent by certified or registered mail (postage prepaid and return
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receipt requested) or by a nationally recognized overnight courier service
(appropriately marked for overnight delivery) or upon transmission if sent by
telex or facsimile (with request for immediate confirmation of receipt in a
manner customary for communications of such respective type and with physical
delivery of the communication being made by one or the other means specified in
this Section 20 as promptly as practicable thereafter). Notices shall be
addressed as follows:
(a) if to the Trust:
1838 Investment Advisors Funds
100 Matsonford Road
Five Radnor Corporate Center, Suite 320
Radnor, PA 19087
Attention: W. Thacher Brown
President
(b) if to the Adviser:
1838 Investment Advisors, L.P.
100 Matsonford Road
Five Radnor Corporate Center, Suite 320
Radnor, PA 19087
Attention: W. Thacher Brown
Managing Partner
(c) if to the Distributor:
Declaration Distributors, Inc.
555 North Lane, Suite 6160
Conshohocken, PA 19428
Attn: Terence P. Smith
President
or to such other respective addresses as the parties shall designate by like
notice, provided that notice of a change of address shall be effective only upon
receipt thereof.
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.
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24. GOVERNING LAW. This Agreement shall be administered, construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania to the
extent that such laws are not 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.
25. ENTIRE AGREEMENT. This Agreement (including the Exhibits attached
hereto) contains the entire agreement and understanding of the parties with
respect to the subject matter hereof and supersedes all prior written or oral
agreements and understandings with respect thereto.
26. 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. This Agreement may be executed in two counterparts,
each of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the day and year first above written.
1838 Investment Advisors Funds
By:
--------------------------------
W. Thacher Brown, President
1838 Investment Advisors L.P.
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By:
--------------------------------
W. Thacher Brown, Managing Partner
Declaration Distributors, Inc.
By:
--------------------------------
Terence P. Smith, President
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SCHEDULE A
1838 Investment Advisors Funds
Portfolio and Fee Schedule
Portfolios covered by Distribution Agreement:
1838 Small-Cap Equity Fund
1838 Fixed Income Fund
1838 International Equity Fund
Fees for distribution and distribution support services on behalf of the
Portfolios:
(1) If Adviser/Trust personnel are registered as registered
representatives, registered principals, or other securities registrations with
the National Association of Securities Dealers, Inc. with Declaration
Distributors, Inc., the annual fee for the initial term of the Agreement is
$20,000.
(2) If no Adviser/Trust personnel are registered with Declaration
Distributors, Inc., there is no fee for these services during the initial term
of this Agreement.
Plus: out-of-pocket expenses to include, but not limited to: printing, copying,
postage, courier, Fund/SERV Fund specific costs, travel, telephone, registration
fees, and other standard miscellaneous items.
<PAGE>
SCHEDULE B
Distribution Support Services
1. Provide national broker dealer for Trust registration.
2. Review and submit for approval all advertising and promotional materials.
3. Maintain all books and records required by the NASD.
4. Subject to approval of Distributor, license personnel as registered
representatives of the Distributor.
5. Telemarketing services (additional cost- to be negotiated).
6. Trust fulfillment services, including sampling prospective shareholders
inquiries and related mailings (additional cost- to be negotiated).
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1838 Investment Advisors Funds
Investment Company Services Agreement
This AGREEMENT, dated as of the 1st day of March, 1998, made by and
between 1838 Investment Advisors Funds (the "Trust"), a business trust operating
as an open-end, management investment company registered under the Investment
Company Act of 1940, as amended (the "Act"), duly organized and existing under
the laws of the State of Delaware and Declaration Service Company
("Declaration"), a corporation duly organized under the laws of the Commonwealth
of Pennsylvania (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Trust is authorized by its Trust Instrument to issue
separate series of shares representing interests in separate investment
portfolios which are identified on Schedule "C" attached hereto and which
Schedule "C" may be amended from time to time by mutual agreement of the Trust
and Declaration; and
WHEREAS, the Parties desire to enter into an agreement whereby
Declaration will provide the services to the Trust as specified herein and set
forth in particular in Schedule "A" which is attached hereto and made a part
hereof.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, and in exchange of good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the Parties hereto,
intending to be legally bound, do hereby agree as follows:
GENERAL PROVISIONS
Section 1. Appointment. The Trust hereby appoints Declaration as
servicing agent and Declaration hereby accepts such appointment. In order that
Declaration may perform its duties under the terms of this Agreement, the Board
of Trustees of the Trust shall direct the officers, investment adviser(s), legal
counsel, independent accountants and custodian of the Trust to cooperate fully
with Declaration and, upon request of Declaration, to provide such information,
documents and advice relating to the Trust which Declaration requires to execute
<PAGE>
its responsibilities hereunder. In connection with its duties, Declaration shall
be entitled to rely, and will be held harmless by the Trust when acting in
reasonable reliance, upon any instruction, advice or document relating to the
Trust as provided to Declaration by any of the aforementioned persons on behalf
of the Trust. All fees charged by any such persons acting on behalf of the Trust
will be deemed an expense of the Trust.
Any services performed by Declaration under this Agreement will conform
to the requirements of:
(a) the provisions of the Act, and the Securities Exchange Act of 1934,
as amended, and the Securities Act of 1933, as amended, and any rules or
regulations in force thereunder;
(b) any other applicable provision of state and federal law;
(c) the provisions of the Trust's Agreement and Declaration of Trust
and the By-Laws as amended from time to time and delivered to Declaration;
(d) any policies and determinations of the Board of Trustees of the
Trust which are communicated to Declaration; and
(e) the policies of the Trust as reflected in the Trust's registration
statement as filed with the U.S. Securities and Exchange Commission.
Nothing in this Agreement will prevent Declaration or any officer
thereof from providing the same or comparable services for or with any other
person, firm or corporation. While the services supplied to the Trust may be
different than those supplied to other persons, firms or corporations,
Declaration will provide the Trust equitable treatment in supplying services.
The Trust recognizes that it will not receive preferential treatment from
Declaration as compared with the treatment provided to other Declaration
clients.
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Section 2. Duties and Obligations of Declaration.
Subject to the provisions of this Agreement, Declaration will provide
to the Trust the specific services as set forth in Schedule "A" attached hereto.
Section 3. Definitions. For purposes of this Agreement:
"Certificate" will mean any notice, instruction, or other instrument in
writing, authorized or required by this Agreement. To be effective, such
Certificate shall be given to and received by the custodian and shall be signed
on behalf of the Trust by any two of its designated officers, and the term
Certificate shall also include instructions communicated to the custodian by
Declaration.
"Custodian" will refer to that agent which provides safekeeping of the
assets of the Trust.
"Instructions" will mean communications containing instructions
transmitted by electronic or telecommunications media including, but not limited
to, Industry Standardization for Institutional Trade Communications,
computer-to-computer interface, dedicated transmission line, facsimile
transmission (which may be signed by an officer or unsigned) and tested telex.
"Oral Instruction" will mean an authorization, instruction, approval,
item or set of data, or information of any kind transmitted to Declaration in
person or by telephone, telegram, telecopy or other mechanical or documentary
means lacking original signature, by a person or persons reasonably identified
to Declaration to be a person or persons so authorized by a resolution of the
Board of Trustees of the Trust to give Oral Instructions to Declaration on
behalf of the Trust.
"Shareholders" will mean the registered owners of the shares of the
Trust in accordance with the share registry records maintained by Declaration
for the Trust.
"Shares" will mean the issued and outstanding shares of the Trust.
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"Signature Guarantee" will mean the guarantee of signatures by an
"eligible guarantor institution" as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). 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 members of a
clearing corporation or maintain net capital of at least $100,000. Signature
guarantees will be accepted from any eligible guarantor institution which
participates in a signature guarantee program.
"Written Instruction" will mean an authorization, instruction,
approval, item or set of data or information of any kind transmitted to
Declaration in an original writing containing an original signature or a copy of
such document transmitted by telecopy including transmission of such signature
reasonably identified to Declaration to be the signature of a person or persons
so authorized by a resolution of the Board of Trustees of the Trust, or so
identified by the Trust to give Written Instructions to Declaration on behalf of
the Trust.
Concerning Oral and Written Instructions For all purposes under this
Agreement, Declaration is authorized to act upon receipt of the first
of any Written or Oral Instruction it receives from the Trust or its
agents. In cases where the first instruction is an Oral Instruction
that is not in the form of a document or written record, a confirmatory
Written Instruction or Oral Instruction in the form of a document or
written record shall be delivered. In cases where Declaration receives
an Instruction, whether Written or Oral, to enter a portfolio
transaction onto the Trust's records, the Trust shall cause the
broker/dealer executing such transaction to send a written confirmation
to the Custodian.
Declaration shall be entitled to rely on the first Instruction
received. For any act or omission undertaken by Declaration in
compliance therewith, it shall be free of liability and fully
indemnified and held harmless by the Trust, provided however, that in
the event a Written or Oral Instruction received by Declaration is
countermanded by a subsequent Written or Oral Instruction received
prior to acting upon such countermanded Instruction, Declaration shall
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act upon such subsequent Written or Oral Instruction. The sole
obligation of Declaration with respect to any follow-up or confirmatory
Written Instruction or Oral Instruction in documentary or written form
shall be to make reasonable efforts to detect any such discrepancy
between the original Instruction and such confirmation and to report
such discrepancy to the Trust. The Trust shall be responsible and bear
the expense of its taking any action, including any reprocessing,
necessary to correct any discrepancy or error. To the extent such
action requires Declaration to act, the Trust shall give Declaration
specific Written Instruction as to the action required.
The Trust will file with Declaration a certified copy of each
resolution of the Trust's Board of Trustees authorizing execution of
Written Instructions or the transmittal of Oral Instructions as
provided above.
Section 4. Indemnification.
(a) Declaration, its directors, officers, employees, shareholders, and
agents will be liable for any loss suffered by the Trust resulting from the
willful misfeasance, bad faith, negligence or disregard on the part of
Declaration in the performance of its obligations and duties under this
Agreement.
(b) Any director, officer, employee, shareholder or agent of
Declaration, who may be or become an officer, director, employee or agent of the
Trust, will be deemed, when rendering services to the Trust, or acting on any
business of the Trust (other than services or business in connection with
Declaration' duties hereunder), to be rendering such services to or acting
solely for the Trust and not as a director, officer, employee, shareholder or
agent of, or under the control or direction of Declaration even though such
person may be receiving compensation from Declaration.
(c) The Trust agrees to indemnify and hold Declaration harmless,
together with its directors, officers, employees, shareholders and agents from
and against any and all claims,
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<PAGE>
demands, expenses and liabilities (whether with or without basis in fact or law)
of any and every nature which Declaration may sustain or incur or which may be
asserted against Declaration by any person by reason of, or as a result of:
(i) any action taken or omitted to be taken by Declaration
except claims, demands, expenses and liabilities arising from willful
misfeasance, bad faith, negligence or disregard on the part of Declaration in
the performance of its obligations and duties under this Agreement; or
(ii) any action taken or omitted to be taken by Declaration in
reliance upon any Certificate, instrument, order or stock certificate or other
document reasonably believed by Declaration to be genuine and signed,
countersigned or executed by any duly authorized person, upon the Oral
Instructions or Written Instructions of an authorized person of the Trust, or
upon the written opinion of legal counsel for the Trust or Declaration; or
(iii) the offer or sale of shares of the Trust to any person,
natural or otherwise, which is in violation of any state or federal law.
If a claim is made against Declaration as to which Declaration may seek
indemnity under this Section, Declaration will notify the Trust promptly after
receipt of any written assertion of such claim threatening to institute an
action or proceeding with respect thereto and will notify the Trust promptly of
any action commenced against Declaration within ten (10) days after Declaration
has been served with a summons or other legal process. Failure to notify the
Trust will not, however, relieve the Trust from any liability which it may have
on account of the indemnity under this Section so long as the Trust has not been
prejudiced in any material respect by such failure.
The Trust and Declaration will cooperate in the control of the defense
of any action, suit or proceeding in which Declaration is involved and for which
indemnity is being provided by the Trust to Declaration. The Trust may negotiate
the settlement of any action, suit or proceeding subject to Declaration's
approval, which will not be unreasonably withheld. Declaration reserves
6
<PAGE>
the right, but not the obligation, to participate in the defense or settlement
of a claim, action or proceeding with its own counsel. Costs or expenses
incurred by Declaration in connection with, or as a result of such
participation, will be borne solely by the Trust if:
(i) Declaration has received an opinion of counsel from counsel to
the Trust stating that the use of counsel to the Trust by Declaration would
present an impermissible conflict of interest;
(ii) the defendants in, or targets of, any such action or
proceeding include both Declaration and the Trust, and legal counsel to
Declaration has reasonably concluded that there are legal defenses available to
it which are different from or additional to those available to the Trust or
which may be adverse to or inconsistent with defenses available to the Trust (in
which case the Trust will not have the right to direct the defense of such
action on behalf of Declaration); or
(iii) the Trust authorizes Declaration to employ separate counsel
at the expense of the Trust.
(d) The terms of this Section will survive the termination of this
Agreement.
Section 5. Representations and Warranties.
(a) Declaration represents and warrants that:
(i) it is a corporation duly organized and existing and in good
standing under the laws of Pennsylvania;
(ii) it is empowered under applicable laws and by its Certificate
of Incorporation and By-Laws to enter into and perform this Agreement;
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<PAGE>
(iii) all requisite corporate proceedings have been taken to
authorize Declaration to enter into and perform this Agreement;
(iv) it has and will continue to have access to the facilities,
personnel and equipment required to fully perform its duties and obligations
hereunder;
(v) no legal or administrative proceeding have been instituted or
threatened which would impair Declarations' ability to perform its duties and
obligations under this Agreement;
(vi) its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or obligation of
Declaration or any law or regulation applicable to it;
(vii) it is registered as a transfer agent under Section 17A(c)(2)
of the Exchange Act;
(viii) this Agreement has been duly authorized by Declaration and,
when executed and delivered, will constitute valid, legal and binding obligation
of Declaration, enforceable in accordance with its terms.
(b) The Trust represents and warrants that:
(i) it is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware;
(ii) it is empowered under applicable laws and by its Agreement and
Declaration of Trust and By-Laws to enter into and perform this Agreement;
8
<PAGE>
(iii) all requisite proceedings have been taken to authorize the
Trust to enter into and perform this Agreement;
(iv) no legal or administrative proceedings have been instituted
or threatened which would impair the Trust's ability to perform its duties and
obligations under this Agreement;
(v) the Trust's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligations of the Trust, or any law or regulation applicable to either;
(vi) the Shares are properly registered or otherwise authorized for
issuance and sale;
(vii) this Agreement has been duly authorized by the Trust and,
when executed and delivered, will constitute valid, legal and binding obligation
of the Trust, enforceable in accordance with its terms.
(c) Delivery of Documents
The Trust will furnish or cause to be furnished to Declaration the
following documents;
(i) current Prospectus and Statement of Additional Information;
(ii) most recent Annual Report;
(iii) most recent Semi-Annual Report for registered investment
companies on Form N-SAR;
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<PAGE>
(iv) certified copies of resolutions of the Trust's Board
of Trustees authorizing the execution of Written Instructions
or the transmittal of Oral Instructions and those persons
authorized to give those Instructions.
(d) Record Keeping and Other Information
Declaration will create and maintain all records required of it
pursuant to its duties hereunder and as set forth in Schedule "A" in accordance
with all applicable laws, rules and regulations, including records required by
Section 31(a) of the Act. All such records will be the property of the Trust and
will be available during regular business hours for inspection, copying and use
by the Trust. Where applicable, such records will be maintained by Declaration
for the periods and in the places required by Rule 31a-2 under the Act. Upon
termination of this Agreement, Declaration will deliver all such records to the
Trust or such person as the Trust may designate.
Section 6. Compensation. The Trust agrees to pay Declaration
compensation for its services, and to reimburse it for expenses at the rates,
times, manner and amounts as set forth in Schedule "B" attached hereto and
incorporated herein by reference and as will be set forth in any amendments to
such Schedule "B" agreed upon in writing by the Parties. Upon receipt of an
invoice therefor, Declaration is authorized to collect such fees by debiting the
Trust's custody account following review and approval of such fees by an
authorized representative of the Trust, which will not be unreasonably withheld.
In addition, the Trust agrees to reimburse Declaration for any out-of-pocket
expenses paid by Declaration on behalf of the Trust within ten (10) calendar
days of the Trust's receipt and approval of an invoice therefor, such approval
will not be unreasonably withheld.
For the purpose of determining fees payable to Declaration, the value
of the Trust's net assets will be computed at the times and in the manner
specified in the Trust's Prospectus and
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<PAGE>
Statement of Additional Information then in effect, and the fees due Declaration
will be calculated daily and paid monthly on the value of the Trust's assets
thus determined.
During the term of this Agreement, should the Trust seek services or
functions in addition to those outlined below or in Schedule "A" attached
hereto, a written amendment to this Agreement specifying the additional services
and corresponding compensation will be executed by the Parties.
In the event that the Trust is more than sixty (60) days delinquent in
its payments of monthly billings in connection with this Agreement (with the
exception of specific amounts which may be contested in good faith by the
Trust), this Agreement may be terminated upon thirty (30) days' written notice
to the Trust by Declaration. The Trust must notify Declaration in writing of any
contested amounts within thirty (30) days of receipt of a billing for such
amounts. Disputed amounts are not due and payable while they are being disputed
Section 7. Days of Operation. Nothing contained in this Agreement is
intended to or will require Declaration, in any capacity hereunder, to perform
any functions or duties on any holiday, day of special observance or any other
day on which the New York Stock Exchange ("NYSE") is closed. Functions or duties
normally scheduled to be performed on such days will be performed on and as of
the next succeeding business day on which the NYSE is open. Notwithstanding the
foregoing, Declaration will compute the net asset value of the Trust on each day
required pursuant to Rule 22c-1 promulgated under the Act.
Section 8. Acts of God, etc. Declaration will not be liable or
responsible for delays or errors caused by acts of God or by reason of
circumstances beyond its control including, acts of civil or military authority,
national emergencies, insurrection, war, riots, or failure or unavailability of
transportation, communication or power supply, fire, flood or other catastrophe.
11
<PAGE>
In the event of equipment failures beyond Declaration' control,
Declaration will, at no additional expense to the Trust, take reasonable steps
to minimize service interruptions but will have no liability with respect
thereto. The foregoing obligation will not extend to computer terminals located
outside of premises maintained by Declaration. Declaration has entered into and
maintains in effect agreements making reasonable provision for emergency use of
electronic data processing equipment.
Section 9. Inspection and Ownership of Records. In the event of a
request or demand for the inspection of the records of the Trust, Declaration
will use its best efforts to notify the Trust and to secure instructions as to
permitting or refusing such inspection. Declaration may, however, make such
records available for inspection to any person in any case where it is advised
in writing by its counsel that it may be held liable for failure to do so after
notice to the Trust.
Declaration recognizes that the records it maintains for the Trust are
the property of the Trust and will be surrendered to the Trust upon written
notice to Declaration as outlined under Section 10(d) below. Declaration agrees
to maintain the records and all other information of the Trust in a confidential
manner and will not use such information for any purpose other than the
performance of Declaration' duties under this Agreement. Declaration will
maintain off site secured storage of all electronic records of the Trust. Trust
understands Declaration maintains storage for physical records at Declaration's
location.
Section 10. Duration and Termination.
(a) The initial term of this Agreement will be for the period of
twenty-four (24) months, commencing on the date hereinabove first written (the
"Effective Date") and will continue thereafter subject to termination by either
Party as set forth in subsection (c) below.
12
<PAGE>
(b) The fee schedules set forth in Schedule "B" attached hereto will be
fixed for the initial term commencing on the Effective Date of this Agreement
and will continue thereafter subject to review and any adjustment.
(c) Either party may terminate this Agreement without penalty on not
less than sixty (60) days written notice to the other party.
(d) To effect termination of this Agreement, a Party may give written
notice to the other (the day on which the notice is received by the Party
against which the notice is made shall be the "Notice Date") of a date on which
this Agreement shall be terminated ("Termination Date"). The Termination Date
shall be set on a day not less than sixty (60) days after the Notice Date. The
period of time between the Notice Date and the Termination Date is hereby
identified as the "Notice Period". Any time up to, but not later than fifteen
(15) days prior to the Termination Date, the Trust will pay to Declaration such
compensation as may be due as of the Termination Date and will likewise
reimburse Declaration for any out-of-pocket expenses and disbursements
reasonably incurred or expected to by incurred by Declaration up to and
including the Termination Date.
(e) In connection with the termination of this Agreement, if a
successor to any of Declaration' duties or responsibilities under this Agreement
is designated by the Trust by written notice to Declaration, Declaration will
promptly, on the Termination Date and upon receipt by Declaration of any
payments owed to it as set forth in Section 10(c) above, transfer to the
successor, at the Trust's expense, all records which belong to the Trust and
will provide appropriate, reasonable and professional cooperation in
transferring such records to the named successor.
(f) Should the Trust desire to move any of the services outlined in
this Agreement to a successor service provider prior to the Termination Date,
Declaration shall make a good faith effort to facilitate the conversion on such
prior date, however, there can be no guarantee that
13
<PAGE>
Declaration will be able to facilitate a conversion of services prior to the end
of the Notice Period. Should services be converted to a successor service
provider prior to the end of the Notice Period, or if the Trust is liquidated or
its assets merged or purchased or the like with another entity, payment of fees
to Declaration shall be accelerated to a date prior to the conversion or
termination of services and calculated as if the services had remained at
Declaration until the expiration of the Notice Period and shall be calculated
through the Notice Date.
Section 11. Rights of Ownership. All computer programs and procedures
developed to perform services required to be provided by Declaration under this
Agreement are the property of Declaration. All records and other data, except
such computer programs and procedures are the exclusive property of the Trust
and all such other records and data will be furnished to the Trust in
appropriate form as soon as practicable after termination of this Agreement for
any reason. Ownership and control of toll free telephone line 800-884-1838 will
be retained by the Trust, even though this line may be connected from time to
time to the telephone system of Declaration.
Section 12. Amendments to Documents. The Trust will furnish Declaration
written copies of any amendments to, or changes in, the Trust Instrument,
By-Laws, Prospectus or Statement of Additional Information in a reasonable time
prior to such amendments or changes becoming effective. In addition, the Trust
agrees that no amendments will be made to the Prospectus or Statement of
Additional Information of the Trust which might have the effect of changing the
procedures employed by Declaration in providing the services agreed to hereunder
or which amendment might affect the duties of Declaration hereunder unless the
Trust first obtains Declaration' approval of such amendments or changes.
14
<PAGE>
Section 13. Confidentiality. Both Parties hereto agree that any
non-public information obtained hereunder concerning the other Party is
confidential and may not be disclosed to any other person without the consent of
the other Party, except as may be required by applicable law or at the request
of the U.S. Securities and Exchange Commission or other governmental agency.
Declaration agrees that it will not use any non-public information for any
purpose other than performance of its duties or obligations hereunder. The
obligations of the Parties under this Section will survive the termination of
this Agreement. The Parties further agree that a breach of this Section would
irreparably damage the other Party and accordingly agree that each of them is
entitled, without bond or other security, to an injunction or injunctions to
prevent breaches of this provision.
Section 14. Notices. Except as otherwise provided in this Agreement,
any notice or other communication required by or permitted to be given in
connection with this Agreement will be in writing and will be delivered in
person or sent by first class mail, postage prepaid or by prepaid overnight
delivery service to the respective parties as follows:
If to the Trust: If to Declaration:
1838 Investment Advisors Funds Declaration Service Company.
C/O 1838 Investment Advisors 555 North Lane, Suite 6160
100 Matsonford Road Conshohocken, PA 19428
Five Radnor Corporate Center, Suite 320
Radnor, PA 19087
Attention: W. Thacher Brown Attention: Terence P. Smith
President President
Section 15. Amendment. No provision of this Agreement may be amended or
modified in any manner except by a written agreement properly authorized and
executed by the Parties. This Agreement may be amended from time to time by
supplemental agreement executed by the Parties
15
<PAGE>
and the compensation stated in Schedule "B" attached hereto may be adjusted
accordingly as mutually agreed upon.
Section 16. Authorization. The Parties represent and warrant to each
other that the execution and delivery of this Agreement by the undersigned
officer of each Party has been duly and validly authorized; and when duly
executed, this Agreement will constitute a valid and legally binding enforceable
obligation of each Party.
Section 17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which when so executed will be deemed to be an original,
but such counterparts will together constitute but one and the same instrument.
Section 18. Assignment. This Agreement will extend to and be binding
upon the Parties hereto and their respective successors and assigns; provided,
however, that this Agreement will not be assignable by the Trust without the
written consent of Declaration or by Declaration without the written consent of
the Trust which consent shall be authorized or approved by a resolution by its
respective Boards of Trustees.
Section 19. Governing Law. This Agreement will be governed by the laws
of the State of Pennsylvania and the exclusive venue of any action arising under
this Agreement will be Montgomery County, Commonwealth of Pennsylvania.
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<PAGE>
Section 20. Severability. If any part, term or provision of this
Agreement is held by any court to be illegal, in conflict with any law or
otherwise invalid, the remaining portion or portions will be considered
severable and not be affected and the rights and obligations of the parties will
be construed and enforced as if the Agreement did not contain the particular
part, term or provision held to be illegal or invalid, provided that the basic
agreement is not thereby materially impaired.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
consisting of seventeen (17) typewritten pages, together with Schedules "A," "B"
and "C" (pages 18- 27, attached), to be signed by their duly authorized officers
as of the day and year first above written.
1828 Investment Advisors Funds Declaration Service Company
- --------------------------------- ---------------------------------
By: W. Thacher Brown By: Terence P. Smith
President President
17
<PAGE>
SCHEDULE A
ACCOUNTING SERVICES PROVIDED BY DECLARATION SERVICE COMPANY
- --------------------------------------------------------------------------------
o Journalize each Portfolio's investment, capital share and income and
expense activities.
o Verify investment buy/sell trade tickets when received from the advisor and
transmit trades to the Trust's custodian for proper settlement.
o Maintain individual ledgers for investment securities.
o Maintain historical tax lots for each security.
o Reconcile cash and investment balances of each Portfolio with the
custodian, and provide the advisor with the beginning cash balance
available for investment purposes.
o Update the cash availability throughout the day as required by the advisor.
o Post to and prepare each Portfolio's Statement of Assets and Liabilities
and Statement of Operations.
o Calculate expenses payable pursuant to the Trust's various contractual
obligations.
o Control all disbursements from the Trust on behalf of each Portfolio and
authorize such disbursements upon instructions of the Trust.
o Calculate capital gains and losses.
o Determine each Portfolio's net income.
o Obtain security market prices and exchange rates or if such market prices
or exchange rates are not readily available, then obtain such prices from
services approved by the advisor, and in either case calculate the market
or fair value of each Portfolio's investments. Price and exchange rate
quotation costs for fixed income and international securities will be at
the expenses of the respective portfolio.
o Where applicable, calculate the amortized cost value of debt instruments.
o Transmit or mail a copy of the portfolio valuations to the advisor.
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o Research and Corporate Action notices
o Monitor Custodian to insure tax reclaims are collected on a timely basis.
o Compute the net asset value of each Portfolio in accordance with applicable
laws.
o Report applicable net asset value and performance data to performance
tracking organizations.
o Compute each Portfolio's yields, total returns, expense ratios and
portfolio turnover rate in accordance with applicable laws.
o Prepare and monitor the expense accruals and notify Trust management of any
proposed adjustments.
o 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.
o Prepare monthly security transactions listings.
o Prepare monthly broker security transactions summaries.
o Supply various Trust and Portfolio statistical data as requested on an
ongoing basis.
o Assist in the preparation of support schedules necessary for completion of
Federal and state tax returns.
o Assist in the preparation and filing of the Trust's annual and semiannual
reports with the SEC on Form N-SAR.
o Assist in the preparation and filing of the Trust's annual and semiannual
reports to shareholders and proxy statements.
o Assist with the preparation of amendments to the Trust's Registration
Statements on From N-1A and other filings relating to the registration of
shares.
o Monitor each Portfolio's status as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended from time to
time ("Code").
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o 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 Portfolio of the
Trust under the Code.
o Provide other accounting services as may be agreed upon from time to time
in writing by the Trust and the Accounting Services Agent.
20
<PAGE>
ADMINISTRATIVE SERVICES PROVIDED BY DECLARATION SERVICE COMPANY
- --------------------------------------------------------------------------------
o Provide overall day-to-day Trust administrative management, including
custodian, transfer agency, distribution and pricing and accounting
services.
o Assist in Preparation and filing of all Federal and State reports
including:
o Fund's post-effective amendments under the Securities Act of 1933 and
the Investment Company Act of 1940.
o Form N-SAR - Semi-Annual report for Registered Investment Companies.
o The Fund's Annual and Semi-Annual Report.
o Rule 24f-2 Notice - filing regarding sale(s) of securities.
o Rule 17g-1 filing with the SEC regarding Fidelity Bond coverage.
o Ongoing monitoring and filing of State Blue Sky notice filings.
o Proxy statements.
o Prepare and file such reports, applications and documents as may be
necessary or desirable to register the Trust's shares with the Federal and
state securities authorities, and monitor the sale of Fund shares for
compliance with Federal and state securities laws.
o Prepare and file reports to shareholders, including the annual report to
shareholders, and coordinate mailing Prospectuses, notices, proxy
statements, proxies and other reports to shareholders.
o Assist with layout and printing of shareholder communications, including
Prospectuses and reports to shareholders.
o Administer contracts on behalf of the Trust with, among others, the Trust's
investment advisor(s), custodian, transfer agent/shareholder servicing
agent, distributor, and accounting services agent.
o Prepare and maintain materials for directors/management meetings including,
agendas, minutes, attendance records and minute books.
o Coordinate shareholder meetings, including assisting Trust counsel in
preparation of proxy materials, preparation of minutes and tabulation of
results.
21
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o Monitor and pay Trust bills, maintain Trust budget and report budget
expenses and variances to Trust management.
o Monitor the Trust's compliance with the investment restrictions and
limitations imposed by the 1940 Act and applicable regulations thereunder,
the fundamental and non-fundamental investment policies and limitations set
forth in the Trust's Prospectuses and Statement of Additional Information,
and the investment restrictions and limitations necessary for each
Portfolio of the Fund to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended, or any
successor statute.
o Prepare and distribute to appropriate parties notices announcing the
declaration of dividends and other distributions to shareholders.
o Provide administrative services as may be agreed from time to time in
writing by the Fund or Administrator.
BLUE SKY ADMINISTRATION
o Produce and mail the following required filings:
o Initial Filings - produce all required forms and follow-up on any
comments, including notification of SEC Effectiveness.
o Renewals - produce all renewal documents and mail to states, includes
follow-up to ensure all is in order to continue selling in states.
o Sales Reports - produce all the relevant sales reports for the states
and complete necessary documents to properly file sales reports with
states.
o Annual Report Filings - file copies of all annual reports with states.
o Prospectus Filings - file all copies of Definitive SAI & Prospectuses
with the states.
o Post-Effective Amendment Filing - file all Post-Effective Amendments
with the states, as well as, any other required documents.
22
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o On demand additional states - complete filing for any states that you would
like to add.
o Amendments to current permits - file in a timely manner any amendment to
registered share amounts.
o Update and file hard copy of all data pertaining to individual permits.
23
<PAGE>
TRANSFER AGENT, SHAREHOLDER SERVICING AGENT AND DIVIDEND DISBURSING AGENT
SERVICES PROVIDED BY DECLARATION SERVICE COMPANY
- --------------------------------------------------------------------------------
o Examine and process new accounts, subsequent payments, liquidations,
exchanges, transfers, telephone transactions, check redemptions, automatic
withdrawals, and wire order trades.
o Reinvest or pay dividends and make other distributions.
o Answer investor and dealer telephone and/or written inquiries, except as
otherwise agreed by the Transfer Agent and the Fund.
o Process and confirm address changes.
o Process standard account record changes as required, i.e. Dividend Codes,
etc.
o Microfilm and/or store source documents for transactions, such as account
applications and correspondence.
o Perform backup withholding for those accounts in accordance with Federal
regulations.
o Solicit missing taxpayer identification numbers.
o Provide remote access inquiry to Fund records via Fund supplied hardware
(fund responsible for connection line and monthly fee).
o Maintain the following shareholder information in such a manner as the
Transfer Agent shall determine:
o Name and address, including zip code.
o Balance of Shares.
o Number of Shares, issuance date of each share outstanding and
cancellation date of each share no longer outstanding, if issued.
o Balance of dollars available for redemption.
o Dividend code (daily accrual, monthly reinvest, monthly cash or
quarterly cash).
o Type of account code.
o Establishment date indicating the date an account was opened, carrying
forward pre-conversion data as available.
24
<PAGE>
o Original establishment date for accounts opened by exchange.
o W-9 withholding status and periodic reporting.
o State of residence code.
o Social security or taxpayer identification number, and indication of
certification.
o Historical transactions on the account for the most recent 18 months,
or other period as mutually agreed to from time to time.
o Indication as to whether phone transaction can be accepted for this
account. Beneficial owner code, i.e. male, female, joint tenant, etc.
o Provide the following reports and statements:
o Prepare daily journals for Fund reflecting all shares and dollar
activity for the previous day.
o Supply information monthly for Fund's preparation of Blue Sky
reporting.
o Supply monthly purchase, redemption and liquidation information for
use in Fund's N-SAR report.
o Provide monthly average daily balance reports for the Fund.
o Prepare and mail copies of summary statements to dealers and
investment advisors.
o Mail transaction confirmation statements daily to investors.
o Address and mail four periodic financial reports (material must be
adaptable to Transfer Agent's mechanical equipment as reasonably
specified by the Transfer Agent).
o Mail periodic statement to investors.
o Compute, prepare and furnish all necessary reports to governmental
authorities: Forms 1099R, 1099DIV, 1099B, 1042 and 1042S.
o Enclose various marketing material as designated by the Fund in
statement mailings, i.e. monthly and quarterly statements (material
must be adaptable to mechanical equipment as reasonably specified by
the Transfer Agent).
o Prepare and mail confirmation statements to dealers daily.
o Prepare certified list of stockholders for proxy mailing.
25
<PAGE>
SCHEDULE B
Compensation Schedule for Services Provided by Declaration Service
Company
Asset Fee, Combined Assets, All Portfolios
- ------------------------------------------
0.00% on first $50 million of average annual assets
0.04% on next $50 million of average annual assets
0.02% on next $100 million of average annual assets
0.01% in excess of $200 million of average annual assets
Transfer Agent/ Shareholder Services, per Portfolio:
- ----------------------------------------------------
$12,000 Annual Fee
Fund Administration, Annual Fee per Portfolio:
- ----------------------------------------------
1838 Small-Cap Equity Fund $20,000
1838 Fixed Income Fund $20,000
1838 International Equity Fund $27,500
Fund Accounting/ Pricing, Annual Fee per Portfolio:
- ---------------------------------------------------
1838 Small-Cap Equity Fund $17,500
1838 Fixed Income Fund $17,500
1838 International Equity Fund $25,000
Plus out-of-pocket expenses to include, but not limited to: wire fees, bank
service charges, printing, copying, postage, courier, account statement/
confirmation (including programming costs for specialized statements/
confirmations), Fund/SERV Fund specific costs, fixed income and international
portfolio price quotation service, asset allocation charges, travel, telephone,
registration fees, and other standard miscellaneous items.
ADDITIONAL CLASSES OF SHARES PER PORTFOLIO
Each category of fee increases by 50% for the second class of shares per
portfolio, and by 25% for each additional class of shares per portfolio.
26
<PAGE>
SCHEDULE C
1838 Investment Advisors Funds
Portfolios covered by this Agreement:
1838 Small-Cap Equity Fund
1838 Fixed Income Fund
1838 International Equity Fund
27
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form N-1A (File Nos. 33-87298 and 811-8902) of our report dated December 12,
1997, on our audits of the financial statements and financial highlights of the
1838 International Equity Fund, the 1838 Small Cap Equity Fund, and the 1838
Fixed Income Fund, each a series of the 1838 Investment Advisors Funds, which
report is included in the Annual Report to Shareholders for the year or period
ended October 31, 1997 and which is incorporated by reference in the Statement
of Additional Information on Form N-1A. We also consent to the reference to our
Firm under the heading "Financial Statements" in the Statement of Additional
Information.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 25, 1998
<PAGE>
Exhibit 24(b)(16)
1838 INTERNATIONAL EQUITY FUND
------------------------------
FOR THE PERIOD FROM AUGUST 3, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER
31, 1997:
CUMULATIVE TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN
----------------------- ---------------------------
(ERV/P) - 1 = T (ERV/P) 1/2.249315 - 1 = T
($1,208.20/$1,000) - 1 = T ($1,208.20/$1,000) 1/2.249315 - 1 = T
0.2082 = T 0.0877 = T
20.82% = T 8.77% = T
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997:
CUMULATIVE TOTAL RETURN
-----------------------
(ERV/P) - 1 = T
($1,152.30/$1,000) - 1 = T
0.1523 = T
15.23% = T
<PAGE>
Exhibit 24(b)(16)
1838 SMALL CAP EQUITY FUND
--------------------------
FOR THE PERIOD FROM JUNE 17, 1996 (COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER
31, 1997:
CUMULATIVE TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN
----------------------- ---------------------------
(ERV/P) - 1 = T (ERV/P) 1/2.375342 - 1 = T
($1,319.68/$1,000) - 1 = T ($1,319.68/$1,000) 1/2.375342 - 1 = T
0.3197 = T 0.2235 = T
31.97% = T 22.35% = T
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997:
CUMULATIVE TOTAL RETURN
-----------------------
(ERV/P) - 1 = T
($1,378.06/$1,000) - 1 = T
0.3781 = T
37.81% = T
<PAGE>
Exhibit 24(b)(16)
1838 FIXED INCOME FUND
----------------------
FOR THE PERIOD FROM SEPTEMBER 2, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH
OCTOBER 31, 1997:
CUMULATIVE TOTAL RETURN
-----------------------
(ERV/P) - 1 = T
($1,027.00/$1,000) - 1 = T
0.0270 = T
2.70% = T
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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