SCHEDULE 14A
(Rule 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 [ ]
Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2)).
DEVCAP TRUST
(Name of Registrant as Specified in its Charter)
James R. Arnold, Assistant Secretary
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ x ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
DEVCAP SHARED RETURN FUND
A SERIES OF
DEVCAP TRUST
209 West Fayette Street
Baltimore, Maryland 21201
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 17, 2000
TO THE SHAREHOLDERS OF DEVCAP SHARED RETURN FUND:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of DEVCAP Shared Return Fund (the "Fund"), a series of DEVCAP Trust
(the "Trust"), will be held on February 17, 2000 at 9:00 a.m., New York time, at
the offices of the Fund, 209 West Fayette Street, Baltimore, Maryland 21201. The
purpose of the Meeting is to consider and act upon the following proposals:
1. To change the Fund's investment objective;
2. To approve or disapprove an Investment Management
Agreement between Christian Brothers Investment
Services, Inc. ("CBIS") and the Fund;
3. To approve or disapprove a Sub-Advisory Agreement
between CBIS and RhumbLine Advisers;
4. To amend the Fund's Fundamental Investment Restrictions;
a. To amend the Fundamental Investment Restriction
relating to borrowing;
b. To amend the Fundamental Investment Restriction
relating to purchasing securities on margin;
c. To amend the Fundamental Investment Restriction
relating to puts, calls and warrants;
d. To amend the Fundamental Investment Restriction
relating to underwriting securities;
e. To amend the Fundamental Investment Restriction
relating to lending;
f. To amend the Fundamental Investment Restriction
relating to investing in securities subject to
restrictions on resale;
g. To amend the Fundamental Investment Restriction
relating to the purchase or sale of real estate,
interests in oil, gas or other mineral leases, or
commodities or commodities contracts;
h. To amend the Fundamental Investment Restriction
relating to short sales;
i. To amend the Fundamental Investment Restriction
relating to diversification;
j. To amend the Fundamental Investment Restriction
relating to concentration;
5. To elect six (6) trustees of the Trust to serve until
their successors are duly elected and qualified;
-1-
<PAGE>
6. To ratify the selection of KPMG LLP as independent
public accountants of the Fund; and
7. To transact such other business as may be properly
brought before the Meeting or any adjournments thereof.
Your Trustees recommend that you vote in favor of all proposals.
Shareholders of record at the close of business on January 6, 2000 are
entitled to notice of, and to vote at, this Meeting or any adjournment or
postponement thereof.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN,
SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED RETURN
ENVELOPE, SO THAT A QUORUM WILL BE PRESENT AND A MAXIMUM NUMBER OF SHARES MAY BE
VOTED. IT IS IMPORTANT AND IN YOUR INTEREST FOR YOU TO SIGN YOUR PROXY AND
RETURN IT. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS USE.
By Order of the Board of Trustees
James R. Arnold
Assistant Secretary
January 7, 2000
New York, New York
DEVCAP SHARED RETURN FUND
-2-
<PAGE>
DEVCAP SHARED RETURN FUND
A SERIES OF
DEVCAP TRUST
209 West Fayette Street
Baltimore, Maryland 21201
---------------------------
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 17, 2000
-------------------------------
GENERAL INFORMATION
This proxy statement (the "Proxy Statement") is furnished in connection
with the solicitation of proxies by, and on behalf of, the Board of Trustees of
DEVCAP Trust (the "Trust") for use at the Special Meeting of Shareholders (the
"Meeting") of DEVCAP Shared Return Fund (the "Fund") to be held on February
17, 2000 at 9:00 a.m., New York time, at the offices of the Fund, 209 West
Fayette Street, Baltimore, Maryland 21201, and at any adjournment or
postponement thereof.
This Proxy Statement and form of proxy are being mailed to shareholders
on or about January 7, 2000. Proxies will be solicited by mail and may also be
solicited in person or by telephone, telegraph or personal interview by the
Trust or agents appointed by the Trust. The cost of preparing and mailing this
Proxy Statement and the accompanying form and notice will be borne by the Fund.
If the enclosed proxy is properly executed and returned, the shares
represented thereby will be voted at the Meeting in accordance with the
instructions noted thereon. If no instruction is indicated, the proxy will be
voted in accordance with the Board of Trustees' recommendations as set forth
herein. However, even though you sign and return the accompanying proxy, you may
revoke it by giving written notice of such revocation to the Assistant Secretary
of the Trust at any time prior to the Meeting or by delivering a subsequently
dated proxy or by attending and voting at the Meeting in person. All properly
executed and unrevoked proxies received in time for the Meeting will be voted in
accordance with the instructions contained in the proxies. In accordance with
the provisions of Massachusetts law, abstentions and broker non-votes (shares
held for customers of a broker but not voted because of a lack of instructions
from the broker's customers) will be treated as present at the Meeting solely
for the purpose of determining whether or not a quorum exists.
The Board of Trustees has fixed the close of business on January 6,
2000, as the record date for the determination of the shareholders entitled to
notice of and to vote at the Meeting or any adjournment or postponement thereof.
As of that date, there were 646,045 outstanding shares of the Fund. Shareholders
are entitled to one vote for each share held and a fractional vote for a
fractional share with respect to each matter to come before the Meeting. The
presence, in person or by proxy, of the holders of a majority of the outstanding
voting securities entitled to vote at the Meeting is necessary to constitute a
quorum at the Meeting. Absent a quorum, the Meeting will have to be adjourned
without conducting any business. The Fund will then have to solicit votes until
a quorum is obtained.
-1-
<PAGE>
As of January 3, 2000, the Trust is aware of the following shareholder
who beneficially, directly or indirectly, or of record owned 5% or more of the
Fund's outstanding shares: Catholic Relief Services -- 60.17%.
The favorable vote of the holders of a "majority of the outstanding
voting securities" of the Fund is required to approve Proposals 1 through 4. The
vote of the holders of a "majority of the outstanding voting securities" of the
Fund is defined by the Investment Company Act of 1940, as amended (the
"Investment Company Act"), as (i) the vote of 67% or more of the shares present
at the Meeting, if the holders of more than 50% of the outstanding shares are
present or represented by proxy, or (ii) the vote of more than 50% of the
outstanding shares, whichever is less. A majority of all votes cast at the
meeting is sufficient to approve Proposals 5 and 6.
The Fund's annual report has previously been delivered to shareholders.
The Trust will furnish, without charge, a copy of the annual report and most
recent semi-annual report to any shareholder of the Fund upon request.
Shareholders should make such requests by calling 1-800-371-2655 or by writing
to DEVCAP Trust -- DEVCAP Shared Return Fund, 209 West Fayette Street,
Baltimore, Maryland 21201.
1. CHANGING THE FUND'S INVESTMENT OBJECTIVE
The Board of Trustees has approved, and recommends that shareholders
approve a proposal to change the Fund's current investment objective. If
shareholders approve this proposal the Board of Trustees will withdraw the
Fund's participation in the "master-feeder" structure and approve an investment
management agreement and a sub-advisory agreement for the Fund. See Proposals 2
and 3 below.
Background
The Fund currently invests all of its assets in the Domini Social Index
Portfolio (the "Portfolio"), an open-end management investment company, rather
than in a portfolio of securities. This arrangement is typically known as a
"master-feeder" structure. The master-feeder structure permits one or more
mutual funds with substantially identical investment objectives to combine their
assets by investing in a single portfolio having the same investment objective.
Under this structure the Fund, as well as other participating funds, sells its
shares to the public and seeks to achieve its investment objective by investing
all of its assets in the Portfolio. The Portfolio, in turn, invests Portfolio
assets in securities (e.g., stocks, bonds and money market instruments) in
accordance with its and the participating funds' common investment objective.
At a special meeting of the Board of Trustees held on December 16,
1999, the Board of Trustees determined that the Fund's participation in the
master-feeder structure would no longer be in the best interests of the Fund or
its shareholders. Shareholder approval of the proposal to change the Fund's
investment objective has the effect of making the Fund a "stand alone" fund. As
a stand alone fund, the Fund would be able to directly invest its assets in
securities in accordance with its investment objective rather than investing its
assets in shares of the Portfolio. Most traditional mutual funds operate as
stand alone funds.
The Board of Trustees recommended that the Fund, which had net assets
of $16,413,544 at November 30, 1999, transfer its portfolio securities from the
Portfolio to the Fund, subject to the approval of the shareholders of the Fund
of the proposal to change the Fund's investment objective, described below. The
Board of Trustees of the Trust, after careful consideration in accordance with
the Declaration of Trust, unanimously approved the transfer of the Fund's assets
from the Portfolio. In the event that shareholders do not approve this proposal,
the Fund will continue to participate in the current master-feeder structure.
-2-
<PAGE>
The Proposal
Currently, the Fund's investment objective is as follows:
The Fund's investment objective is to achieve long-term total
return which matches the performance of the Domini 400 Social
Index (sm) ("DSI").
If the proposal is approved, the Board of Trustees intends to change
the Fund's current investment objective to read as follows:
The Fund's investment objective is to achieve long-term total
return by attempting to match the total return of the Standard
& Poor's(R) Composite Stock Price Index
(the "S&P 500 Index") in accordance with socially responsible
investment practices.
The Fund currently seeks to achieve its investment objective by
investing all of its assets in the Portfolio. The Portfolio's investment
manager, Domini Social Investments LLC ("DSIL") seeks to achieve the Portfolio's
and the Fund's investment objective by investing substantially all of the
Portfolio's assets in common stocks in approximately the same proportion as they
are represented in the DSI. For example, if the common stock of a company
represents five percent of the DSI, the Portfolio will invest the same
percentage of its assets in that stock. The Portfolio's securities may be
periodically readjusted to reflect changes to the DSI. The Portfolio seeks a
correlation between the performance of the Portfolio, before expenses, and that
of the DSI of 0.95 or better. The figure of 1.00 would indicate a perfect
correlation.
The DSI is a common stock index comprised of the stocks of
approximately 400 U.S. companies which are weighted according to market
capitalization. The DSI was developed and is currently maintained by Kinder,
Lydenberg, Domini & Co., Inc. ("KLD"). The index consists of stocks of companies
chosen for their corporate and social responsibility, as well as their financial
performance. "Domini(sm)" and "Domini 400 Social Index(sm)" are service marks of
KLD which are licensed to DSIL. KLD has selected companies for the DSI in
accordance with the following social criteria:
o Safe and Useful Products, including a company's record with regard
to product safety, marketing practices and commitment to quality.
o Employee Relations, including a company's record with regard to
labor matters, workplace safety, equal employment opportunities,
employee benefit programs, and meaningful participation in company
profits either through stock purchase or profit sharing plans.
o Corporate Citizenship, including a company's record with regard to
philanthropic activities and community relations.
o Environmental Performance, including a company's record with
regard to fines or penalties, waste disposal, toxic emissions
efforts in waste reduction and emissions reduction, recycling, and
environmentally beneficial fuels, products and services.
The DSI excludes companies that derive more than 2% of their gross
revenues from the sale of military weapons, companies that derive any revenues
from the manufacture of tobacco products or alcoholic beverages, companies that
derive any revenues from gambling operations, and companies that own or operate
nuclear power plants or participate in businesses related to nuclear power
industries. Approximately 60% of the stocks in the DSI are stocks of companies
included in the S&P 500 Index.
-3-
<PAGE>
If shareholders approve this proposal, the Fund's investment objective
will be to achieve long-term total return by attempting to match the total
return of the S&P 500 Index in accordance with socially responsible investment
practices. The Fund would be managed by Christian Brothers Investment Services,
Inc. ("CBIS") and RhumbLine Advisers ("RhumbLine" or the "Sub-Adviser") would
serve as sub-adviser to the Fund. The Fund would be managed in accordance with
the Socially Responsible Investment Guidelines (the "SRI Guidelines") developed
by Fund Management and CBIS, and endorsed by the Fund's Board of Trustees. CBIS
would not invest in companies that maintain certain policies that do not conform
to the SRI Guidelines, including:
o Companies that manufacture abortion and/or contraception products
and hospitals that perform elective abortions.
o Companies involved in the production of tobacco products,
including companies that produce cigarettes, pipe tobacco, or
smokeless tobacco products, and companies which process or trade
tobacco or distribute wholesale raw tobacco to producers of
tobacco products. This policy does not include tobacco retailers,
tobacco suppliers or companies with ties to the tobacco industry.
o Companies that contribute to the spread of global violence and
militarism. The criterion restricts all producers of landmines
and hand guns for commercial sale. CBIS also restricts companies
that are "major producers" of military weapons. Since CBIS
participants recognize the need for national defense, we seek
only to avoid those companies whose activities support excessive
offensive military capability. CBIS therefore defines "major
producer" as the companies with the greatest dollar value
government contracts in six areas of concern. In order of
importance, the categories are: nuclear weapons, Star Wars
(previously officially known as the Strategic Defense Initiative,
now officially known as the Ballistic Missile Defense Program),
military weapons exports, military weapons manufacture,
dependence on military contracts, and overall defense contracts.
o Companies that have demonstrated a pattern of behavior indicating
a threat to the environment in certain areas, including toxic
emissions, superfund sites, oil and chemical spills, and fines
related to environmental violations of federal, state and local
laws.
o Companies whose main line of business is pornography, i.e.,
companies that derive 50% of their revenues from products or
services intended exclusively to appeal to the prurient interest
or to incite sexual excitement, including, but not limited to,
sexually explicit (X-rated) films, videos, publications, and
software; topless bars and strip clubs; and sexually oriented
telephone and Internet services.
As of November 30, 1999, 48 companies listed on the S&P 500 Index would
have been restricted from investment by the Fund because such companies are
ineligible investments under the SRI Guidelines.
The S&P 500 Index is composed of 500 selected common stocks, most of
which are large- capitalization companies listed on the New York Stock Exchange
and all of which trade in the U.S. The composition of the S&P 500 Index is
determined by Standard & Poor's Corporation ("S&P") and is based on such factors
as the market capitalization and trading activity of each stock and its adequacy
as a representation of stocks in a particular industry group. S&P chooses the
stocks to be included on the S&P 500 Index solely on a statistical basis.
Accordingly, S&P may change the S&P 500 Index's composition from time to time.
However, the inclusion of a stock in the S&P 500 Index in no way implies an
opinion by S&P as to its attractiveness as an investment, nor is S&P a sponsor
of or in any way affiliated with the Fund.
-4-
<PAGE>
In pursuit of its investment objective, the Sub-Adviser will attempt,
to the extent practicable, to allocate the Fund's portfolio among common stocks
in the S&P 500 Index. However, the Fund is not an index fund and will not invest
in all of the companies in the S&P 500 Index.
The Sub-Adviser will ordinarily buy and sell securities for the Fund to
reflect certain administrative changes in the S&P 500 Index (e.g., mergers or
changes in the composition of the S&P 500 Index) to accommodate cash flows into
and out of the Fund, and to maintain the similarity of the Fund to the S&P 500
Index. However, because the Fund's investments will be screened in accordance
with the SRI Guidelines, there may be circumstances where the Fund is unable to
invest in a security that is included in the S&P 500 Index. In such
circumstances, the Sub-Adviser will, to the extent possible, attempt to identify
investment opportunities in companies of comparable size, capitalization and
market position, and which are engaged in the same or a related industry.
Further, because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 Index stocks and may at times have its portfolio
weighted differently from the S&P 500 Index. The Fund may omit or remove an S&P
500 Index stock from its portfolio if, following objective criteria, RhumbLine
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. RhumbLine may purchase stocks that are not included in the S&P 500
Index to adjust for these differences.
Regardless of the above-described deviations from the S&P 500 Index,
the correlation between the performance of the Fund and the S&P 500 Index is
expected to be at least 0.95. A figure of 1.00 would indicate perfect
correlation. RhumbLine monitors the correlation between the performance of the
Fund and the S&P 500 Index on a regular basis subject to supervision by CBIS.
Notwithstanding this, you should be aware that the performance of the S&P 500
Index is a hypothetical number which does not take into account the expenses
borne by the Fund.
Cash flow considerations represent another potential obstacle to the
Fund's ability to meet its investment objective. The Fund's ability to meet its
investment objective depends, in part, on its cash flow, because investments and
redemptions generally will require the Fund to purchase or sell portfolio
securities. A low level of transactions will keep cash flow manageable and
enhance the Fund's ability to attempt to match the total return of the S&P 500
Index. RhumbLine will make investment changes it deems advisable to accommodate
cash flow in an attempt to maintain the similarity of the Fund's portfolio to
the composition of the S&P 500 Index.
The Fund intends to remain fully invested, to the extent practicable in
keeping with the SRI Guidelines, in a pool of securities which attempts to match
the investment characteristics of the S&P 500 Index in accordance with socially
responsible investment practices. Nevertheless, the Fund may, from time to time,
invest a portion of its assets in cash equivalents and high quality short-term
debt securities.
Reasons for the Proposal
As indicated above, investing in companies that exhibit socially
responsible policies is a critical component of achieving the Fund's investment
objective. As such, the Fund will continue its policy of restricting investments
through the use of social screens, i.e., criteria used to select or exclude
companies for investment, by adhering to the SRI Guidelines.
The Fund is seeking to change its investment objective in order to
develop the content and application of the social screens currently employed in
response to shareholder concerns. In a survey of shareholders, taken in
September 1998, shareholders indicated their desire to add life ethics
considerations to the social screens used in selecting or excluding investments
for the Fund. The life ethics screen would prohibit the Fund from investing in
stocks of companies that are engaged in the manufacture of abortion and/or
contraception products and hospitals that perform elective abortions.
Under the Fund's current master-feeder structure, the Fund would be
unable to add a life ethics screen because the Portfolio's investment manager,
DSIL, cannot modify the social screens that are currently in place with respect
to the DSI, the performance of which DSIL attempts to match. The Board of
Trustees considers the addition of a life ethics screen to be sufficiently
important to recommend changing the Fund's
-5-
<PAGE>
investment objective. In addition, the Board of Trustees has also proposed and
recommended that shareholders of the Fund approve an Investment Management
Agreement to facilitate the implementation of the Fund's new investment
objective, if approved by shareholders. See Proposal 2.
The Board of Trustees anticipates that the addition of the life ethics
screen will not materially affect the Fund's investment strategy. Under the new
social screens pursuant to the SRI Guidelines, it is anticipated that the Fund
will be required to eliminate three of the Portfolio's current holdings. The
Fund's holdings will be readjusted over time to correspond to the S&P 500 Index
in accordance with the SRI Guidelines. As noted above, only 48 companies listed
on the S&P 500 Index have been restricted from investment pursuant to the SRI
Guidelines. The Fund will remain committed to investing in companies that
exhibit socially responsible policies and to the screening process, and believes
that the screening process is an effective way to invest in a socially
responsible manner without materially diminishing returns over the long term.
Upon shareholder approval of this proposal, the Portfolio will conduct
an in-kind transfer, wherein the Fund would receive a distribution of securities
representing the proportional holdings of the Fund in the Portfolio. The
transfer is expected to be a 100% in-kind transfer, however, a nominal amount of
cash may be transferred due to the inability to transfer fractional shares. The
Fund will retain KPMG LLP to assist in carrying out the transfer of the Fund's
securities. The transfer of the Fund's securities from the Portfolio to the Fund
is intended to be tax-free to the Portfolio and the Fund. The Fund will pay the
expenses incurred in connection with this transfer. The Fund's basis in the
assets of the Portfolio distributed to it will, in the aggregate, equal the
Fund's basis in the Portfolio. As a consequence of this transfer, shareholders
of the Fund will become direct rather than indirect investors in a mutual fund
investing in a portfolio of investments.
Conclusion
After careful consideration, the Fund's Board of Trustees, including
all of the Trustees who are not "interested persons," as defined by the
Investment Company Act, of the Trust and the Investment Manager and Sub-Adviser
(the "Independent Trustees"), determined that it was in the best interests of
the Fund and its shareholders that the proposal to change the Fund's investment
objective be adopted by the Board of Trustees and presented to shareholders for
approval in accordance with the requirements of the Investment Company Act. The
Board of Trustees unanimously recommends that shareholders vote FOR changing the
Fund's investment objective.
2. APPROVAL OR DISAPPROVAL OF AN INVESTMENT MANAGEMENT AGREEMENT
BETWEEN CHRISTIAN BROTHERS INVESTMENT SERVICES, INC. AND THE FUND
Background
The Board of Trustees has approved, and recommends that shareholders
approve a proposal to adopt an Investment Management Agreement between the Fund
and CBIS (the "Proposed Agreement"). The approval of the Proposed Agreement is
being sought in connection with a proposal to change the Fund's current
investment objective, described above. See Proposal 1.
The Fund has not entered into an investment management agreement and
currently does not itself retain an investment manager to manage the investment
of the Fund's assets. As described above, the Fund participates in a
master-feeder structure, pursuant to which the Fund invests all of its assets in
the Portfolio. As such, the Fund's assets are currently managed as part of the
Portfolio by DSIL -- the Portfolio's investment manager -- pursuant to an
investment management agreement between the Portfolio and DSIL (the "DSIL
Agreement").
-6-
<PAGE>
Because the Fund invests exclusively in the Portfolio, the Fund has not
needed to enter into an investment management agreement. Instead, the Fund
benefited from the Portfolio's investment management agreement with DSIL and
indirectly bore its proportionate share of the advisory fee expenses of the
Portfolio. The Fund did, however, enter into an Administrative Services
Agreement with Sunstone Financial Group, Inc. ("Sunstone") pursuant to which it
pays Sunstone an administration fee. In addition, the Board of Trustees has
adopted a distribution plan on behalf of the Fund pursuant to Rule 12b-1 under
the Investment Company Act, to allow the Fund to pay distribution fees related
to the sale and distribution of Fund shares and other fees for services provided
to shareholders. The distribution plan authorizes the Fund to reimburse the
Fund's distributor up to 0.25% of the Fund's average daily net assets for
expenses incurred in connection with the sale and distribution of Fund shares
and other fees for services provided to shareholders. The Fund paid no 12b-1
fees during the fiscal year ended July 31, 1999 because its distribution plan
was inactive.
In contrast to the Fund, the Portfolio invests directly in securities
and sells its shares only to other funds and institutional investors.
Consequently, the Portfolio entered into an investment management agreement with
DSIL, dated October 22, 1997, but did not adopt a Rule 12b-1 Plan or pay
separately for administrative services (which were provided by DSIL under the
investment management agreement of the Portfolio).
Approval of the Proposed Agreement
On December 16, 1999, the Board of Trustees met in person for the
purpose of considering whether it would be in the best interest of the Fund and
its shareholders to enter into the Proposed Agreement between the Fund and CBIS
which would become effective upon shareholder approval of the Proposed
Agreement. At the meeting, the Board of Trustees, including the Independent
Trustees, unanimously approved the Proposed Agreement and recommended approval
by shareholders.
As described above, under the current master-feeder structure the Fund
would be unable to add life ethics screens in selecting investments for the Fund
because the Portfolio's investment manager, DSIL, is unable to modify the social
screens that are currently in place with respect to the DSI, the performance of
which DSIL attempts to replicate. Investing in companies that exhibit socially
responsible policies is a critical component of achieving the Fund's investment
objective. In a shareholder survey taken in September 1998, a majority of
shareholders indicated their desire to add life ethics considerations to the
list of social screens used in selecting investments for the Fund. In response
to these shareholder concerns and after careful consideration, the Board of
Trustees have determined that it would be in the best interests of the Fund and
shareholders to approve the Proposed Agreement.
The terms of the Proposed Agreement are substantially similar to those
of the DSIL Agreement. The terms of the DSIL Agreement are fully described under
"Terms of the DSIL Agreement" below. If approved by shareholders, the Proposed
Agreement will continue in effect for an initial term of one year from the date
of shareholder approval. The Proposed Agreement will be continued in effect from
year to year thereafter if each such continuance is approved by the Board of
Trustees or by a majority of the outstanding voting securities of the Fund and,
in either event, by the vote cast in person of a majority of the Independent
Trustees. A copy of the Proposed Agreement is attached to the Proxy Statement as
Appendix A. In the event that shareholders of the Fund do not approve the
Proposed Agreement, the DSIL Agreement will remain in effect and the Board of
Trustees will take such action, if any, as it deems to be in the best interests
of the Fund and its shareholders.
Terms of the DSIL Agreement
The DSIL Agreement between the Portfolio and DSIL, dated October 22,
1997, was initially approved by the Board of Trustees of the Portfolio,
including a majority of the Independent Trustees, on October 22, 1997, and by
the shareholders of the Portfolio on June 30,
-7-
<PAGE>
1997, and last approved for continuance by the Board of Trustees, including a
majority of the Independent Trustees, at a meeting held for such purpose on June
28, 1999.
Under the terms of the DSIL Agreement, DSIL has sole investment
discretion for the Portfolio and is obligated to use, in a timely manner, its
best professional judgment in making all decisions affecting the assets of the
Portfolio under the supervision of the Portfolio's Board of Trustees and in
accordance with the Portfolio's investment objectives and policies and subject
to the investment restrictions of the Portfolio as set forth in its current
prospectus and statement of additional information (as the same may be modified
from time to time) and to the extent restricted by the Investment Company Act
and the rules thereunder.
Pursuant to the DSIL Agreement, DSIL, in connection with its selection
of investments, also places purchase and sale orders on behalf of the Portfolio,
which transactions may not cause the Portfolio to be out of compliance with any
of the applicable restrictions or policies. In addition, DSIL has the authority
and discretion under the DSIL Agreement to select brokers and dealers to execute
portfolio transactions initiated by DSIL, and to select markets on or in which
the transactions will be executed. This authority is subject to certain
qualifications, including seeking the best net price and execution for the
Portfolio, executing certain transactions using brokers and dealers that provide
brokerage or research services to the Portfolio, and prohibiting DSIL from
executing transactions for the Portfolio with a broker or dealer who is an
"affiliated person" (as defined in the Investment Company Act) of the Portfolio,
or DSIL without prior written approval.
The DSIL Agreement provides that, subject to the direction and control
of the Board of Trustees of the Portfolio, DSIL shall perform such
administrative and management services as may from time to time be reasonably
requested by the Portfolio, which shall include without limitation: (1)
maintaining office facilities (which may be in the office of DSIL, or an
affiliate) and furnishing clerical services necessary for maintaining the
organization of the Portfolio and for performing the administrative and
management functions herein set forth; (2) arranging, if desired by the
Portfolio, for Directors, officers or employees of DSIL to serve as Trustees,
officers or agents of the Portfolio if duly elected or appointed to such
positions and subject to their individual consent and to any limitations imposed
by the law; (3) supervising the overall administration of the Portfolio,
including negotiation of contracts and fees with and the monitoring of
performance and billings of the Portfolio's transfer agent, custodian and other
independent contractors or agents; (4) overseeing (with advice of the
Portfolio's counsel) the preparation of and, if applicable, filing all documents
required for compliance by the Trust with applicable laws and regulations,
including registration statements, semi-annual and annual reports to investors,
proxy statements and tax returns; (5) preparation of agendas and supporting
documents for and minutes of meetings of Trustees, committees of Trustees and
investors; (6) arranging for maintenance of books and records of the Trust; (7)
maintaining telephone coverage to respond to investor inquiries regarding
matters to which this Agreement pertains to which the transfer agent is unable
to respond; (8) providing reports and assistance regarding the Portfolio's
compliance with securities and tax laws and investment objectives and
restrictions; (9) arranging for dissemination of yield and other performance
information to newspapers and tracking services; (10) arranging for and
preparing annual renewals for fidelity bond and errors and omissions insurance
coverage; (11) developing a budget for the Portfolio, establishing the rate of
expense accruals and arranging for the payment of all fixed and management
expenses; and (12) answering questions from the general public, the media and
investors in the Portfolio regarding (a) the securities holdings of the
Portfolio; (b) any limits in which the Portfolio invests; (c) the social
investment philosophy of the Portfolio; and (d) the proxy voting philosophy and
shareholder activism philosophy of the Portfolio. Notwithstanding the foregoing,
DSIL shall not be deemed to have assumed any duties with respect to, and shall
not be responsible for, the distribution of beneficial interests in the
Portfolio, nor shall DSIL be deemed to have assumed or have any responsibility
with respect to functions specifically assumed by any transfer agent, fund
accounting agent or custodian of the Portfolio. In providing administrative and
management services as set forth herein, DSIL may, at its own expense, employ
one or more subadministrators, provided that DSIL shall remain fully
-8-
<PAGE>
responsible for the performance of all administrative and management duties set
forth herein and shall supervise the activities of each subadministrator.
The DSIL Agreement provides that DSIL shall furnish, at its own
expense, all necessary services, facilities and personnel in connection with its
responsibilities under the DSIL Agreement. The DSIL Agreement further provides
that the Portfolio will pay all of its own expenses (except those expenses borne
by DSIL) including, without limitation, organization costs of the Portfolio;
compensation of Trustees who are not "interested persons" of the Portfolio;
governmental fees, including but not limited to SEC fees and state "blue sky"
fees; interest; loan commitment fees; taxes; brokerage fees and commissions;
membership dues in industry and professional associations; fees and expenses of
auditors and accountants, legal counsel and any transfer agent, distributor,
shareholder, servicing agent, record keeper, registrar or dividend disbursing
agent of the Portfolio; expenses of issuing and redeeming beneficial interests
and servicing investor accounts; expenses of preparing, typesetting, printing
and mailing prospectuses for regulatory purposes and for distribution to current
shareholders, investor reports, notices, proxy statements and reports to
governmental officers and commissions and to investors in the Portfolio;
expenses connected with the execution, recording and settlement of security
transactions; insurance premiums; fees and expenses of the custodian for all
services to the Portfolio, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of the Portfolio (including but not limited to the fees of independent
pricing services); expenses connected with maintaining the Portfolio's existence
as a New York Trust, expenses of meetings of the Portfolio's investors; expenses
relating to the issuance of beneficial interests in the Portfolio; and such
non-recurring or extraordinary expenses as may arise, including those relating
to actions, suits or proceedings to which the Portfolio may be party and the
legal obligation which the Portfolio may have to indemnify its Trustees and
officers with respect thereto.
Under the DSIL Agreement, as compensation for services rendered and the
assumption of related expenses, the Portfolio pays DSIL a fee computed daily and
payable monthly at an annual rate equal to 0.20% of the Portfolio's average
daily net assets.
The DSIL Agreement provides that DSIL may render administrative and
management services to others so long as the services under the DSIL Agreement
are not impaired thereby. The DSIL Agreement provides that the Portfolio will
indemnify DSIL against certain liabilities, including liabilities under the
Federal securities laws, or, in lieu thereof, contribute to resulting losses.
Under the DSIL Agreement, DSIL is not liable for, and is indemnified and held
harmless by the Portfolio relative to, any error of reasonable judgment or
mistake of law made in good faith or for any loss suffered by the Portfolio in
connection with the performance of the DSIL Agreement, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of DSIL.
The DSIL Agreement continues in effect from year to year provided each
continuance is specifically approved at least annually (a) by the vote of a
majority of the outstanding voting securities of the Portfolio or by a majority
of the Trustees of the Trust, and (b) by the vote of a majority of the Trustees
of the Trust who are not parties to such Agreement or "interested persons" (as
such term is defined in the Investment Company Act) of any party thereto cast in
person at a meeting called for the purpose of voting on such approval.
The DSIL Agreement will terminate automatically if assigned (as defined
in the Investment Company Act) and such Agreement is terminable at any time
without penalty by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Portfolio on 60 days' written notice. The
DSIL Agreement may be amended only by the written agreement of the Portfolio and
DSIL, and subject to, except for certain schedules, the approval of the Board of
Trustees and shareholders of the Portfolio as and to the extent required by the
Investment Company Act.
-9-
<PAGE>
Material Differences Between the DSIL Agreement and the Proposed Agreement
The Proposed Agreement includes substantially similar terms as the DSIL
Agreement with respect to the investment management obligations and services to
be provided by CBIS and incorporates substantially all of the terms of the DSIL
Agreement.
The principal difference between the DSIL Agreement and the Proposed
Agreement is the amount of the management fee. Under the DSIL Agreement the
Portfolio pays DSIL a management fee, which is accrued daily and paid monthly,
equal on an annual basis to 0.20% of the Portfolio's average daily net assets.
Under the Proposed Agreement, the Fund will pay CBIS a management fee, which
shall include custodian fees, computed daily and payable monthly, equal on an
annual basis to 0.25% of the Fund's average daily net assets. The management fee
under the DSIL Agreement does not include custodian fees, which the Fund paid
separately. These custodian fees were equal to 0.01% of the Fund's average daily
net assets. Excluding custodian fees, the difference between the management fee
payable under the Proposed Agreement and the management fee payable under the
DSIL Agreement would be 0.05% of the Fund's average daily net assets. However,
because the management fee under the Proposed Agreement includes custodian fees,
the difference between the management fee payable under the Proposed Agreement
and the DSIL Agreement is only 0.04% of the Fund's average daily net assets.
During the fiscal year ended July 31, 1999, DSIL accrued total
management fees in an amount equal to $1,901,529. If the management fee under
the Proposed Agreement had been in effect during the fiscal year ended July 31,
1999 DSIL would have accrued total management fees in an amount equal to
$2,376,911. The management fees accrued under the Proposed Agreement would have
been 25% greater than the management fees accrued under the DSIL Agreement.
However, because the management fee under the Proposed Agreement includes
custodian fees, the management fee accrued under the Proposed Agreement would
have been 20% greater than the management fee accrued under the DSIL Agreement.
Notwithstanding the increase in management fees paid by the Fund, the Fund's net
operating expenses for the fiscal year ended July 31, 1999 would have remained
unchanged as a result of an expense limitation agreement between the Fund's
sponsor, Development Capital Fund ("DEVCAP Non-Profit") and the Fund. Pursuant
to the expense limitation agreement, DEVCAP Non-Profit agreed to reimburse the
Fund for all expenses (excluding brokerage fees and commissions, interest, taxes
and other extraordinary expenses) in excess of 1.75% of the Fund's average daily
net assets. This reimbursement arrangement or expense cap was renewed on
November 29, 1999 and is described further below.
The total Fund operating expenses payable may increase from 1.98% of
the Fund's current net assets under the existing fee structure to 2.11% of the
Fund's current net assets under the proposed fee structure. Under the terms of
an expense limitation agreement, dated November 29, 1999, DEVCAP Non-Profit has
agreed to reimburse the Fund for all expenses (excluding brokerage fees and
commissions, interest, taxes and other extraordinary expenses) in excess of
1.75% of the Fund's average daily net assets until November 29, 2000 (the
"expense cap"). Due to the expense cap, the Fund's net operating expenses for
the next fiscal year (fiscal year ending July 31, 2000) will be the same as or
less than the Fund's net operating expenses for the previous fiscal year (fiscal
year ended July 31, 1999). In other words, if the Fund's total operating
expenses exceed the expense cap, the Fund's net operating expenses will be 1.75%
of the Fund's average daily net assets, but if the Fund's total operating
expenses fall below the expense cap the Fund will pay less than 1.75% in net
operating expenses.
In addition, prior to December 1, 1999 DSIL had agreed to waive its fee
to the extent necessary to ensure that total operating expenses of the Portfolio
(excluding brokerage fees and commissions, interest, taxes and other
extraordinary expenses) did not exceed 0.20% of the average daily net assets of
the Portfolio. This expense waiver arrangement was terminated on December 1,
1999 and could result in greater total operating expenses under the DSIL
Agreement in the future. This waiver arrangement applied to the Portfolio only
and is separate from the expense cap applicable to the Fund, which is discussed
above.
-10-
<PAGE>
The table below details the fees and expenses of the Fund under the
existing arrangements and the Proposed Agreement based on current net assets of
the Fund of $16,413,544.
<TABLE>
<CAPTION>
Fees Under the Fees Under the
DSIL Proposed
Agreement<F1> Agreement<F2>
--------------- ---------------
<S> <C> <C>
Annual Fund Operating Expenses:
(as a % of average net assets)
Management Fees.................................... 0.20%<F3> 0.25%<F4>
12b-1 Fees......................................... 0.00%<F5> 0.25%
Other Expenses..................................... 1.78% 1.61%
Total Fund Operating Expenses...................... 1.98% 2.11%
Less Reimbursed Expenses<F6>....................... 0.23% 0.36%
Net Fund Operating Expenses........................ 1.75% 1.75%
- --------
<FN>
<F1> Based on current net assets as of November 30, 1999.
<F2> The data in the table has been restated to reflect fees and expenses
expected to be incurred during the fiscal year ended July 31, 2000, based
on the Fund's current net assets as of November 30, 1999.
<F3> Prior to December 1, 1999 DSIL had agreed to waive its fee to the extent
necessary to ensure that aggregate operating expenses of the Portfolio
(excluding brokerage fees and commissions, interest, taxes and other
extraordinary expenses) did not exceed 0.20% of the average daily net
assets of the Portfolio. This expense waiver arrangement was terminated on
December 1, 1999.
<F4> Includes custodian fees, contingent on Mellon Bank replacing Investors Bank
& Trust Company as the Fund's custodian.
<F5> The Fund paid no distribution ("12b-1") fees because its distribution plan
was inactive.
<F6> Under the terms of an agreement, dated November 29, 1999, DEVCAP Non-Profit
has agreed to reimburse the Fund for all expenses (excluding brokerage fees
and commissions, interest, taxes and other extraordinary expenses) in
excess of 1.75% of the Fund's average daily net assets until November 29,
2000. For more information about DEVCAP Non-Profit see the "Additional
Information" section on page 27.
</FN>
</TABLE>
Example
You would pay the following fees and expenses on a $10,000 investment, assuming
(1) a 5% annual return and the reinvestment of dividends, (2) redemption of all
shares at the end of each time period, and (3) the Fund's operating expenses
remain the same for the time periods indicated:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Existing Fees $178 $599 $1,046 $2,288
Proposed Fees $178 $626 $1,101 $2,413
The purpose of the foregoing is to assist investors in understanding the various
costs of investing in the Fund over various time periods. Actual expenses may
vary from year to year and may be greater or less than those indicated.
In addition to the differences outlined above, the Fund's Investment
Manager will no longer provide the breadth of administrative services under the
Proposed Agreement that DSIL provided to the Portfolio pursuant to the DSIL
Agreement. The changes to the provisions relating to administrative services are
not expected to materially impact the Fund because the Fund's Administrator,
Sunstone, will continue to provide administrative services to the Fund.
-11-
<PAGE>
Under the Proposed Agreement, CBIS shall perform the following
administrative services, as reasonably requested by the Fund, including: (1)
preparing reports relating to the business affairs of the Fund; (2) making
reports and recommendations to the Board of Trustees concerning the performance
of independent accountants; (3) making reports and recommendations concerning
the performance and fees of the Fund's custodian and transfer agent; (4)
providing assistance to the custodian, legal counsel and auditors as may
generally be required to carry on the business and operations of the Fund; and
(5) refer to the Trust's officers or transfer agent shareholder inquiries
relating to the Fund. The administrative and management services performed by
DSIL pursuant to the DSIL Agreement are described above under "Terms of the DSIL
Agreement."
Sunstone provided administrative services to the Fund when the DSIL
Agreement was in place and will continue to provide such services pursuant to an
Administrative Services Agreement, dated November 4, 1997. Under this agreement
the Fund pays Sunstone an administration fee computed daily and paid monthly at
an annual rate of 0.15% of the first $50,000,000 of average daily net assets,
0.08% on the next $50,000,000 of average daily net assets, 0.05% on the next
$50,000,000 of average daily net assets and 0.03% on average daily net assets of
$150,000,000, subject to a current minimum annual fee of $30,000. For the fiscal
year ended July 31, 1999, the administration fee accrued by Sunstone amounted to
$22,807.
DSIL - The Portfolio's Current Investment Manager
DSIL has provided investment management services and administrative
services to the Portfolio since 1997. DSIL is a registered investment adviser
under the Investment Adviser's Act of 1940. As of July 31, 1999, DSIL had
approximately $1.3 billion in assets under management. It's principal business
office is located at 11 West 25th Street, New York, NY 10010.
The principal executive officer and directors of DSIL and their
principal occupations are respectively as follows: David P. Weider, Chief
Executive Officer and Managing Principal; Amy L. Domini, Managing Principal;
Sigward M. Moser, President and Managing Principal; Carol M. Laible, Financial
Compliance Officer; Peter D. Kinder, Member; and Steven D. Lydenberg, Member.
The business address of the foregoing officers and directors is 11 West 25th
Street, New York, NY 10010.
Christian Brothers Investment Services, Inc. -- The Prospective
Investment Manager
Upon shareholder approval of the Proposed Agreement, CBIS will act as
the Investment Manager to the Fund. CBIS, a corporation organized under the laws
of the State of Illinois, is owned by the Districts of the U.S. Region of the
Brothers of the Christian Schools. The management agreement between the Fund and
CBIS provides that CBIS shall manage the operations of the Fund, subject to
policies established by the Trustees for the Fund. Pursuant to the Proposed
Agreement, CBIS manages the Fund's investment portfolio and directs purchases
and sales of the Fund's portfolio securities. CBIS manages, as of October 31,
1999, assets of approximately $2.27 billion primarily for institutional clients.
CBIS's principal offices are located at 675 Third Avenue, 31st Fl., New York, NY
10017-5704.
The principal executive officer and directors of CBIS and their
principal occupations are respectively as follows: Michael W. O'Hern, President
and Chief Executive Officer and Director; Charles F. Hofer, Vice President and
Chief Investment Officer, Neal J. Berkowitz, Vice President and Chief Financial
Officer, David L. Skelding, Vice President and General Counsel, Francis G.
Coleman, Vice President - Socially Responsible Investing, Peter F. Clifford,
Clarence Fioke, Joseph M. Saurbier, John P. Gilhooly, David E. Brennan, Timothy
J. Froehlich, Damian Steger, Robert Evans, Raoul L. Carroll and Karen L.
Maguire, Directors of CBIS. The business address of the foregoing directors and
officers is 675 Third Avenue, 31st Fl., New York, NY 10017-5704.
-12-
<PAGE>
Consideration by the Board of Trustees
The Board of Trustees recommends that shareholders of the Fund approve
the Proposed Agreement between the Fund and CBIS. On December 16, 1999, the
Board of Trustees met in person to consider whether it would be in the best
interests of the Fund and its shareholders to enter into the Proposed Agreement.
In determining to recommend the adoption of the Proposed Agreement, the Board of
Trustees considered a variety of factors, including among others, CBIS's record
of managing other private funds and private accounts, data on the investment
performance of such funds managed by CBIS and expense ratios of such funds
managed by CBIS. In addition, the Board of Trustees reviewed and discussed the
terms and provisions of the DSIL Agreement and the Proposed Agreement and
compared fees and expenses thereunder. The Board of Trustees considered the fees
payable under the Proposed Agreement for the investment advisory and management
services provided thereunder, and the aggregate fees presently payable under the
DSIL Agreement for the same services. The Board of Trustees concluded that the
Fund's management fee will increase but that until November 29, 2000, the Fund's
net operating expenses will remain the same or decrease due to the expense cap.
The Board of Trustees further concluded that after November 29, 2000, the net
operating expenses of the Fund will most likely increase, absent the
continuation of the expense limitation agreement.
Conclusion
After careful investigation, the Fund's Board of Trustees, including
the Independent Trustees, determined that it was in the best interests of the
Fund and its shareholders that the Proposed Agreement be adopted by the Board of
Trustees and presented to shareholders for approval in accordance with the
requirements of the Investment Company Act. In approving the Proposed Agreement,
the Trustees considered the aforementioned factors and such other factors and
information that they deemed relevant. The Board of Trustees unanimously
recommends that shareholders vote FOR the approval of the Investment Management
Agreement between the Fund and CBIS.
3. APPROVAL OR DISAPPROVAL OF A SUB-ADVISORY AGREEMENT
BETWEEN CBIS AND RHUMBLINE ADVISERS
Background
The Board of Trustees has approved, and recommends that shareholders
approve a proposal to adopt a Sub-Advisory Agreement (the "Sub-Advisory
Agreement") between CBIS and RhumbLine. As indicated above, the Fund's assets
are currently managed as part of the Portfolio by the Portfolio's investment
manager DSIL. DSIL, in turn, has retained a submanager, Mellon Equity Associates
("Mellon Equity"), to provide investment management services to the Portfolio
pursuant to a submanagement agreement (the "Current Submanagement Agreement").
Approval of the Sub-Advisory Agreement
At its meeting on December 16, 1999, the Board of Trustees, including a
majority of the Independent Trustees of the Fund, unanimously approved the
Sub-Advisory Agreement and recommended that such Agreement be submitted to
shareholders for their approval or disapproval, to take effect upon shareholder
approval of the Sub-Advisory Agreement. The Sub-Advisory Agreement may be
continued from year to year thereafter if each such continuance is approved by
the Board of Trustees or by a majority of the outstanding voting securities of
the Fund and, in either event, by a vote cast in person of a majority of the
Independent Trustees. The Sub-Advisory Agreement is substantially similar to the
Current Submanagement Agreement. The terms of the Current Submanagement
Agreement are described under "Terms of the Current Submanagement Agreement"
below. A form of the Sub-Advisory Agreement is attached hereto as Appendix B.
The Sub-Advisory Agreement cannot be implemented unless approved at the
Meeting by a majority of the outstanding voting securities of the Fund. In the
event that shareholders of the Fund do not approve the Sub-Advisory Agreement,
Ithe Current Submanagement Agreement will remain in effect and the Board of
Trustees will take such action as it deems to be in the best interests of the
Fund and its shareholders. In the event Proposals 1 and/or 2 are not approved by
shareholders, Mellon Equity will continue to provide investment management
services to the Fund in accordance with the terms of the Current Submanagement
Agreement for such periods as may be approved at least annually by the Board of
Trustees, including a majority of the Independent Trustees.
-13-
<PAGE>
Terms of the Current Submanagement Agreement
The Current Submanagement Agreement provides that Mellon Equity shall
provide the Portfolio and DSIL with such investment advice and supervision as
DSIL may from time to time consider necessary. Under the Current Submanagement
Agreement, Mellon Equity shall, among other things: (1) furnish continuously an
investment program; (2) determine which securities the Portfolio should
purchase, sell or exchange; and (3) determine what portion of the Portfolio's
assets should be held uninvested. Mellon Equity's obligations shall at all times
be subject to the Portfolio's Declaration of Trust and ByLaws, provisions of the
Investment Company Act, the then-current Registration Statement, and subject
further to Mellon Equity notifying DSIL of its intention to purchase any
securities, unless such notification requirement is waived by DSIL. In addition,
DSIL or the Trustees of the Portfolio may at any time, upon written notice,
suspend or restrict Mellon Equity's right to determine what securities will be
purchased or sold and to determine what portion of the Portfolio's assets should
be held uninvested.
The Current Submanagement Agreement provides that Mellon Equity shall
furnish at its own expense all necessary services, facilities and personnel in
connection with its responsibilities under the Current Submanagement Agreement.
In return for the services it renders under the Current Submanagement Agreement,
DSIL pays Mellon Equity a fee computed and paid monthly at an annual rate equal
to 0.07% of the Portfolio's average daily net assets for its then-current fiscal
year. For the fiscal year ended July 31, 1999, DSIL accrued to Mellon Equity
compensation under the Current Submanagement Agreement of $950,708.
The Current Submanagement Agreement was first approved by the
Portfolio's Board of Trustees on June 30, 1997 and last approved by the
Portfolio's shareholders on October 22, 1997.
The Current Submanagement Agreement provides that, after its initial
period of effectiveness, it may be continued in effect from year to year,
provided that such continuance is approved by the vote of a majority of the
outstanding voting securities of the Portfolio or by the Trustees of the
Portfolio, and, in either event, by the vote cast in person by a majority of the
Independent Trustees at a meeting called for the purpose of voting on such
approval. The Current Submanagement Agreement has been continued in effect from
year to year by action of the Board of Trustees, including the Independent
Trustees.
The Current Submanagement Agreement also provides that it may be
terminated at any time by Mellon Equity, DSIL, the Board of Trustees (including
a majority of the Independent Trustees) or by a vote of the majority of the
outstanding voting securities of the Portfolio, in each instance without the
payment of any penalty, on at least thirty days' notice. The Current
Submanagement Agreement also terminates in the event of the termination of the
DSIL Agreement or in the event of its assignment.
Material Differences Between the Current Submanagement Agreement and
the Sub-Advisory Agreement
The principal differences between the Current Submanagement Agreement
and the Sub-Advisory Agreement are the fee structure and the heightened
compliance reporting requirements of the Sub-Adviser. The Sub-Advisory Agreement
otherwise includes substantially similar terms as the Current Submanagement
Agreement with respect to the investment management obligations and services to
be provided by RhumbLine and incorporates substantially all of the terms of the
Current Submanagement Agreement between DSIL and Mellon Equity.
The sub-advisory fee under the Current Submanagement Agreement is
calculated differently than the sub-advisory fee under the Sub-Advisory
Agreement. The Current Submanagement Agreement imposes a flat annual
sub-advisory fee; the Sub-Advisory Agreement uses fee "breakpoints" so that the
sub-advisory fee decreases over time as RhumbLine's assets under management on
behalf of CBIS clients (including the Fund) increase. In addition, the
sub-advisory fee under the Current Submanagement Agreement is calculated as a
percentage of the Portfolio's average daily net assets. In contrast, the sub-
advisory fee under the Sub-Advisory Agreement is calculated as a percentage of
the aggregate amount of assets managed by RhumbLine as sub-adviser to CBIS
clients (including the Fund) pursuant to any agreement between CBIS and
-14-
<PAGE>
RhumbLine. For the services provided to CBIS under the Sub-Advisory Agreement,
CBIS will pay to the Sub-Adviser an annual fee computed quarterly as follows.
Aggregate amount of assets managed
by RhumbLine as sub-adviser for all
CBIS clients (including the Fund)
under any agreement between CBIS Sub-Advisory
and RhumbLine Fee
----------------------------------- ------------
First $25 million .07%
Next $25 million .06%
Next $50 million .05%
Next $50 million .04%
Over $150 million .0375%
The Sub-Adviser shall furnish to CBIS a statement for the aggregate fee
payable under this Agreement and any other sub-advisory agreement by and between
CBIS and the Sub-Adviser for each quarter during which services are performed by
the Sub-Adviser prior to the end of such quarter. Such statement shall include
the value of the aggregate assets that determines the applicable rate at which
such fee is payable and show the calculation by which such fee is determined.
CBIS shall pay to the Sub- Adviser the amount payable pursuant to any such
statement not later than the last day of the quarter following the quarter
during which the services for the payment of which the fee is payable were
rendered.
Assuming the Fund's assets are among the first $25 million, as shown
above, the sub-advisory fee under the Sub-Advisory Agreement will equal 0.07% of
the aggregate amount of assets managed by RhumbLine as sub-adviser for CBIS
clients (including the Fund) pursuant to any agreement between CBIS and
RhumbLine. As compensation for its investment sub-advisory services provided
pursuant to the Current Submanagement Agreement, DSIL pays Mellon Equity an
annual sub- advisory fee of 0.07% of the Portfolio's average daily net assets.
Thus, the proposed sub-advisory fee payable under the Sub-Advisory Agreement is
the same as the sub-advisory fee payable under the Current Submanagement
Agreement.
Current
Submanagement Sub-Advisory
Agreement Agreement
-------------- ------------
Sub-Advisory Fee.................. 0.07% 0.07%
In addition to the differences in fee structure outlined above, the
Sub-Adviser will have more specific compliance reporting requirements under the
Sub-Advisory Agreement. The Current Submanagement Agreement broadly provides
that Mellon Equity "shall be responsible for compliance with any restrictions
imposed in writing by the Manager from time to time" in order to facilitate
compliance restrictions established by the investment manager. In contrast,
Section 3(D)3 of the Sub- Advisory Agreement provides:
Not later than the 10th day of each month, the Sub-Adviser shall
deliver a written report to CBIS relating to compliance and other
matters affecting the Portfolio and the Sub- Adviser during the
immediately preceding month (the "Monthly Report"). The Monthly Report
shall be in such form reasonably prescribed from time to time by CBIS.
The Monthly Report shall include without limitation the following: a
statement indicating whether or not the investment policies or
limitations applicable to the Portfolio were violated; a statement
indicating whether or not the Sub-Adviser caused or has knowledge of
any violation of law or regulation applicable to the Portfolio; a
statement describing fully the facts and
-15-
<PAGE>
circumstances relating to any violations described in the preceding
sentences; a statement of the steps taken by the Sub-Adviser to cure
any such violations; a statement of the steps taken by the Sub-Adviser
to reasonably assure that any such violation shall not occur in the
future; a statement indicating whether or not the Sub- Adviser or any
of its employees is the subject of, or aware of, any investigation or
other preceding related to the Sub-Adviser or any of its employees by
the federal or state entity or self regulatory organization having
jurisdiction over the Sub-Adviser; and a statement indicating whether
or not the Sub-Adviser is in compliance with all laws and regulations
material to the conduct of its business. The Monthly Report shall also
include a description of the Sub-Adviser's policies and practices
relating to best execution, trade allocation, bunched or batch trading,
soft dollars, payment for order flow, personal trading and principle
trading.
Consideration by the Board of Trustees
The Board of Trustees recommends that shareholders of the Fund approve
the Sub-Advisory Agreement between CBIS and RhumbLine. On December 16, 1999, the
Board of Trustees met in person to consider whether it would be in the best
interests of the Fund and its shareholders for CBIS to enter into the
Sub-Advisory Agreement. In determining to recommend the adoption of the
Sub-Advisory Agreement, the Board of Trustees considered a variety of factors,
including among others, the nature and scope of services to be rendered under
the Sub-Advisory Agreement, the quality of the services and personnel of
RhumbLine and the appropriateness of the fees that are paid under the
Sub-Advisory Agreement. In addition, the Board of Trustees reviewed and
discussed the terms and provisions of the Sub-Advisory Agreement and compared
fees and expenses thereunder. The Board of Trustees considered the fees payable
under the Sub-Advisory Agreement for the investment management services provided
thereunder, and the aggregate fees presently payable under the Current
Submanagement Agreement for the same services. The Board of Trustees concluded
that the sub-advisory fees under the Sub-Advisory Agreement would be the same as
the fees under the Current Submanagement Agreement.
RhumbLine Advisers -- The Prospective Sub-Adviser
As noted above, upon shareholder approval of the Sub-Advisory
Agreement, RhumbLine will act as the Sub-Adviser to the Fund. RhumbLine was
established as a partnership on October 12, 1990 and manages, as of October 31,
1999, assets of approximately $3.6 billion primarily for corporate and employee
benefit plans, investment companies, public funds, endowments and foundations.
RhumbLine provides customized index-based investment strategies to meet client
needs and demands and provides passive investment products primarily to
institutional investors. RhumbLine's principal offices are located at 30 Rowes
Wharf, Boston, MA 02110-3326.
On September 29, 1998, the Securities and Exchange Commission ("SEC")
brought administrative proceedings against RhumbLine and John D. Nelson,
RhumbLine's CEO. Without admitting or denying the findings contained in the
administrative order instituting the settling the proceedings, RhumbLine and Mr.
Nelson consented to the entry of findings that each failed adequately to
supervise the activities of RhumbLine's former Chief Investment Officer ("CIO")
in connection with the CIO's handling of certain options trades for client
accounts. RhumbLine was censured and was ordered to pay a civil money penalty of
$50,000. RhumbLine has since initiated revisions to its supervisory procedures
designed to prevent similar activity. Chief amongst those revisions was the
creation and staffing of the senior position of Compliance Officer with a
corporate officer who functions separately and independently of the Investment
Management Department and who reports directly to the CEO. The firm also
developed procedures to strengthen its internal oversight of the management
function.
The principal executive officer and directors of the RhumbLine and
their principal occupations are respectively as follows: John D. Nelson, Chief
Executive Officer, Wayne T. Owen, Managing Director, Edwin C.H. Ek, Chief
Investment Officer, Kim Roger McCant, Chief Financial Officer, Stephen L.
Sexeny, Marketing Director and Denise A. D'Entremont, Portfolio Manager. The
business address of the foregoing directors and officers is 30 Rowes Wharf,
Boston, MA 02110-3326.
-16-
<PAGE>
Conclusion
After careful consideration, the Fund's Board of Trustees, including
the Independent Trustees, determined that it was in the best interests of the
Fund and its shareholders that the Sub-Advisory Agreement be adopted by the
Board of Trustees and presented to shareholders for approval in accordance with
the requirements of the Investment Company Act. In approving the Sub-Advisory
Agreement, the Trustees considered the aforementioned factors and such other
factors and information that they deemed relevant. The Board of Trustees
unanimously recommends that shareholders vote FOR approval of the Sub-Advisory
Agreement between CBIS and RhumbLine.
4. Amending the Fund's Fundamental Investment Restrictions
Background
The Board of Trustees has approved, and recommends that the
shareholders of the Fund approve a proposal to amend each of the Fund's
Fundamental Investment Restrictions, with the exception of the Fundamental
Investment Restriction relating to the issuance of senior securities
(Fundamental Investment Restriction number 9), which shall remain the same. The
Trust adopted the Fund's Fundamental Investment Restrictions on behalf of the
Fund when the Fund was participating in a "master-feeder" structure, described
in Proposal 1. Under the master-feeder structure, the Fund invested all of its
assets in a separate portfolio of securities. Rather than have a separate series
of Fundamental Investment Restrictions for the Fund, the Trustees adopted the
Fundamental Investment Restrictions in place for the Portfolio.
The Fund's amended Fundamental Investment Restrictions, enumerated
below, are substantially similar to the current Fundamental Investment
Restrictions. The Fund's amended Fundamental Investment Restrictions have been
amended primarily to clarify and update the Fund's current Fundamental
Investment Restrictions. The specific changes to the Fundamental Investment
Restrictions are described below. In general, the amended Fundamental Investment
Restrictions remove any references to the "Portfolio," as well as various
limitations that applied to the Portfolio but that will not apply to the Fund.
Notwithstanding these changes, it is anticipated that the amendments to the
Fundamental Investment Restrictions will not materially impact the way the Fund
is managed.
The Fund's Fundamental Investment Restrictions may not be changed
without approval by holders of a "majority of the outstanding voting securities"
of the Fund. The vote of the holders of a "majority of the outstanding voting
securities" of the Fund is defined by the Investment Company Act as (i) the vote
of 67% or more of the shares present at the Meeting, if the holders of more than
50% of the outstanding shares are present or represented by proxy, or (ii) the
vote of more than 50% of the outstanding shares, whichever is less. In the event
that Proposals 1, 2 and 3 are not approved by shareholders, the Fund will retain
its Fundamental Investment Restrictions in their current form.
-17-
<PAGE>
4a. To amend the Fundamental Investment Restriction relating to borrowing.
The Fund will continue its restriction on borrowing money but will
remove references to the Portfolio, as the Fund will no longer invest its assets
in the Portfolio.
The Fund's current Fundamental Investment Restriction relating to
borrowing reads as follows:
Neither the Fund nor the Portfolio may:
(1) borrow money, except that as a temporary measure
for extraordinary or emergency purposes either the Fund or the
Portfolio may borrow an amount not to exceed 1/3 of the
current value of the net assets of the Fund or the Portfolio,
respectively, including the amount borrowed (moreover, neither
the Fund nor the Portfolio may purchase any securities at any
time at which borrowings exceed 5% of the total assets of the
Fund or the Portfolio, respectively, taken in each case at
market value) (it is intended that the Portfolio would borrow
money only from banks and only to accommodate requests for the
withdrawal of all or a portion of a beneficial interest in the
Portfolio while effecting an orderly liquidation of
securities).
If the proposal is approved, the current Fundamental Investment
Restriction relating to borrowing will be amended to read as follows:
The Fund may not:
(1) borrow money, except that as a temporary measure
for extraordinary or emergency purposes the Fund may borrow an
amount not to exceed 1/3 of the current value of the net
assets of the Fund, including the amount borrowed (moreover,
the Fund may not purchase any securities at any time at which
borrowings exceed 5% of the total assets of the Fund, taken at
market value) (it is intended that the Fund would borrow money
only from banks and only to accommodate requests for the
withdrawal of all or a portion of a beneficial interest in the
Fund while effecting an orderly liquidation of securities).
4b. To amend the Fundamental Investment Restriction relating to purchasing
securities on margin.
The Fund will retain its restriction on purchasing securities on
margin, but will remove the references to Portfolio and the exception relating
to options, as the Fund does not expect to engage in purchasing options.
The Fund's current Fundamental Investment Restriction relating to
purchasing securities on margin reads as follows:
Neither the Fund nor the Portfolio may:
(2) purchase any security or evidence of interest
therein on margin, except that either the Fund or the
Portfolio may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of
securities and except that either the Fund or the Portfolio
may make deposits of initial deposit and variation margin in
connection with the purchase, ownership, holding or sale of
options.
If the proposal is approved, the current Fundamental Investment
Restriction relating to purchasing securities on margin will be amended to read
as follows:
The Fund may not:
(2) purchase any security on margin except for
short-term loans as may be necessary for the clearance of
purchases and sales of portfolio securities.
-18-
<PAGE>
4c. To amend the Fundamental Investment Restriction relating to puts,
calls and warrants.
The Fund will continue its restriction relating to puts, calls and
warrants but has modified the exceptions to this restriction. The exception
relating to warrants has been defined more narrowly to cover "debt or other
securities which have warrants attached (not to exceed 10% of the Fund's total
assets)" rather than "warrants where the grantor of the warrants is the issuer
of the underlying securities." The exception relating to "the purchase,
ownership, holding or sale of options" has been removed, as the Fund does not
expect to purchase, own, hold or sell options.
The Fund's current Fundamental Investment Restriction relating to puts,
calls and warrants reads as follows:
Neither the Fund nor the Portfolio may:
(3) write any put or call option or any combination
thereof, provided that this shall not prevent (i) the
purchase, ownership, holding or sale of warrants where the
grantor of the warrants is the issuer of the underlying
securities, or (ii) the purchase, ownership, holding or sale
of options on securities.
If the proposal is approved, the current Fundamental Investment
Restriction relating to puts, calls and warrants will be amended to read as
follows:
The Fund may not:
(3) write, purchase, or sell puts, calls, warrants or
options or any combination thereof, provided that this shall
not prevent the Fund from investing in debt or other
securities which have warrants attached (not to exceed 10% of
the value of the Fund's total assets);
4d. To amend the Fundamental Investment Restriction
relating to underwriting securities.
The Fund will retain the prohibition on underwriting securities found
in the fourth Fundamental Investment Restriction. However, because the Fund will
no longer invest its assets in the Portfolio the exception permitting the Fund
to "invest all or any portion of its assets in the Portfolio" has been removed.
In addition, "1933 Act" has been restated to read "the Securities Act of 1933"
and references to the Portfolio have been removed.
The Fund's current Fundamental Investment Restriction relating to
underwriting securities reads as follows:
Neither the Fund nor the Portfolio may:
(4) underwrite securities issued by other persons,
except that the Fund may invest all or any portion of its
assets in the Portfolio and except insofar as either the Fund
or the Portfolio may technically be deemed an underwriter
under the 1933 Act in selling a security;
If the proposal is approved, the current Fundamental Investment
Restriction relating to underwriting securities will be amended to read as
follows:
The Fund may not:
(4) underwrite securities issued by other persons,
except insofar as the Fund may technically be deemed an
underwriter under the Securities Act of 1933 in selling a
security;
-19-
<PAGE>
4e. To amend the Fundamental Investment Restriction
relating to lending.
The Fund will continue its restriction relating to lending to other
persons together with the exceptions to such restriction. However, the provision
limiting the Fund's ability to invest in repurchase agreements maturing in more
than seven days has been removed because such provision is already included in
the Fund's Fundamental Investment Restriction relating to investing in
securities subject to restrictions on resale, discussed below. In addition,
references to the Portfolio have been removed.
The Fund's current Fundamental Investment Restriction relating to
lending reads as follows:
Neither the Fund nor the Portfolio may:
(5) make loans to other persons except (a) through
the lending of securities held by either the Fund or the
Portfolio and provided that any such loans not exceed 30% of
its total assets (taken in each case at market value), or (b)
through the use of repurchase agreements or the purchase of
short-term obligations and provided that not more than 10% of
its net assets will be invested in repurchase agreements
maturing in more than seven days; for additional related
restrictions, see paragraph (6) immediately following.
If the proposal is approved, the current Fundamental Investment
Restriction relating to lending will be amended to read as follows:
The Fund may not:
(5) make loans to other persons except (a) through
the lending of securities held by the Fund and provided that
any such loans not exceed 30% of its total assets (taken at
market value), or (b) through the use of repurchase agreements
or the purchase of short-term obligations.
4f. To amend the Fundamental Investment Restriction relating to
investing in securities subject to restrictions on resale.
The Fund's sixth Fundamental Investment Restriction has been amended to
raise the Fund's restriction on investing in securities subject to restrictions
on resale from 10% of the Fund's net assets to 15% of the the Fund's net assets,
-20-
<PAGE>
which is the limit prescribed by the SEC. This amendment may increase the amount
of Fund assets invested in securities that the Fund may not be able to dispose
of at stated market prices on a timely basis and may delay processing of
redemption requests. However, Fund management and the Board of Trustees believe
that this does not present a significant risk to the Fund. In addition, because
the Fund will no longer invest its assets in the Portfolio the exception
permitting the Fund to "invest all or any portion of its assets in the
Portfolio" has been removed.
The Fund's current Fundamental Investment Restriction relating to
investing in securities subject to restrictions on resale reads as follows:
Neither the Fund nor the Portfolio may:
(6) invest in securities which are subject to legal
or contractual restrictions on resale (other than repurchase
agreements maturing in not more than seven days and other than
securities which may be resold pursuant to Rule 144A under the
1933 Act if the Board of Trustees determines that a liquid
market exists for such securities) if, as a result thereof,
more than 10% of its net assets (taken at market value) would
be so invested (including repurchase agreements maturing in
more than seven days), except that the Fund may invest all or
any portion of its assets in the Portfolio;
If the proposal is approved, the current Fundamental Investment
Restriction relating to investing in securities subject to restrictions on
resale will be amended to read as follows:
The Fund may not:
(6) invest more than 15% of its net assets in
"illiquid securities" (securities for which market quotations
are not readily available), restricted securities and
repurchase agreements which have a maturity of longer than
seven days;
-21-
<PAGE>
4g. To amend the Fundamental Investment Restriction relating to the
purchase or sale of real estate, interests in oil, gas or other
mineral leases, or commodities or commodities contracts.
The Fund's seventh Fundamental Investment Restriction has been amended
to remove references to the Portfolio.
The Fund's current Fundamental Investment Restriction relating to the
purchase or sale of real estate, interests in oil, gas or other mineral leases,
or commodities or commodities contracts reads as follows:
Neither the Fund nor the Portfolio may:
(7) purchase or sell real estate (including limited
partnership interests but excluding securities secured by real
estate or interests therein), interests in oil, gas or mineral
leases, commodities or commodity contracts in the ordinary
course of business (the Fund and Portfolio reserve the freedom
of action to hold and to sell real estate acquired as a result
of the ownership of securities by the Fund or the Portfolio).
If the proposal is approved, the current Fundamental Investment
Restriction relating to the purchase or sale of real estate, interests in oil,
gas or other mineral leases, or commodities or commodities contracts will be
amended to read as follows:
The Fund may not:
(7) purchase or sell real estate (including limited
partnership interests but excluding securities secured by real
estate or interests therein), interests in oil, gas or mineral
leases, commodities or commodity contracts in the ordinary
course of business (the Fund reserves the freedom of action to
hold and to sell real estate acquired as a result of the
ownership of securities by the Fund).
4h. To amend the Fundamental Investment Restriction relating to
short sales.
The Fund's policy with respect to short sales will remain the same,
except that references to the Portfolio have been removed.
The Fund's current Fundamental Investment Restriction relating to short
sales reads as follows:
Neither the Fund nor the Portfolio may:
(8) make short sales of securities or maintain a
short position, unless at all times when a short position is
open the Fund or the Portfolio, as applicable, owns an equal
amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration,
for securities of the same issue as, and equal in amount to,
the securities sold short, and unless not more than 5% of the
Fund's or the Portfolio's, as applicable, net assets (taken in
each case at market value) is held as collateral for such
sales at any one time.
-22-
<PAGE>
If the proposal is approved, the current Fundamental Investment
Restriction relating to short sales will be amended to read as follows:
The Fund may not:
(8) make short sales of securities or maintain a
short position, unless at all times when a short position is
open the Fund owns an equal amount of such securities or
securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short, and
unless not more than 5% of the Fund's net assets (taken at
market value) is held as collateral for such sales at any one
time.
4i. To amend the Fundamental Investment Restriction relating to
diversification.
The Fund's policy relating to diversification required by the
Investment Company Act, has been continued, however, the exception to issuers of
options has been removed because the Fund does not expect to purchase options.
In addition, the references to the Portfolio have been removed.
The Fund's current Fundamental Investment Restriction relating to
diversification reads as follows:
Neither the Fund nor the Portfolio may:
(10) as to 75% of its assets, purchase securities of
any issuer if such purchase at the time thereof would cause
more than 5% of the Portfolio's or the Fund's, as applicable,
assets (taken at market value) to be invested in the
securities of such issuer (other than securities or
obligations issued or guaranteed by the United States or any
agency or instrumentality of the United States), except that
for purposes of this restriction the issuer of an option shall
not be deemed to be the issuer of the security or securities
underlying such contract and except that the Fund may invest
all or any portion of its assets in the Portfolio.
If the proposal is approved, the current Fundamental Investment
Restriction relating to diversification will be amended to read as follows:
The Fund may not:
(10) as to 75% of its total assets, purchase
securities of any issuer if such purchase at the time thereof
would cause more than 5% of the Fund's total assets (taken at
market value) to be invested in the securities of such issuer
(other than securities or obligations issued or guaranteed by
the United States or any agency or instrumentality of the
United States).
-23-
<PAGE>
4j. To amend the Fundamental Investment Restriction relating to
concentration.
The Fund will continue its current concentration policy not to invest
more than 25% of its assets in securities of issuers of any one industry, but
will remove the exceptions to the policy relating to the Portfolio. The
exception concerning the Domini Social Index has been removed because the Fund
will no longer attempt to match the performance of the Domini Social Index. The
exception permitting the Fund to invest all of its assets in the Portfolio has
also been removed because the Fund will no longer invest its assets in the
Portfolio.
The Fund's current Fundamental Investment Restriction relating to
concentration reads as follows:
Neither the Fund nor the Portfolio may:
(11) invest more than 25% of its assets in any one
industry unless the stocks in a single industry were to
comprise more than 25% of the Domini Social Index, in which
case the Portfolio or the Fund, as applicable, will invest
more than 25% of its assets in that industry, and except that
the Fund may invest all of its assets in the Portfolio.
If the proposal is approved, the current Fundamental Investment
Restriction relating to concentration will be amended to read as follows:
The Fund may not:
(11) invest more than 25% of its total assets in
securities of issuers in any one industry.
Conclusion
After careful consideration, the Fund's Board of Trustees, including
the Independent Trustees, determined that it was in the best interests of the
Fund and its shareholders that the Proposal to amend each of the Fund's
Fundamental Investment Restrictions, with the exception of the Fundamental
Investment Restriction relating to the issuance of senior securities, which will
not be changed, be approved by the Board of Trustees and presented to
shareholders for approval in accordance with the requirements of the Investment
Company Act. In approving the Proposal, the Trustees considered the
aforementioned factors and such other factors and information that they deemed
relevant. If approved by shareholders, the amended Fundamental Investment
Restrictions will become effective when disclosure is revised to reflect the
changes. If the proposal is not approved by shareholders of the Fund, the Fund's
current Fundamental Investment Restrictions will remain in effect. The Board of
Trustees unanimously recommends that shareholders vote FOR the proposal to amend
the Fund's Fundamental Investment Restrictions.
5. ELECTION OF A BOARD OF TRUSTEES
The Board of Trustees is responsible for the overall management and
operations of the Trust. At the Meeting, shareholders of the Fund are entitled
to elect six Trustees to serve until their successors are elected and qualified.
The Fund is not required to hold annual meetings of shareholders.
Information Concerning Nominees
The nominees named below for election to the Board of Trustees (the
"Nominees") have consented to be nominated and to serve, if elected, as Trustees
of the Trust. In case any of the Nominees becomes unavailable to serve as
Trustee, the persons designated in the enclosed proxy will have the right to
vote for a substitute. A shareholder may instruct the persons named as proxies
not to vote the shares represented by his or her proxy for the nominee's
election. The Trust currently knows of no reason why any of the Nominees will be
-24-
<PAGE>
unable to serve if elected. Information pertaining to the Nominees is set forth
below, together with their ages, addresses, respective positions with the Fund
and a brief statement of their principal occupations during the past five years.
With the exception of Edward J. Veilleux, Timothy J. Joyce and Donald S.
Houston, all the nominees currently serve as Trustees of the Trust. The Nominees
deemed to be "interested persons" of the Trust for purposes of the Investment
Company Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name and Address Age Trust During Past Five Years
- ---------------- --- ------------- ------------------------
<S> <C> <C> <C>
Stephen D. Cashin 42 Trustee Managing Director of Modern Africa Fund
Managers LLC, Vice President
(Corporate Finance), Equator Bank (from 1993
to March 1997); Vice President (East Africa
Representative), Equator Bank (prior to 1993).
Gilbert H. Crawford* 42 Trustee Executive Director, Microcap, LLC (since October
1999); Treasurer, Josephs House (since September
1997); Alternate Director, PROFUND (since September
1995); President of Development Capital Fund
(November 1992 to June 1997); Executive Director,
Seed Capital Development Fund, Ltd. (since September
1991).
Donald Carcieri 58 Trustee Director, Catholic Relief Services Corporate
Leadership Council (since 1996); President and
Chief Executive Officer, Cookson America, Inc.
(1983-1997).
Edward J. Veilleux 56 Principal, BT Alex Brown; Executive Vice
President and Chief Administrative Officer,
Investment Company Capital Corp. (Registered
Investment Adviser and Registered Transfer Agent
subsidiary of Alex Brown) (1984 to present).
Timothy J. Joyce 52 Of Counsel, Bleakley Platt & Schmidt (1994 to
present); Director of Special Programs, Catholic
Relief Services (1985-1992); Director, Vice
President, Associate General Counsel, Joyce
Beverages, Inc. (1979-1984).
Donald S. Houston 45 Vice President, Sales, Plantronics, Inc.
(manufacturer of telephony headsets) (1996 to
present); Vice President, Sales, Proxima
Corporation (manufacturer of desktop projection
products for personal computers) (1995-1996);
Vice President, Sales, Service and Marketing,
Director of Sales, Sales Manager, CalComp Inc.
(1985-1995).
</TABLE>
The Board of Trustees has an Audit Committee which is composed of
Trustees who are not "interested persons" of the Trust for purposes of the
Investment Company Act. The Audit Committee members are Stephen D. Cashin and
Donald Carcieri. The Audit Committee, which was created on November 29, 1999,
has the responsibility, among other things, to (i) recommend the selection of
the Trust's independent auditors, (ii) review and approve the scope of the
independent auditors' audit activity, (iii) review the financial statements
which are subject to the independent auditors' certification, and (iv) review
with the independent auditors the adequacy of the Trust's basic accounting
system and the effectiveness of the Trust's internal audit activities and
internal accounting controls. The Trust has no separate Nominating or
Compensation Committee.
-25-
<PAGE>
There were four meetings of the Board of Trustees during the fiscal
year ended July 31, 1999. No Trustee attended fewer than 75% of the aggregate of
(i) the total number of meetings of the Board of Trustees, and (ii) the total
number of meetings held by any committees of the Board on which he served, which
were held during his tenure for the fiscal year ended July 31, 1999.
Executive Officers
In addition to the Trustees who serve as executive officers as
indicated above, the persons named below also serve as executive officers.
Information pertaining to those executive officers of the Trust is set forth
below, together with their ages, addresses, respective positions and a brief
statement of their principal occupations during the past five years.
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name and Address Age Trust During Past Five Years
- ---------------- --- ------------- ------------------------
<S> <C> <C> <C>
Joseph St. Clair 54 President President of Development Capital Fund
(since June 1997); Director of Development
Capital Fund (since December 1994);
Director of Internal Audit, Catholic
Relief Services (since May 1993);
Departmental Vice-President, Alex.
Brown Incorporated (prior to 1993).
James R. Arnold 42 Assistant Secretary Senior Administration Services Manager,
Sunstone Financial Group, Inc. (since
January 1997); Secretary and Treasurer, The
Primary Trend Fund, Inc. (since September
1986) and The Primary Income Funds, Inc.
(since September 1989); Vice President,
Arnold Investment Counsel, Inc. (prior to
January 1997).
</TABLE>
As of October 31, 1999, the Trustees and officers as a group owned less
than 1% of the Fund's outstanding shares.
Compensation Table
The following table shows the compensation paid by the Trust to the
Trustees during the fiscal year ended July 31, 1999:
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Estimated
Compensation Benefits Accrued Annual
from the as part of Benefits upon Total Compensation
Name of Trustee Trust Trust Expenses Retirement from Trust
- ---------------- ------------ -------------------- ------------- ------------------
<S> <C> <C> <C> <C>
Stephen D. Cashin None None None None
Gilbert H. Crawford None None None None
Donald Carcieri None None None None
</TABLE>
The Trust currently pays no annual compensation to each Trustee,
however, the Trust may compensate Trustees in the future. The Trust pays such
Trustees' out-of-pocket expenses related to attendance at meetings of the Board
of Trustees.] Executive officers of the Trust receive no compensation from the
Trust for their services as such. The Trust does not have a pension or
retirement plan applicable to Trustees or officers of the Trust.
-26-
<PAGE>
6. SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Trustees has selected KPMG LLP as independent public
accountants for the Fund through the fiscal year ended July 31, 2000. KPMG LLP
has served as independent public accountants for the Fund since it commenced
operations. The selection is being submitted for ratification or rejection by
the shareholders. Ratification or rejection of the selection of independent
public accountants will be determined by a majority of the votes cast.
7. OTHER BUSINESS
The Trustees do not know of any matters to be presented at the Meeting
other than those set forth in this Proxy Statement. If any other business should
come before the Meeting, the persons named in the accompanying proxy will vote
thereon in accordance with their best judgment.
INFORMATION ABOUT THE MEETING
All proxies solicited by the Board of Trustees which are properly
executed and received by the Assistant Secretary or his designees prior to the
Meeting will be voted at the Meeting in accordance with the instructions
thereon.
No business other than the matter described above is expected to come
before the Meeting, but should any other matter requiring a vote of shareholders
arise, including any question as to an adjournment or postponement of the
Meeting, the persons named on the enclosed proxy will vote thereon according to
their best judgment in the interests of the Trust. In determining whether to
adjourn the Meeting, the following factors may be considered: the nature of the
proposal which is the subject of the Meeting, the percentage of votes actually
cast, the percentage of actual negative votes, the nature of any further
solicitation and the information to be provided to the shareholders with respect
to the reasons for such solicitation.
NEXT MEETING OF SHAREHOLDERS
The Trust is not required and does not intend to hold annual meetings
of shareholders unless otherwise required by applicable law. The Trust will not
be required to hold annual meetings of shareholders unless the election of
Trustees is required to be acted on by shareholders under the Investment Company
Act. Shareholders have certain rights, including, pursuant to the Bylaws of the
Trust, the right to call a meeting upon a written request, which shall specify
the purpose for which such meeting is to be called, of shareholders holding, in
the aggregate, not less than 10% of the outstanding shares entitled to vote on
the matters specified in the written request.
Any shareholder desiring to present a proposal for consideration at the
next meeting of shareholders of the Trust must submit that proposal in writing
so that it is received by the Trust prior to mailing and printing of proxy
materials sent in connection with the meeting, for inclusion in the proxy
statement for that meeting.
ADDITIONAL INFORMATION
The principal business office of DSIL is located at 11 West 25th
Street, New York, NY 10010. The principal business office of Mellon Equity is
located at 500 Grant Street, Suite 3700, Pittsburgh, PA 15258. CBIS Financial
Services, Inc. is the distributor of the Fund's shares and maintains its
principal business office at 915 Harger Road, Oak Brook, Illinois 60521-1476.
Sunstone Financial Group, Inc. is the Fund's administrator and maintains its
principal business office at 207 East Buffalo Street, Suite 400, Milwaukee, WI
53202.
-27-
<PAGE>
DEVCAP Non-Profit, a wholly-owned subsidiary of Catholic Relief
Services ("CRS"), is the Fund's sponsor. DEVCAP Non-Profit was created in 1992
to provide fund-raising and other support to non-profit organizations dedicated
to supporting micro-enterprise and other economic development programs in
developing countries. Micro-enterprise development programs assist
underprivileged people by providing direct financing and technical support,
otherwise unavailable through normal business channels, for business enterprises
in developing countries. Each year, DEVCAP Non-Profit will direct shareholder
contributions made pursuant to the Fund's Charitable Contributions Program to
CRS and other non-profit organizations working to improve the welfare of
underprivileged persons in developing countries through grants or loans for
micro-enterprises and other economic development programs. Shareholder
contributions are generally allocated by agreement between DEVCAP Non-Profit and
CRS. CRS was founded by the Catholic Bishops of the United States and funds a
"village banking" program which provides financial services to approximately
150,000 underprivileged people in 24 countries throughout the world. CRS
provides the operational funding for DEVCAP Non-Profit and generally receives
all the donations generated by the Fund's Charitable Contribution Program. At
their discretion, DEVCAP Non-Profit's Board of Directors may also use
shareholder contributions to support programs of other non-profit organizations.
The principal offices of CBIS are located at 675 Third Avenue, 31st
Fl., New York, NY 10017-5704. The principal offices of RhumbLine are located at
30 Rowes Wharf, Boston, MA 02110-3326.
The obligations of the Trust are not personally binding upon, nor shall
resort be had to the private property of, any of the Trustees, shareholders,
officers, employees or agents of the Trust, but only the Trust's property shall
be bound.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING AND WHO WISH TO
HAVE THEIR SHARES VOTED ARE REQUESTED TO PROMPTLY COMPLETE, DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
By Order of the Trustees
James R. Arnold
Assistant Secretary
DEVCAP TRUST
January 7, 2000
New York, New York
<PAGE>
APPENDIX A
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT, dated as of ___________, 2000, between
DEVCAP Trust (the "Trust") on behalf of the DEVCAP Shared Return Fund (the
"Portfolio"), a separate, diversified portfolio of the Trust, a business trust
organized under the laws of the Commonwealth of Massachusetts, and Christian
Brothers Investment Services, Inc., a corporation organized under the laws of
the State of Illinois (the "Investment Manager").
WHEREAS, the Trust has been organized as a Massachusetts business trust
under the laws of the Commonwealth of Massachusetts to engage in the business of
an open-end management investment company under the Investment Company Act of
1940, as amended (the "Investment Company Act"), and the shares (the "Shares")
of beneficial interest of the Trust are divided into multiple series ("Series"),
including the Portfolio as a separate, non-diversified portfolio of the Trust;
WHEREAS, the Trust, on behalf of the Portfolio, seeks to retain the
Investment Manager for the purpose of making investment decisions for the
Portfolio;
WHEREAS, the Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Investment Advisers
Act"), and desires to provide services to the Portfolio in consideration of and
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Portfolio and the Investment Manager agree as
follows:
SECTION 1. Employment as an Investment Manager. The Portfolio being
duly authorized hereby employs the Investment Manager as the Portfolio's
investment manager, on the terms and conditions set forth herein. The Investment
Manager shall for all purposes herein be deemed to be an independent contractor
and shall, except as expressly provided or authorized (whether herein or
otherwise), have no authority to act for or represent the Portfolio in any way
or otherwise be deemed an agent of the Portfolio.
SECTION 2. Acceptance of Employment; Standard of Performance. The
Investment Manager accepts its employment as the Portfolio's investment manager
to manage the investment and reinvestment of the Portfolio's assets and agrees
to use its best professional judgment to make timely investment decisions for
the Portfolio in accordance with the provisions of this Agreement and to provide
the other services set forth in Section 3 of this Agreement, subject to the
direction of the Board of Trustees (the "Trustees" or the "Board") and officers
of the Trust, for the period, in the manner and on the terms hereinafter set
forth.
SECTION 3. Obligation of and Services to be Provided by the Investment
Manager. The Investment Manager undertakes to provide the services hereinafter
set forth and to assume the obligations set forth below in this Section 3. The
Investment Manager may, with the approval of the Trustees, delegate any of its
obligations under this Agreement, to a sub-adviser. To the extent such
delegation occurs, all references to "Investment Manager" herein shall be deemed
to include any such sub-adviser.
A. Portfolio Management Services. In providing portfolio management
services to the Portfolio, the Investment Manager shall be subject to the
investment objectives, policies and restrictions of the Portfolio as set forth
in its current prospectus and statement of additional information (as the same
may be modified from time to time), the Trust's charter and bylaws and the
investment restrictions set forth in the Investment Company Act and the Rules
thereunder (as and to the extent set forth in such registration statement or in
other documentation furnished to the Investment Manager by the Portfolio), to
the provisions of the Internal Revenue Code applicable to the Trust as a
regulated investment company
-29-
<PAGE>
and to the supervision and control of the Trustees. The Portfolio understands,
and directs, that the Portfolio's assets be invested in a accordance with the
written socially responsible investing policies of the Investment Manager, as
the same may be amended from time to time. The Investment Manager shall not,
without the prior approval of the Portfolio, effect any transactions that would
cause the Portfolio to be out of compliance with any of such objectives,
restrictions or policies.
B. Corporate Management Services. Subject to the supervision of the
Trustees and officers of the Trust and as reasonably requested by the officers
of the Trust or the Trustees, the Investment Manager shall assist the officers
of the Trust in the performance of the following services:
(1) Prepare reports relating to the business and affairs of
the Portfolio as may be mutually agreed upon and not
otherwise appropriately prepared by the Portfolio's
custodian, legal counsel or auditors;
(2) Make such reports and recommendations to the Board
concerning the performance of the independent
accountants as the Board may reasonably request or deem
appropriate;
(3) Make such reports and recommendations to the Board
concerning the performance and fees of the Portfolio's
custodian and transfer and disbursing agent as the
Board may reasonably request or deem appropriate;
(4) Provide such assistance to the custodian and the
Trust's legal counsel and auditors as generally may be
required to properly carry on the business and
operations of the Portfolio;
(5) Refer to the Trust's officers or transfer agent,
shareholder inquiries relating to the Portfolio;
(6) Employ or provide and compensate the CBIS executive,
administrative, secretarial and clerical personnel
necessary to supervise the provision of the services
set forth in subparagraph 3(B), and shall bear the
expense of providing such services, except as may
otherwise be provided in Section 8 of this Agreement.
The Investment Manager shall also compensate all
officers and employees of the Portfolio who are
officers or employees of the Investment Manager;
(7) Supervise the general management and investment of the
Portfolio's assets and securities portfolio subject to
and in accordance with the investment objectives and
policies of the Portfolio and any directions which the
Trustees may issue to the Investment Manager from time
to time.
C. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials.
The Investment Manager will make available and provide
financial, accounting and statistical information
concerning the Investment Manager required by the
Portfolio in the preparation of registration
statements, reports and other documents required by
federal and state securities laws, and such other
information as the Portfolio may reasonably request for
use in the preparation of such documents or of other
materials necessary or helpful for the distribution of
the Portfolio's Shares.
-30-
<PAGE>
D. Other Obligations and Services.
(1) The Investment Manager shall make available its
officers and employees to the Trustees and officers of
the Portfolio for consultation and discussions
regarding the administration and management of the
Portfolio and its investment activities.
(2) The Investment Manager will adopt a written code of
ethics complying with the requirements of Rule 17j1
under the Investment Company Act (which may be the
Portfolio's code of ethics) and will provide the
Portfolio with evidence of its adoption. Within
forty-five (45) days of the end of the last calendar
quarter of each year while this Agreement is in
effect, the President or a Vice President of the
Investment Manager shall certify to the Portfolio that
the Investment Manager has complied with the
requirements of Rule 17j-1 during the previous year
and that there has been no violation of the Investment
Manager's code of ethics or, if such a violation has
occurred, that appropriate action was taken in
response to such violation. Upon the written request
of the Portfolio, the Investment Manager shall permit
the Portfolio, its employees or its agents to examine
the reports required to be made by the Investment
Manager by Rule 17j1(c)(1).
SECTION 4. Transaction Procedures. All portfolio transactions for the
Portfolio will be consummated by payment to or delivery by the custodian of the
Portfolio, Mellon Trust (the "Custodian"), or such depositories or agents as may
be designated by the Custodian in writing, as custodian for the Portfolio, of
all cash and/or securities due to or from the Portfolio, and the Investment
Manager shall not have possession or custody thereof or any responsibility or
liability with respect to such custody. The Investment Manager shall advise and
confirm in writing to the Custodian all investment orders for the Portfolio
placed by it with brokers and dealers at the time and in the manner set forth in
Schedule A hereto (as amended from time to time). The Portfolio shall issue to
the Custodian such instructions as may be appropriate in connection with the
settlement of any transaction initiated by the Investment Manager.
SECTION 5. Allocation of Brokerage. The Investment Manager shall have
authority and discretion to select brokers and dealers to execute portfolio
transactions initiated by the Investment Manager, and to select the markets on
or in which the transactions will be executed. The Investment Manager will
render regular reports to the Portfolio of the total brokerage business placed
on behalf of the Portfolio by the Investment Manager and the manner in which
such brokerage business has been allocated.
A. In doing so, the Investment Manager's primary
responsibility shall be to seek to obtain best net price and execution
for the Portfolio. However, this responsibility shall not obligate the
Investment Manager to solicit competitive bids for each transaction or
to seek the lowest available commission cost to the Portfolio, so long
as the Investment Manager reasonably believes that the broker or dealer
selected by it can be expected to obtain a "best execution" market
price on the particular transaction and determines in good faith that
the commission cost is reasonable in relation to the value of the
brokerage and research services (as defined in Section 28(e)(3) of the
Securities Exchange Act of 1934, as amended), provided by such broker
or dealer to the Investment Manager viewed in terms of either that
particular transaction or of the Investment Manager's overall
responsibilities with respect to its clients, including the Portfolio,
as to which the Investment Manager exercises investment discretion,
notwithstanding that the Portfolio may not be the direct or exclusive
beneficiary of any such services or that another broker may be willing
to charge the Portfolio a lower commission on the particular
transaction.
-31-
<PAGE>
B. The Investment Manager shall not execute any portfolio
transactions for the Portfolio with a broker or dealer which is an
"affiliated person" (as defined in the Investment Company Act) of the
Portfolio or the Investment Manager of the Portfolio without the prior
written approval of the Portfolio. The Portfolio will provide the
Investment Manager with a list of brokers and dealers which are
"affiliated persons" of the Portfolio.
SECTION 6. Proxies. The Investment Manager will vote all proxies
solicited by or with respect to the issuers of securities in which assets of the
Portfolio may be invested from time to time. Proxies will be voted in accordance
with the proxy voting standards from time to time published by the Investment
Manager.
SECTION 7. Fees for Service
A. The compensation of the Investment Manager for its services
under this Agreement shall be calculated and paid by the Portfolio in
accordance with the attached Schedule B. In addition to the fees set
forth in Schedule B, the Portfolio shall reimburse the Investment
Manager for all out-of-pocket expenses incurred by the Investment
Manager for attendance at any meeting outside of the New York
metropolitan area in connection with its activities as Investment
Manager to the Portfolio.
B. In addition to the foregoing, the Investment Manager may
from time to time agree not to impose all or a portion of its fee
otherwise payable hereunder (in advance of the time such fee or portion
thereof would otherwise accrue) and/or undertake to pay or reimburse
the Portfolio for all or a portion of its expenses not otherwise
required to be borne or reimbursed by the Investment Manager. Any such
fee reduction or undertaking may be discontinued or modified by the
Investment Manager at any time.
SECTION 8. Expenses of the Portfolio. It is understood that the
Portfolio will pay all its expenses other than those expressly assumed by the
Investment Manager herein, which expenses payable by the Portfolio shall
include:
A. Fees and expenses of the Investment Manager;
B. Auditing and accounting fees and expenses;
C. Fees and expenses for transfer agent, registrar,
dividend disbursing agent and shareholder recordkeeping
services (including reasonable fees and expenses
payable to the Investment Manager for such services);
D. Fees and expenses of the custodian of the Trust's
assets, including expenses incurred in performing fund
accounting and recordkeeping services provided by the
custodian;
E. Expenses of obtaining quotations for calculating the
value of the Portfolio's net assets;
F. Salaries and other compensation of any of its executive
officers and employees who are not officers, directors,
stockholders or employees of the Investment Manager or
any of its affiliates;
G. Taxes and governmental fees levied against the
Portfolio and the expenses of preparing tax returns and
reports;
-32-
<PAGE>
H. Brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for the
Portfolio;
I. Organizational expenses;
J. Costs, including the interest expense, of borrowing
money;
K. Costs and/or fees incident to Trustee and shareholder
meetings of the Portfolio, the preparation and mailings
of proxy material, prospectuses and reports of the
Portfolio to its shareholders, the filing of reports
with regulatory bodies, the maintenance of the
Portfolio's legal existence, membership dues and fees
of investment company industry trade associations, and
the registration of Shares with federal and state
securities authorities;
L. Legal fees and expenses (including reasonable fees for
legal services rendered by the Investment Manager or
its affiliates), including the legal fees related to
the registration and continued qualification of the
Portfolio's Shares for sale (and of maintaining the
registration of the fund);
M. Costs of printing stock certificates, if any,
representing Shares of the Portfolio or any other
expenses, including clerical expenses of issue,
redemption, or repurchase of Shares of the Portfolio;
N. Trustees' fees and expenses of Trustees who are not
directors, officers, employees or stockholders of the
Investment Manager or any of its affiliates;
O. Its pro rata portion of the fidelity bond required by
Section 17(g) of the Investment Company Act, or other
insurance premiums;
P. Fees payable to federal and state authorities in
connection with the registration of the Portfolio's
Shares.
Q. Litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary
course of the business of the Portfolio or the Trust.
SECTION 9. Other Investment Activities of Investment Manager and
Affiliates of Investment Manager.
A. The Portfolio acknowledges that the Investment Manager
or one or more of its affiliates has investment
responsibilities, renders investment advice to and
performs other investment advisory services for other
clients ("Client Accounts"), and that the Investment
Manager, its affiliates or any of its or their
directors, officers, agents or employees may buy, sell
or trade in any securities for its or their respective
accounts ("Affiliated Accounts"). Subject to the
-33-
<PAGE>
provisions of Sections 2 and 3 hereof, the Portfolio
agrees that the Investment Manager or its affiliates may
give advice or execute investment responsibility and
take such other action with respect to other Client
Accounts and Affiliated Accounts which may differ from
the advice given or the timing or nature of action taken
with respect to the Portfolio; provided that the
Investment Manager acts in good faith; provided,
further, that it is the Investment Manager's policy to
allocate, within its reasonable discretion, investment
opportunities to the Portfolio over a period of time on
a fair and equitable basis relative to the Client
Accounts and the Affiliated Accounts, taking into
account the cash position and the investment objectives
and policies of the Portfolio and any specific
investment restrictions applicable thereto. The
Portfolio acknowledges that one or more Client Accounts
and Affiliated Accounts may at any time hold, acquire,
increase, decrease, dispose of or otherwise deal with
positions in investments in which the Portfolio may have
an interest from time to time, whether in transactions
which involve the Portfolio or otherwise. The Investment
Manager shall have no obligation to acquire for the
Portfolio a position in any investment which any Client
Account or Affiliated Account may acquire, and the
Portfolio shall have no first refusal, coinvestment or
other rights in respect of any such investment, either
for the Portfolio or otherwise.
B. Subject to and in accordance with the Agreement and
Declaration of Trust and ByLaws of the Trust and to
Section 10(a) of the Investment Company Act, it is
understood that Trustees, officers, agents and
shareholders of the Portfolio are or may be interested
in the Investment Manager or its affiliates as
directors, officers, agents or stockholders of the
Investment Manager or its affiliates; that directors,
officers, agents and stockholders of the Investment
Manager or its affiliates are or may be interested in
the Portfolio as trustees, officers, agents,
shareholders or otherwise; that the Investment Manager
or its affiliates may be interested in the Portfolio as
shareholders or otherwise; and that the effect of any
such interests shall be governed by said Agreement and
Declaration of Trust, By-Laws and the Investment Company
Act.
C. The services of the Investment Manager to the Portfolio
hereunder are not to be deemed exclusive, and the
Investment Manager and any of its affiliates shall be
free to render similar services to others. The
Investment Manager shall not be obligated to give the
Portfolio more favorable or preferential treatment
vis-a-vis its other clients.
SECTION 10. No Personal Liability. Reference is hereby made to the
Agreement and Declaration of Trust dated June 25, 1995 establishing the Trust,
as amended September 15, 1995 (the "Agreement and Declaration of Trust"), a copy
of which has been filed with the Secretary of the Commonwealth of Massachusetts
and elsewhere as required by law, and to any and all amendments thereto so filed
or hereafter filed. No Trustee, shareholder, officer, agent or employee of the
Trust or the Portfolio shall be held to any personal liability hereunder or in
connection with the affairs of the Portfolio or the Trust. Only the trust estate
under said Agreement and Declaration of Trust is liable under this Agreement.
Without limiting the generality of the foregoing, neither the Investment Manager
nor any of its officers, directors, shareholders or employees shall, under any
circumstances, have recourse or cause or willingly permit recourse to be had
directly or indirectly to any personal, statutory, or other liability of any
shareholder, Trustee, officer, agent or employee of the Trust or the Portfolio
or of any successor of the Trust or the Portfolio, whether such liability now
exists or is hereafter incurred for claims against the trust estate, but shall
look for payment solely to said trust estate, or the assets of such successor of
the Portfolio.
-34-
<PAGE>
SECTION 11. Limitation of Liability.
A. The Investment Manager shall not be liable for any action
taken, omitted or suffered to be taken by it in its reasonable
judgment, in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Agreement,
or in accordance with (or in the absence of) specific directions or
instructions from the Portfolio or the Investment Manager; provided,
however, that such acts or omissions shall not have resulted from the
Investment Manager's willful misfeasance, bad faith, gross negligence,
a violation of the standard of care established by and applicable to
the Investment Manager in its actions under this Agreement or reckless
disregard of its obligations and duties hereunder.
B. No provision of this agreement shall be construed to
protect the Investment Manager from liability in violation of Section
17(i) of the Investment Company Act.
SECTION 12. Confidentiality. Subject to the duty of the Investment
Manager and the Portfolio to comply with applicable law, including any demand of
any regulatory or taxing authority having jurisdiction, the parties hereto shall
treat as confidential all information pertaining to the Portfolio and the
actions of the Investment Manager and the Portfolio in respect thereof.
SECTION 13. Assignment. This Agreement shall terminate automatically in
the event of its assignment, as that term is defined in Section 2(a)(4) of the
Investment Company Act. The Investment Manager shall notify the Portfolio in
writing sufficiently in advance of any proposed change of control, as defined in
Section 2(a)(9) of the Investment Company Act, as will enable the Portfolio to
consider whether an assignment as defined in Section 2(a)(4) of the Investment
Company Act will occur, and whether to take the steps necessary to enter into a
new contract with the Investment Manager. The Investment Manager shall notify
the Portfolio of any change in the membership of the Investment Manager within a
reasonable time after such change.
SECTION 14. Representations, Warranties and Agreements of the
Portfolio. The Portfolio represents, warrants and agrees that:
A. The Investment Manager has been duly appointed to provide
investment services to the Portfolio as contemplated hereby.
B. The Portfolio will deliver to the Investment Manager a true
and complete copy of its then current prospectus and statement of
additional information as effective from time to time and such other
documents governing the investment of the Portfolio's assets and such
other information as is necessary for the Investment Manager to carry
out its obligations under this Agreement.
SECTION 15. Representations, Warranties and Agreements of the Investment
Manager. The Investment Manager represents, warrants and agrees that:
A. It is registered as an "Investment Adviser" under the
Investment Advisers Act.
B. It will maintain, keep current and preserve on behalf of the
Portfolio, in the manner required or permitted by the Act and the Rules
promulgated thereunder, the records identified in Schedule C (as
Schedule C may be amended from time to time). The Investment Manager
agrees that such records are the property of the Portfolio, and will be
surrendered to the Portfolio promptly upon request.
-35-
<PAGE>
C. Upon request, the Investment Manager will promptly supply the
Portfolio with any information concerning the Investment Manager and its
stockholders, employees and affiliates which the Portfolio may
reasonably require in connection with their preparation of the
registration statement, proxy material, reports, responses to
shareholder inquiries or other documents required to be filed under the
Investment Company Act, the Securities Act of 1933, as amended, or other
applicable securities laws.
D. Reference is hereby made to the Agreement and Declaration of
Trust, a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts and elsewhere as required by law, and to
any and all amendments thereto so filed or hereafter filed. The name
refers to the Trustees under said Agreement and Declaration of Trust, as
Trustees and not personally, and no Trustee, shareholder, officer, agent
or employee of the Portfolio shall be held to any personal liability
hereunder or in connection with the affairs of the Portfolio, but only
the trust estate under said Agreement and Declaration of Trust is liable
under this Agreement. Without limiting the generality of the foregoing,
neither the Investment Manager nor any of its officers, trustees,
partners, shareholders or employees shall, under any circumstances, have
recourse or cause or willingly permit recourse to be had directly or
indirectly to any personal, statutory, or other liability of any
shareholder, Trustee, officer, agent or employee of the Portfolio or of
any successor of the Portfolio, whether such liability now exists or is
hereafter incurred for claims against the trust estate, but shall look
for payment solely to said trust estate, or the assets of such successor
of the Portfolio.
SECTION 16. Amendment. This Agreement may be amended at any time, but
only by written agreement among the Investment Manager and the Portfolio, which
amendment, other than amendments to Schedules A and C, is subject to the
approval of the Trustees and the shareholders of the Portfolio as and to the
extent required by the Investment Company Act.
SECTION 17. Effective Date; Term.
A. Unless sooner terminated as provided herein, this Agreement
shall continue in effect until ________________, 2000 and shall continue
automatically for successive periods of twelve months each, provided
such continuance is specifically approved at least annually by (i) the
Portfolio's Board of Trustees or (ii) a vote of a "majority" (as defined
in the Investment Company Act) of the Portfolio's outstanding voting
securities; provided, that in either event the continuance is also
approved by a majority of the Board of Trustees who are not "interested
persons" (as defined in the Investment Company Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval. The aforesaid requirement that continuance of
this Agreement be "specifically approved at least annually" shall be
construed in a manner consistent with the Investment Company Act and the
Rules and Regulations thereunder.
B. Notwithstanding the foregoing, this Agreement may be
terminated at any time, without the payment of any penalty, by vote of
the Board or by vote of a majority of the outstanding voting securities
of the Portfolio on sixty (60) days' written notice to the Investment
Manager. The Investment Manager may terminate this Agreement at any
time, without the payment of any penalty, on sixty (60) days' notice to
the Investment Manager. This Agreement will terminate automatically in
the event of its assignment as defined in the Investment Company Act.
SECTION 18. Applicable Law. To the extent that state law is 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, this Agreement
shall be administered, construed and enforced according to the laws of the State
of Illinois.
-36-
<PAGE>
SECTION 19. Arbitration. Any disputes between the parties to this
Agreement involving the construction or application of any of the terms,
provisions, or conditions of this Agreement shall be submitted to arbitration;
provided, however, that any disputes involving the termination of this Agreement
be referred first to the Board of Trustees. The arbitration shall be conducted
in accordance with the Rules of the American Arbitration Association. The
Portfolio on the one hand, and the Investment Manager, on the other, shall each
appoint one person to hear and determine the dispute, and the two persons so
chosen shall select a third impartial arbitrator, unless the parties shall
otherwise mutually agree with respect to the selection of arbitrators. The
decision of the majority of the arbitrators so chosen (or, in the event the
parties shall agree to submit the dispute to a single arbitrator, the decision
of that arbitrator) shall be final and conclusive upon all parties.
SECTION 20. Severability. If any term or condition of this Agreement
shall be invalid or unenforceable to any extent or in any application, then the
remainder of this Agreement, and such term or condition except to such extent or
in such application, shall not be affected thereby, and each and every term and
condition of this Agreement shall be valid and enforced to the fullest extent
and in the broadest application permitted by law.
SECTION 21. Consultants. The Investment Manager may, in its discretion
in connection with the rendering of the management services required under this
Agreement, retain such consultants or other parties as it may deem appropriate
to furnish information, clerical and other services and assistance for the
benefit of the Portfolio, but any fee, compensation or expenses to be paid to
any such parties shall be paid by the Investment Manager, and no obligation
shall be incurred on the Portfolio's behalf in any such respects.
-37-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
DEVCAP TRUST
(On behalf of the DEVCAP Shared Return Fund)
By:______________________________________________________
As Trustee pursuant to an Agreement and Declaration of
Trust on file with the Secretary of The Commonwealth
of Massachusetts and not individually.
CHRISTIAN BROTHERS INVESTMENT
SERVICES, INC.
By:_____________________________________________________
Title:__________________________________________________
SCHEDULES: A. Operational Procedures
B. Fee Schedule
C. Record Keeping Requirements
<PAGE>
DEVCAP SHARED RETURN FUND
Investment Management Agreement
SCHEDULE A
----------
OPERATIONAL PROCEDURES
----------------------
In order to minimize operational problems, it will be necessary for a
flow of information to be supplied to the custodian of the Portfolio, Mellon
Trust (the "Custodian").
The Investment Manager must furnish the Custodian with daily
information as to executed trades, or, if no trades are executed, a report to
that effect, no later than 5:00 P.M. (New York Time) on the day of the trade.
The necessary information can be transmitted via facsimile machine to the
Custodian (the direct line to the machine is Attention: _______________). Upon
receipt of brokers' confirmations, the Investment Manager or the Custodian must
notify the other party if any differences exist. The reporting of trades by the
Investment Manager to the Custodian shall include the following information:
1. Purchase or sale;
2. Security name and description (see trade ticket);
3. CUSIP Number, NYSE ticker, if applicable or widely recognized
security identifier;
4. Number of shares or units and currency in which the securities
are denominated;
5. Sales price per share or unit;
6. Commission rate per share and aggregate commission or if a net
trade;
7. Executing broker and clearing bank, if any;
8. Trade date;
9. Settlement date;
10. If security is not eligible for DTC;
11. Interest purchased or sold from interest bearing security;
12. Total net amount of the transaction;
13. Exchange where sale was executed;
14. Identified tax lot;
15. Name of Portfolio and Investment Manager;
16. Location of where security is being held if other than DTC.
When opening accounts with brokers for the Portfolio, the account must
be a cash account. No margin accounts in the name of the Portfolio are to be
maintained. The broker should be advised to use the Custodian's DTC ID system
number (No.) to facilitate the receipt of information by the Custodian. In
addition, the Investment Manager should arrange to have duplicate confirmations
sent as follows:
-39-
<PAGE>
________________________________
________________________________
________________________________
________________________________
Attention:______________________
________________________________
________________________________
________________________________
________________________________
II. ALL DTC ELIGIBLE SECURITIES
Depository Trust Company (DTC)
Agent Bank Name:
Agent Bank Number:
Agent Bank Clearing Number:
Agent Bank Client Number:
III. DELIVERY INSTRUCTIONS FOR TRANSACTIONS TO BE SETTLED IN
[CITY] ARE AS FOLLOWS:
-------------------------------------------------------
ALL COMMERCIAL PAPER AND INELIGIBLE DTC SECURITIES - [CITY]
-----------------------------------------------------------
________________________________
________________________________
________________________________
________________________________
Ref: ___________________________
IV. ALL GOVERNMENT ISSUES DELIVERED THROUGH BOOK ENTRY
--------------------------------------------------
Deliver through your area Federal Reserve Bank to:
["Delivery vs. payment" in Federal Portfolios]
V. WIRE INSTRUCTIONS:
------------------
ABA #____________________________
_________________________________
Attention: ______________________
(Money amount)___________________
Text: ___________________________
Attention:_______________________
"Delivery vs. Payment" in Federal funds on Commercial Paper only and
clearinghouse funds on ineligible DTC securities.
Telephone instructions shall be provided by separate arrangement with
the Custodian.
-40-
<PAGE>
IV. DELIVERY INSTRUCTIONS FOR TRANSACTIONS TO BE SETTLED IN NEW YORK
----------------------------------------------------------------
PHYSICAL - Stocks, Corporates, Municipal issues, Government, Commercial Paper
- --------
________________________________
________________________________
________________________________
Attention: _____________________
SHIPMENTS
- ---------
All physical security shipments must be sent as follows:
REGISTERED/INSURED MAIL
- -----------------------
________________________________
________________________________
________________________________
________________________________
COURIER SERVICE
- ---------------
________________________________
________________________________
________________________________
________________________________
Each security transfer, regardless of transfer method used, must be accompanied
by a transmittal letter, in duplicate, if you require.
----------------------------
The Custodian will supply the Investment Manager daily with a cash availability
report. This will normally be done by telephone so that the Investment Manager
may know the amount available for investment purposes.
-41-
<PAGE>
DEVCAP SHARED RETURN FUND
Investment Management Agreement
SCHEDULE B
----------
INVESTMENT MANAGER FEE
----------------------
For the services provided to the Portfolio, the Portfolio will pay to
the Investment Manager a fee computed daily and payable monthly equal on an
annual basis to .25% of the Portfolio's average daily net assets. The foregoing
fee shall be pro-rated for any month during which this Agreement is in effect
for only a portion of the month.
-42-
<PAGE>
DEVCAP SHARED RETURN FUND
Investment Management Agreement
SCHEDULE C
----------
RECORDS TO BE MAINTAINED BY THE INVESTMENT MANAGER
--------------------------------------------------
2. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all
other portfolio purchases and sales, given by the Investment Manager on
behalf of the Portfolio for, or in connection with, the purchase or sale
of securities, whether executed or unexecuted. Such records shall
include:
A. The name of the broker;
B. The terms and conditions of the order and of any modifications
or cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the persons who placed the order on behalf of the
Portfolio.
3. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within
ten (10) days after the end of the quarter, showing specifically the
basis or bases upon which the allocation of orders for the purchase and
sale of portfolio securities to named brokers or dealers was effected,
and the division of brokerage commissions or other compensation on such
purchase and sale orders. Such record:
A. Shall include the consideration given to:
(i) The sale of shares of the Portfolio by brokers or dealers.
(ii) The supplying of services or benefits by brokers or dealers
to:
(a) The Portfolio,
(b) The Investment Manager (Christian Brothers Investment
Service, Inc.), and
(c) Any person other than the foregoing.
(iii) Any other consideration other than the technical
qualifications of the brokers and dealers as such.
B. Shall show the nature of the services or benefits made available.
C. Shall describe in detail the application of any general or specific
formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions
or other compensation.
D. The name of the person responsible for making the determination of
such allocation and such division of brokerage commissions or other
compensation.
-43-
<PAGE>
4. (Rule 31a-1(b)(10)) A record in the form of an appropriate memorandum
identifying the person or persons, committees or groups authorizing the
purchase or sale of portfolio securities. Where an authorization is
made by a committee or group, a record shall be kept of the names of
its members who participate in the authorization. There shall be
retained as part of this record any memorandum, recommendation or
instruction supporting or authorizing the purchase or sale of portfolio
securities and such other information as is appropriate to support the
authorization.*
5. (Rule 31a-1(f)) Such accounts, books and other documents as are
required to be maintained by registered investment managers by rule
adopted under Section 204 of the Investment Advisers Act, to the extent
such records are necessary or appropriate to record the Investment
Adviser's transactions with the Portfolio.
- --------
* Such information might include: the current Form 10-K, annual and quarterly
reports, press releases, reports by analysts and from brokerage firms
(including their recommendation: i.e., buy, sell, hold) or any internal
reports or Investment Manager reviews.
-44-
<PAGE>
APPENDIX B
INVESTMENT SUB-ADVISORY AGREEMENT
INVESTMENT SUB-ADVISORY AGREEMENT, dated as of ____________, 2000
between Christian Brothers Investment Services, Inc., a corporation organized
under the laws of the State of Illinois ("CBIS") and RhumbLine Advisers, a
__________ (the "Sub-Adviser") with respect to the DEVCAP Shared Return Fund
(the "Portfolio"), a separate, diversified portfolio of the DEVCAP Trust, a
business trust organized under the laws of the Commonwealth of Massachusetts
(the "Trust").
WHEREAS, the Trust has been organized as a Massachusetts business trust
under the laws of the Commonwealth of Massachusetts to engage in the business of
an open-end management investment company under the Investment Company Act of
1940, as amended (the "Investment Company Act"), and the shares (the "Shares")
of beneficial interest of the Trust may be divided into multiple series
("Series"), including the Portfolio as a separate, non-diversified portfolio of
the Trust;
WHEREAS, the Trust, on behalf of the Portfolio, has retained CBIS for
the purpose of making investment decisions for the Portfolio;
WHEREAS, CBIS wishes to retain the Sub-Adviser to act as investment
sub-adviser with respect to the Portfolio and to delegate to the Sub-Adviser
certain duties of CBIS under the Investment Management Agreement by and between
the Trust and CBIS;
WHEREAS, the Sub-Adviser is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"),
and desires to provide services to the Portfolio in consideration of and on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, CBIS and the Sub-Adviser agree as follows:
SECTION 1. Employment as Sub-Adviser. CBIS being duly authorized hereby
employs the Sub-Adviser as Sub-Adviser of the assets of the Portfolio, on the
terms and conditions set forth herein. The Sub-Adviser shall for all purposes
herein be deemed to be an independent contractor and shall, except as expressly
provided or authorized (whether herein or otherwise), have no authority to act
for or represent CBIS in any way or otherwise be deemed an agent of CBIS.
SECTION 2. Acceptance of Employment; Standard of Performance. The
Sub-Adviser accepts its employment as Sub-Adviser of the Portfolio's assets to
manage the investment and reinvestment of the Portfolio's assets and agrees to
use its best professional judgment to make timely investment decisions for the
Portfolio in accordance with the provisions of this Agreement and to provide the
other services set forth in Section 3 of this Agreement, subject to the general
direction of CBIS and the Board of Trustees (the "Trustees" or the "Board") and
officers of the Trust, for the period, in the manner and on the terms
hereinafter set forth.
SECTION 3. Obligation of and Services to be Provided by the
Sub-Adviser. The Sub-Adviser undertakes to provide the services hereinafter set
forth and to assume the obligations set forth below in this Section 3.
A. Portfolio Management Services. In providing portfolio management
services to the Portfolio, the Sub-Adviser shall be subject to the investment
objectives, policies and restrictions of the Portfolio (including the socially
responsible investing criteria communicated in writing to the Sub-Adviser by
CBIS from time to time) as set forth in its current prospectus and statement of
additional information (as the same may be modified from time to time), the
Trust's charter and bylaws and the investment restrictions set forth in the
Investment Company Act and the Rules thereunder (as and to the
<PAGE>
extent set forth in such registration statement or in other documentation
furnished to the Sub-Adviser by the Portfolio or CBIS), to the provisions of the
Internal Revenue Code applicable to the Trust as a regulated investment company
and to the supervision and control of the Trustees. The Sub-Adviser shall not,
without the prior approval of the Portfolio, effect any transactions that would
cause the Portfolio to be out of compliance with any of such objectives,
restrictions or policies.
B. Corporate Management Services. Subject to the supervision of the
Trustees and officers of the Trust and as reasonably requested by the officers
of the Trust or the Trustees, the Sub-Adviser shall assist the officers of the
Trust in the performance of the following services:
(1) Prepare reports relating to the business and affairs of the
Portfolio as may be mutually agreed upon and not otherwise
appropriately prepared by the Portfolio's custodian, legal
counsel or auditors;
(2) Provide such assistance to the custodian and the Trust's legal
counsel and auditors as generally may be required to properly
carry on the business and operations of the Portfolio;
(3) Refer to the Trust's officers or transfer agent, shareholder
inquiries relating to the Portfolio;
(4) Employ or provide and compensate the executive,
administrative, secretarial and clerical personnel necessary
to supervise the provision of the services set forth in
subparagraph 3(B), and shall bear the expense of providing
such services, except as may otherwise be provided in Section
8 of this Agreement.
(5) Supervise the general management and investment of the
Portfolio's assets and securities portfolio subject to and in
accordance with the investment objectives and policies of the
Portfolio and any directions which the Trustees may issue to
CBIS or the Sub-Adviser from time to time; and
C. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials.
The Sub-Adviser will make available and provide financial,
accounting and statistical information concerning the
Sub-Adviser required by the Portfolio in the preparation of
registration statements, reports and other documents required
by federal and state securities laws, and such other
information as the Portfolio may reasonably request for use in
the preparation of such documents or of other materials
necessary or helpful for the distribution of the Portfolio's
Shares.
D. Other Obligations and Services.
(1) The Sub-Adviser shall make available its officers and
employees to the Trustees and officers of the Portfolio
and to the employees of the Investment Manager for
consultation and discussions regarding the
administration and management of the Portfolio and its
investment activities.
(2) The Sub-Adviser will adopt a written code of ethics
complying with the requirements of Rule 17j1 under the
Investment Company Act (which may be the Portfolio's
code of ethics) and will provide the Portfolio with
evidence of its adoption. Within forty-five (45) days
of the end of the last calendar quarter of each year
while this Agreement is in effect, the President or a
Vice President of the Sub-Adviser shall certify to the
Portfolio that the Sub-Adviser has complied with the
requirements of Rule 17j-1 during the previous year and
that there has been no
-46-
<PAGE>
violation of the code of ethics or, if such a
violation has occurred, that appropriate action was
taken in response to such violation. Upon the written
request of the Portfolio, the Sub-Adviser shall
permit the Portfolio, its employees or its agents to
examine the reports required to be made by the
Sub-Adviser by Rule 17j1(c)(1).
(3) Not later than the 10th day of each month, the
Sub-Adviser shall deliver a written report to CBIS
relating to compliance and other matters affecting the
Portfolio and the Sub-Adviser during the immediately
preceding month (the "Monthly Report"). The Monthly
Report shall be in such form reasonably prescribed from
time to time by CBIS. The Monthly Report shall include
without limitation the following: a statement
indicating whether or not the investment policies or
limitations applicable to the Portfolio were violated;
a statement indicating whether or not the Sub-Adviser
caused or has knowledge of any violation of law or
regulation applicable to the Portfolio; a statement
describing fully the facts and circumstances relating
to any violations described in the preceding sentences;
a statement of the steps taken by the Sub-Adviser to
cure any such violations; a statement of the steps
taken by the Sub-Adviser to reasonably assure that any
such violation shall not occur in the future; a
statement indicating whether or not the sub-adviser or
any of its employees is the subject of, or aware of,
any investigation or other preceding related to the
Sub-Adviser or any of its employees by any federal or
state entity or self regulatory organization having
jurisdiction over the Sub-Adviser; and a statement
indicating whether or not the sub-adviser is in
compliance with all laws and regulations material to
the conduct of its business. The Monthly Report shall
also include a description of the Sub-Adviser's
policies and practices relating to best execution,
trade allocation, bunched or batch trading, soft
dollars, payment for order flow, personal trading and
principle trading.
SECTION 4. Transaction Procedures. All portfolio transactions for the
Portfolio will be consummated by payment to or delivery by the custodian of the
Portfolio, Mellon Trust (the "Custodian"), or such depositories or agents as may
be designated by the Custodian in writing, as custodian for the Portfolio, of
all cash and/or securities due to or from the Portfolio, and the Sub-Adviser
shall not have possession or custody thereof or any responsibility or liability
with respect to such custody. The Sub-Adviser shall advise and confirm in
writing to the Custodian all investment orders for the Portfolio placed by it
with brokers and dealers at the time and in the manner set forth in Schedule A
hereto (as amended from time to time). The Portfolio shall issue to the
Custodian such instructions as may be appropriate in connection with the
settlement of any transaction initiated by the Sub-Adviser.
SECTION 5. Allocation of Brokerage. The Sub-Adviser shall have
authority and discretion to select brokers and dealers to execute portfolio
transactions initiated by the Sub-Adviser, and to select the markets on or in
which the transactions will be executed. The Sub-Adviser will render regular
reports to the Portfolio of the total brokerage business placed on behalf of the
Portfolio by the Sub-Adviser and the manner in which such brokerage business has
been allocated.
A. In doing so, the Sub-Adviser's primary responsibility shall
be to seek to obtain best net price and execution for the Portfolio.
However, this responsibility shall not obligate the Sub-Adviser to
solicit competitive bids for each transaction or to seek the lowest
available commission cost to the Portfolio, so long as the Sub-Adviser
-47-
<PAGE>
reasonably believes that the broker or dealer selected by it can be
expected to obtain a "best execution" market price on the particular
transaction and determines in good faith that the commission cost is
reasonable in relation to the value of the brokerage and research
services (as defined in Section 28(e)(3) of the Securities Exchange Act
of 1934, as amended), provided by such broker or dealer to the
Sub-Adviser viewed in terms of either that particular transaction or of
the Sub-Adviser's overall responsibilities with respect to its clients,
including the Portfolio, as to which the Sub-Adviser exercises
investment discretion, notwithstanding that the Portfolio may not be
the direct or exclusive beneficiary of any such services or that
another broker may be willing to charge the Portfolio a lower
commission on the particular transaction.
B. The Sub-Adviser shall not execute any portfolio
transactions for the Portfolio with a broker or dealer which is an
"affiliated person" (as defined in the Investment Company Act) of the
Portfolio or the Sub-Adviser of the Portfolio without the prior written
approval of the Portfolio. The Portfolio will provide the Sub-Adviser
with a list of brokers and dealers which are "affiliated persons" of
the Portfolio.
SECTION 6. Proxies. The Sub-Adviser shall not vote any proxies
solicited by or with respect to the issuers of securities in which assets of the
Portfolio may be invested from time to time.
SECTION 7. Fees for Services.
The compensation of the Sub-Adviser for its services under this
Agreement shall be calculated and paid by CBIS in accordance with the attached
Schedule B.
SECTION 8. Expenses of the Portfolio. It is understood that the
Portfolio will pay all its expenses other than those expressly assumed by the
Sub-Adviser herein, which expenses payable by the Portfolio shall include:
A. Auditing and accounting fees and expenses;
B. Fees and expenses for transfer agent, registrar,
dividend disbursing agent and shareholder recordkeeping
services (including reasonable fees and expenses payable
to the Sub-Adviser for such services);
C. Fees and expenses of the custodian of the Trust's
assets, including expenses incurred in performing fund
accounting and recordkeeping services provided by the
custodian;
D. Expenses of obtaining quotations for calculating the
value of the Portfolio's net assets;
E. Salaries and other compensation of any of its executive
officers and employees who are not officers, directors,
stockholders or employees of the Sub-Adviser or any of
its affiliates;
F. Taxes and governmental fees levied against the Portfolio
and the expenses of preparing tax returns and reports;
G. Brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for the
Portfolio;
H. Organizational expenses of the Portfolio;
I. Costs, including the interest expense, of borrowing
money;
-48-
<PAGE>
J. Costs and/or fees incident to Trustee and shareholder
meetings of the Portfolio, the preparation and mailings
of proxy material, prospectuses and reports of the
Portfolio to its shareholders, the filing of reports
with regulatory bodies, the maintenance of the
Portfolio's legal existence, membership dues and fees
of investment company industry trade associations, and
the registration of Shares with federal and state
securities authorities;
K. Legal fees and expenses (including reasonable fees for
legal services rendered by the Sub-Adviser or its
affiliates), including the legal fees related to the
registration and continued qualification of the
Portfolio's Shares for sale (and of maintaining the
registration of the fund);
L. Costs of printing stock certificates, if any,
representing Shares of the Portfolio or any other
expenses, including clerical expenses of issue,
redemption, or repurchase of Shares of the Portfolio;
M. Trustees' fees and expenses of Trustees who are not
directors, officers, employees or stockholders of the
Sub-Adviser or any of its affiliates;
N. Its pro rata portion of the fidelity bond required by
Section 17(g) of the Investment Company Act, or other
insurance premiums;
O. Fees payable to federal and state authorities in
connection with the registration of the Portfolio's
Shares.
P. Litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary
course of the business of the Portfolio or the Trust.
SECTION 9. Other Investment Activities of Sub-Adviser and Affiliates of
Sub-Adviser.
A. The Sub-Adviser or one or more of its affiliates has
investment responsibilities, renders investment advice
to and performs other investment advisory services for
other clients ("Client Accounts"), and the Sub-Adviser,
its affiliates or any of its or their directors,
officers, agents or employees may buy, sell or trade in
any securities for its or their respective accounts
("Affiliated Accounts"). Subject to the provisions of
Sections 2 and 3 hereof, the Sub-Adviser or its
affiliates may give advice or execute investment
responsibility and take such other action with respect
to other Client Accounts and Affiliated Accounts which
may differ from the advice given or the timing or nature
of action taken with respect to the Portfolio; provided
that the Sub-Adviser acts in good faith; provided,
further, that it is the Sub-Adviser's policy to
allocate, within its reasonable discretion, investment
opportunities to the Portfolio over a period of time on
a fair and equitable basis relative to the Client
Accounts and the Affiliated Accounts, taking into
account the cash position and the investment objectives
and policies of the Portfolio and any specific
investment restrictions applicable thereto. One or more
Client Accounts and Affiliated Accounts may at any time
hold, acquire, increase, decrease, dispose of or
otherwise deal with positions in investments in which
the Portfolio may have an interest from time to time,
whether in transactions which involve the Portfolio or
otherwise. The Sub-Adviser shall have no obligation to
acquire for the Portfolio a position in any investment
which any Client Account or Affiliated Account may
acquire, and the Portfolio shall have no first refusal,
coinvestment or other rights in respect of any such
investment, either for the Portfolio or otherwise.
-49-
<PAGE>
B. Subject to and in accordance with the Agreement and
Declaration of Trust and ByLaws of the Trust and to
Section 10(a) of the Investment Company Act, it is
understood that Trustees, officers, agents and
shareholders of the Portfolio are or may be interested
in the Sub-Adviser or its affiliates as directors,
officers, agents or stockholders of the Sub-Adviser or
its affiliates; that directors, officers, agents and
stockholders of the Sub-Adviser or its affiliates are or
may be interested in the Portfolio as trustees,
officers, agents, shareholders or otherwise; that the
Sub-Adviser or its affiliates may be interested in the
Portfolio as shareholders or otherwise; and that the
effect of any such interests shall be governed by said
Agreement and Declaration of Trust, By-Laws and the
Investment Company Act.
C. The services of the Sub-Adviser to the Portfolio
hereunder are not to be deemed exclusive, and the
Sub-Adviser and any of its affiliates shall be free to
render similar services to others. The Sub-Adviser shall
not be obligated to give the Portfolio more favorable
or preferential treatment vis-a-vis its other clients.
SECTION 10. No Personal Liability. Reference is hereby made to the
Agreement and Declaration of Trust dated June 29, 1995 establishing the Trust,
as amended September 15, 1995, a copy of which has been filed with the Secretary
of the Commonwealth of Massachusetts and elsewhere as required by law, and to
any and all amendments thereto so filed or hereafter filed. No Trustee,
shareholder, officer, agent or employee of the Trust or the Portfolio shall be
held to any personal liability hereunder or in connection with the affairs of
the Portfolio or the Trust. Only the trust estate under said Agreement and
Declaration of Trust is liable under this Agreement. Without limiting the
generality of the foregoing, neither the Sub-Adviser nor any of its officers,
directors, shareholders or employees shall, under any circumstances, have
recourse or cause or willingly permit recourse to be had directly or indirectly
to any personal, statutory, or other liability of any shareholder, Trustee,
officer, agent or employee of the Trust or the Portfolio or of any successor of
the Trust or the Portfolio, whether such liability now exists or is hereafter
incurred for claims against the trust estate, but shall look for payment solely
to said trust estate, or the assets of such successor of the Portfolio.
SECTION 11. Limitation of Liability.
A. The Sub-Adviser shall not be liable for any action taken,
omitted or suffered to be taken by it in its reasonable judgment, in
good faith and believed by it to be authorized or within the discretion
or rights or powers conferred upon it by this Agreement, or in
accordance with (or in the absence of) specific directions or
instructions from the Portfolio or the Sub-Adviser; provided, however,
that such acts or omissions shall not have resulted from the
Sub-Adviser's willful misfeasance, bad faith, gross negligence, a
violation of the standard of care established by and applicable to the
Sub-Adviser in its actions under this Agreement or reckless disregard
of its obligations and duties hereunder.
B. No provision of this agreement shall be construed to
protect the Sub-Adviser from liability in violation of Section 17(i) of
the Investment Company Act.
SECTION 12. Confidentiality. Subject to the duty of CBIS, the
Sub-Adviser and the Portfolio to comply with applicable law, including any
demand of any regulatory or taxing authority having jurisdiction, the parties
hereto shall treat as confidential all information pertaining to the Portfolio
and the actions of CBIS, the Sub-Adviser and the Portfolio in respect thereof.
-50-
<PAGE>
SECTION 13. Assignment. This Agreement shall terminate automatically in
the event of its assignment, as that term is defined in Section 2(a)(4) of the
Investment Company Act. The Sub-Adviser shall notify the Portfolio in writing
sufficiently in advance of any proposed change of control, as defined in Section
2(a)(9) of the Investment Company Act, as will enable the Portfolio to consider
whether an assignment as defined in Section 2(a)(4) of the Investment Company
Act will occur, and whether to take the steps necessary to enter into a new
contract with the Sub-Adviser. The Sub-Adviser shall notify the Portfolio of any
change in the membership of the Sub-Adviser within a reasonable time after such
change.
SECTION 14. Representations, Warranties and Agreements of CBIS. CBIS
represents, warrants and agrees that:
A. CBIS has been duly appointed to provide investment services
to the Portfolio as contemplated hereby.
B. CBIS will deliver to the Sub-Adviser a true and complete
copy of the then current prospectus and statement of additional
information of the Portfolio as effective from time to time and such
other documents governing the investment of the Portfolio's assets
and such other information as is necessary for the Sub-Adviser to
carry out its obligations under this Agreement.
SECTION 15. Representations, Warranties and Agreements of the
Sub-Adviser. The Sub-Adviser represents, warrants and agrees that:
A. It is registered as an "Investment Adviser" under the
Investment Advisers Act.
B. It will maintain, keep current and preserve on behalf of
the Investment Manager and the Portfolio, in the manner required or
permitted by the Act and the Rules promulgated thereunder, the records
identified in Schedule C (as Schedule C may be amended from time to
time). The Sub-Adviser agrees that such records are the property of the
Investment Manager and the Portfolio, and will be surrendered to the
Investment Manager or the Portfolio promptly upon request.
C. Upon request, the Sub-Adviser will promptly supply the
Investment Manager and the Portfolio with any information concerning
the Sub-Adviser and its stockholders, employees and affiliates which
the Investment Manager or the Portfolio may reasonably require in
connection with their preparation of the registration statement, proxy
material, reports, responses to shareholder inquiries or other
documents required to be filed under the Investment Company Act, the
Securities Act of 1933, as amended, or other applicable securities
laws.
D. Reference is hereby made to the Agreement and Declaration
of Trust, a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts and elsewhere as required by law, and to
any and all amendments thereto so filed or hereafter filed. The name
refers to the Trustees under said Agreement and Declaration of Trust,
as Trustees and not personally, and no Trustee, shareholder, officer,
agent or employee of the Portfolio shall be held to any personal
liability hereunder or in connection with the affairs of the Portfolio,
but only the trust estate under said Agreement and Declaration of Trust
is liable under this Agreement. Without limiting the generality of the
foregoing, neither the Sub-Adviser nor any of its officers, trustees,
partners, shareholders or employees shall, under any circumstances,
have recourse or cause or willingly permit recourse to be had directly
or indirectly to any personal, statutory, or other liability of any
shareholder, Trustee, officer, agent or employee of the Portfolio or of
any successor of the Portfolio, whether such liability now exists or is
hereafter incurred for claims against the trust estate, but shall look
for payment solely to said trust estate, or the assets of such
successor of the Portfolio.
SECTION 16. Amendment. This Agreement may be amended at any time, but
only by written agreement between CBIS and the Sub-Adviser, which amendment,
other than amendments to Schedules A and C, is subject to the approval of the
Trustees and the shareholders of the Portfolio as and to the extent required by
the Investment Company Act.
-51-
<PAGE>
SECTION 17. Effective Date; Term.
A. Unless sooner terminated as provided herein, this Agreement
shall continue in effect until ________________, 2000 and shall
continue automatically for successive periods of twelve months each,
provided such continuance is specifically approved at least annually by
(i) the Portfolio's Board of Trustees or (ii) a vote of a "majority"
(as defined in the Investment Company Act) of the Portfolio's
outstanding voting securities; provided, that in either event the
continuance is also approved by a majority of the Board of Trustees who
are not "interested persons" (as defined in the Investment Company Act)
of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. The aforesaid
requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent
with the Investment Company Act and the Rules and Regulations
thereunder.
B. Notwithstanding the foregoing, this Agreement may be
terminated at any time, without the payment of any penalty, by vote
of the Board or by vote of a majority of the outstanding voting
securities of the Portfolio on sixty (60) days' written notice to
the Sub-Adviser. CBIS may terminate this Agreement at any time,
without the payment of any penalty, on sixty (60) days' written
notice to the Trustees and the Sub-Advisers. The Sub-Adviser may
terminate this Agreement at any time, without the payment of any
penalty, on ninety (90) days' notice to CBIS. This Agreement will
terminate automatically in the event of its assignment as defined in
the Investment Company Act.
SECTION 18. Applicable Law. To the extent that state law is 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, this Agreement
shall be administered, construed and enforced according to the laws of the State
of Illinois.
SECTION 19. Arbitration. Any disputes between CBIS and the Sub-Adviser
involving the construction or application of any of the terms, provisions, or
conditions of this Agreement shall be submitted to arbitration; provided,
however, that any disputes involving the termination of this Agreement be
referred first to the Board of Trustees. The arbitration shall be conducted in
accordance with the Rules of the American Arbitration Association. CBIS, on the
one hand, and the Sub-Adviser, on the other, shall each appoint one person to
hear and determine the dispute, and the two persons so chosen shall select a
third impartial arbitrator, unless the parties shall otherwise mutually agree
with respect to the selection of arbitrators. The decision of the majority of
the arbitrators so chosen (or, in the event the parties shall agree to submit
the dispute to a single arbitrator, the decision of that arbitrator) shall be
final and conclusive upon all parties.
SECTION 20. Severability. If any term or condition of this Agreement
shall be invalid or unenforceable to any extent or in any application, then the
remainder of this Agreement, and such term or condition except to such extent or
in such application, shall not be affected thereby, and each and every term and
condition of this Agreement shall be valid and enforced to the fullest extent
and in the broadest application permitted by law.
SECTION 21. Consultants. The Sub-Adviser may, in its discretion in
connection with the rendering of the management services required under this
Agreement, retain such consultants or other parties as it may deem appropriate
to furnish information, clerical and other services and assistance for the
benefit of the Portfolio, but any fee, compensation or expenses to be paid to
any such parties shall be paid by the Sub-Adviser, and no obligation shall be
incurred on the Portfolio's behalf in any such respects.
-52-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
RHUMBLINE ADVISERS
By:________________________________
Title:_____________________________
CHRISTIAN BROTHERS INVESTMENT
SERVICES, INC.
By:________________________________
Title:_____________________________
SCHEDULES: A. Operational Procedures
B. Fee Schedule
C. Record Keeping Requirements
-53-
<PAGE>
DEVCAP SHARED RETURN FUND
Investment Sub-Advisory Agreement
SCHEDULE A
----------
OPERATIONAL PROCEDURES
----------------------
In order to minimize operational problems, it will be necessary for a
flow of information to be supplied to the custodian of the Portfolio, Mellon
Trust (the "Custodian").
The Sub-Adviser must furnish the Custodian with daily information as to
executed trades, or, if no trades are executed, a report to that effect, no
later than 5:00 P.M. (New York Time) on the day of the trade. The necessary
information can be transmitted via facsimile machine to the Custodian (the
direct line to the machine is Attention: _______________). Upon receipt of
brokers' confirmations, the Sub-Adviser or the Custodian must notify the other
party if any differences exist. The reporting of trades by the Sub-Adviser to
the Custodian shall include the following information:
1. Purchase or sale;
2. Security name and description (see trade ticket);
3. CUSIP Number, NYSE ticker, if applicable or widely recognized
security identifier;
4. Number of shares or units and currency in which the securities
are denominated;
5. Sales price per share or unit;
6. Commission rate per share and aggregate commission or if a net
trade;
7. Executing broker and clearing bank, if any;
8. Trade date;
9. Settlement date;
10. If security is not eligible for DTC;
11. Interest purchased or sold from interest bearing security;
12. Total net amount of the transaction;
13. Exchange where sale was executed;
14. Identified tax lot;
15. Name of Portfolio and Sub-Adviser;
16. Location of where security is being held if other than DTC.
When opening accounts with brokers for the Portfolio, the account must
be a cash account. No margin accounts in the name of the Portfolio are to be
maintained. The broker should be advised to use the Custodian's DTC ID system
number (No.) to facilitate the receipt of information by the Custodian. In
addition, the Sub-Adviser should arrange to have duplicate confirmations sent as
follows:
-54-
<PAGE>
_________________________
_________________________
_________________________
_________________________
Attention:_______________
_________________________
_________________________
_________________________
_________________________
II. ALL DTC ELIGIBLE SECURITIES
---------------------------
Depository Trust Company (DTC)
Agent Bank Name:
Agent Bank Number:
Agent Bank Clearing Number:
Agent Bank Client Number:
II. DELIVERY INSTRUCTIONS FOR TRANSACTIONS TO BE SETTLED IN
[CITY] ARE AS FOLLOWS:
ALL COMMERCIAL PAPER AND INELIGIBLE DTC SECURITIES - [CITY]
-----------------------------------------------------------
_________________________
_________________________
_________________________
_________________________
Ref:_____________________
IV. ALL GOVERNMENT ISSUES DELIVERED THROUGH BOOK ENTRY
--------------------------------------------------
Deliver through your area Federal Reserve Bank to:
["Delivery vs. payment" in Federal Portfolios]
V. WIRE INSTRUCTIONS:
ABA #__________________________
______________________________________
Attention:____________________________
(Money amount)________________________
Text:_________________________________
Attention:____________________________
"Delivery vs. Payment" in Federal funds on Commercial Paper only and
clearinghouse funds on ineligible DTC securities.
Telephone instructions shall be provided by separate arrangement with
the Custodian.
-55-
<PAGE>
VI. DELIVERY INSTRUCTIONS FOR TRANSACTIONS TO BE SETTLED IN NEW YORK
----------------------------------------------------------------
PHYSICAL - Stocks, Corporates, Municipal issues, Government,
-------- Commercial Paper
_______________________________
_______________________________
_______________________________
_______________________________
Attention:_____________________
SHIPMENTS
----------
All physical security shipments must be sent as follows:
REGISTERED/INSURED MAIL
-----------------------
_______________________________
_______________________________
_______________________________
_______________________________
COURIER SERVICE
---------------
_______________________________
_______________________________
_______________________________
_______________________________
Each security transfer, regardless of transfer method used, must be accompanied
by a transmittal letter, in duplicate, if you require.
----------------------
The Custodian will supply the Sub-Adviser daily with a cash availability report.
This will normally be done by telephone so that the Sub-Adviser may know the
amount available for investment purposes.
-56-
<PAGE>
DEVCAP SHARED RETURN FUND
Investment Sub-Advisory Agreement
SCHEDULE B
SUB-ADVISER FEE
For the services provided to CBIS under this Agreement, CBIS will pay
to the Sub-Adviser a quarterly fee computed as follows.
Aggregate amount of
assets managed by RhumbLine
as sub-adviser for all CBIS
clients (including the Portfolio)
under any Agreement between
CBIS and RhumbLine Fee
--------------------------------- -----------------
First $25 million .07%
Next $25 million .06%
Next $50 million .05%
Next $50 million .04%
Excess .0375%
The Sub-Adviser shall furnish to CBIS a statement for the aggregate fee
payable under this Agreement and any other sub-advisory agreement by and between
CBIS and the Sub-Adviser for each quarter during which services are performed by
the Sub-Adviser prior to the end of such quarter. Such statement shall include
the value of the aggregate assets that determines the applicable rate at which
such fee is payable and show the calculation by which such fee is determined.
CBIS shall pay to the Sub-Adviser the amount payable pursuant to any such
statement not later than the last day of the quarter following the quarter
during which the services for the payment of which the fee is payable were
rendered.
-57-
<PAGE>
DEVCAP SHARED RETURN FUND
Investment Sub-Advisory Agreement
SCHEDULE C
----------
RECORDS TO BE MAINTAINED BY THE SUB-ADVISER
-------------------------------------------
1. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all other
portfolio purchases and sales, given by the Sub-Adviser on behalf of the
Portfolio for, or in connection with, the purchase or sale of securities,
whether executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any modifications or
cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the persons who placed the order on behalf of the
Portfolio.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within ten
(10) days after the end of the quarter, showing specifically the basis or
bases upon which the allocation of orders for the purchase and sale of
portfolio securities to named brokers or dealers was effected, and the
division of brokerage commissions or other compensation on such purchase
and sale orders. Such record:
A. Shall include the consideration given to:
(i) The sale of shares of the Portfolio by brokers or dealers.
(ii) The supplying of services or benefits by brokers or dealers to:
(a) The Portfolio,
(b) The Sub-Adviser (RhumbLine Advisers), and
(c) Any person other than the foregoing.
(iii) Any other consideration other than the technical qualifications
of the brokers and dealers as such.
B. Shall show the nature of the services or benefits made available.
C. Shall describe in detail the application of any general or specific
formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions or
other compensation.
D. The name of the person responsible for making the determination of such
allocation and such division of brokerage commissions or other
compensation.
-58-
<PAGE>
3. (Rule 31a-1(b)(10)) A record in the form of an appropriate memorandum
identifying the person or persons, committees or groups authorizing the
purchase or sale of portfolio securities. Where an authorization is made by
a committee or group, a record shall be kept of the names of its members
who participate in the authorization. There shall be retained as part of
this record any memorandum, recommendation or instruction supporting or
authorizing the purchase or sale of portfolio securities and such other
information as is appropriate to support the authorization.*
4. (Rule 31a-1(f)) Such accounts, books and other documents as are required to
be maintained by registered Sub-Advisers by rule adopted under Section 204
of the Investment Advisers Act, to the extent such records are necessary or
appropriate to record the Investment Adviser's transactions with the
Portfolio.
- --------
* Such information might include: the current Form 10-K, annual and quarterly
reports, press releases, reports by analysts and from brokerage firms
(including their recommendation: i.e., buy, sell, hold) or any internal
reports or Investment Manager reviews.
-59-
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
<TABLE>
<CAPTION>
DEVCAP SHARED RETURN FUND OF PROXY FOR A SPECIAL THEUNDERSIGNED HEREBY APPOINTS JOSEPH N. ST. CLAIR
DEVCAP TRUST MEETING OF SHARE- AND GILBERT H. CRAWFORD AS PROXIES OF THE
HOLDERS TO BE HELD ON UNDERSIGNED, WITH FULLPOWER OF SUBSTITUTION, TO VOTE
February 17, 2000 ALL SHARES OF BENEFICIALINTEREST OF DEVCAP SHARED PLAN FUND
(THE "FUND") OF DEVCAP TRUST(THE "TRUST") AUTHORIZED TO BE
REPRESENTED BY PROXY. THE UNDERSIGNED IS ENTITLED TO VOTE AT
THE SPECIAL MEETING OF SHAREHOLDERS OF THE FUND TO BE HELD AT
209 WEST FAYETTE STREET, BALTIMORE, MARYLAND 21201, AT
9:00 A.M., EASTERN STANDARD TIME, OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF, WITH ALL THE POWERS THE UNDERSIGNED
WOULD HAVE IF PERSONALLY PRESENT ON THE FOLLOWING MATTERS:
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 1. CHANGING THE FUND'S INVESTMENT OBJECTIVE.
[ ] [ ] [ ] 2. APPROVAL OF AN INVESTMENT MANAGEMENT AGREEMENT BETWEEN CHRISTIAN BROTHERS INVESTMENT
SERVICES, INC. ("CBIS") AND THE FUND.
[ ] [ ] [ ] 3. APPROVAL OF A SUB-ADVISORY AGREEMENT BETWEEN CBIS AND RHUMBLINE ADVISERS.
4. AMENDING THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS.
[ ] [ ] [ ] a. TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION RELATING TO BORROWING.
[ ] [ ] [ ] b. TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION RELATING TO PURCHASING SECURITIES
ON MARGIN.
[ ] [ ] [ ] c. TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION RELATING TO PUTS, CALLS AND WARRANTS.
[ ] [ ] [ ] d. TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION RELATING TO UNDERWRITING SECURITIES.
[ ] [ ] [ ] e. TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION RELATING TO LENDING.
[ ] [ ] [ ] f. TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION RELATING TO INVESTING IN SECURITIES
SUBJECT TO RESTRICTIONS ON RESALE.
[ ] [ ] [ ] g. TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION RELATING TO THE PURCHASE OR SALE OF
REAL ESTATE, INTERESTS IN OIL, GAS OR OTHER MINERAL LEASES, OR COMMODITIES OR
COMMODITIES CONTRACTS.
[ ] [ ] [ ] h. TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION RELATING TO SHORT SALES.
[ ] [ ] [ ] i. TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION RELATING TO DIVERSIFICATION.
[ ] [ ] [ ] j. TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION RELATING TO CONCENTRATION.
[ ] [ ] [ ] 5. ELECTION OF NOMINEES OF THE BOARD OF TRUSTEES, NAMED BELOW, TO THE BOARD OF TRUSTEES TO
SERVE UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED. THE UNDERSIGNED
MAY WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE BY MARKING THE 'AGAINST' BOX FOR SUCH
NOMINEE.
[ ] STEVEN D. CASHIN
[ ] GILBERT H. CRAWFORD
[ ] DONALD CARCIERI
[ ] EDWARD J. VEILLEUX
[ ] TIMOTHY J. JOYCE
[ ] DONALD S. HOUSTON
[ ] [ ] [ ] 6. RATIFICATION OF THE SELECTION OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS OF THE FUND.
[ ] [ ] [ ] 7. IN THEIR DISCRETION, THE ABOVE-NAMED PROXIES ARE AUTHORIZED TO VOTE IN ACCORDANCE WITH
THEIR OWN JUDGMENT UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING
OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF A COPY OF THE ACCOMPANYING NOTICE OF SPECIAL
MEETING OF SHAREHOLDERS AND PROXY STATEMENT.
DATED: _________________, 2000
---------------------------------------------
---------------------------------------------
PLEASE COMPLETE, DATE AND SIGN EXACTLY AS YOUR NAME
APPEARS HEREON. WHEN SIGNING AS ATTORNEY,
ADMINISTRATOR, EXECUTOR, GUARDIAN, TRUSTEE OR
CORPORATE OFFICER, PLEASE ADD YOUR TITLE IF SHARES
ARE HELD JOINTLY, EACH HOLDER SHOULD SIGN.
</TABLE>
<PAGE>
January 7, 2000
Dear Shareholder:
You are invited to attend a Special Meeting of Shareholders of DEVCAP
Shared Return Fund (the "Fund"), a series of DEVCAP Trust (the "Trust"), to be
held on February 17, 2000 at 9:00 a.m., New York time, at the offices of the
Fund, 209 West Fayette Street, Baltimore, Maryland 21201. At this Meeting, you
will be asked to consider and approve the proposals summarized below.
1. To change the Fund's investment objective.
As described in the Proxy Statement, the Fund currently participates in
a master-feeder structure, pursuant to which the Fund invests all of its assets
in a separate portfolio of securities. The Board of Trustees has determined that
the Fund's participation in the master-feeder structure would no longer be in
the best interests of the Fund or its shareholders. Shareholder approval of the
proposal to change the Fund's investment objective has the effect of making the
Fund a "stand alone" fund. As a stand alone fund, the Fund would be able to
directly invest its assets in securities in accordance with its investment
objective rather than investing its assets in shares of the Portfolio. Most
traditional mutual funds operate as stand alone funds.
Currently, the Fund's investment objective is to achieve long-term
total return which matches the performance of the Domini 400 Social Index,(sm) a
common stock index comprised of the stocks of approximately 400 U.S. companies
chosen for their corporate and social responsibility, as well as their financial
performance. If the proposal is approved, the Fund's new investment objective
would be to achieve long-term total return by attempting to match the total
return of the Standard & Poor's(R) Composite Stock Price Index in accordance
with socially responsible investment practices. The Board of Trustees has
approved, and recommends that shareholders approve the proposal to change the
Fund's investment objective.
2. To approve or disapprove an Investment Management Agreement between Christian
Brothers Investment Services, Inc. ("CBIS") and the Fund.
The Fund's assets are currently managed as part of the portfolio by the
portfolio's investment manager, Domini Social Investments, LLC, pursuant to an
investment management agreement between the portfolio and Domini. The Fund has
not entered into an investment management agreement and currently does not
itself retain an investment manager to manage the investment of the Fund's
assets. The Board of Trustees has approved, and recommends that shareholders
approve a proposal to adopt an Investment Management Agreement between the Fund
and CBIS, the Fund's prospective investment manager.
1
<PAGE>
3. To approve or disapprove a Sub-Advisory Agreement between CBIS and RhumbLine
Advisers.
The Board of Trustees has approved, and recommends that shareholders
approve a proposal to adopt a Sub-Advisory Agreement between CBIS and RhumbLine,
the Fund's prospective sub-adviser.
4. To amend the Fund's Fundamental Investment Restrictions.
The Investment Company Act of 1940 prescribes certain restrictions on
to how a fund may invest its assets. The Fund's amended Fundamental Investment
Restrictions, which are described in the Proxy Statement, are substantially
similar to the Fund's current Fundamental Investment Restrictions. The Fund's
Fundamental Investment Restrictions have been amended primarily to clarify and
update the Fund's current Fundamental Investment Restrictions. In general, the
amended Fundamental Investment Restrictions remove any references to the
"Portfolio," as the Fund will no longer invest its assets in the Portfolio. In
addition, the amendments to the Fundamental Investment Restrictions remove
various limitations that applied to the Portfolio that will be inapplicable to
the Fund. The Board of Trustees has approved, and recommends that the
shareholders of the Fund approve the proposal to amend the Fund's Fundamental
Investment Restrictions.
5. To elect six (6) trustees of the Trust to serve until their
successors are duly elected and qualified.
To purpose of this proposal is to elect a Board of Trustees to the
Trust. Information pertaining to the nominees for election to the Board of
Trustees is set forth in the Proxy Statement.
6. To ratify the selection of KPMG LLP as
independent public accountants of the Fund.
The Board of Trustees has selected KPMG LLP as independent public
accountants for the Fund through the fiscal year ended July 31, 2000. KPMG LLP
has served as independent public accountants for the Fund since it commenced
operations. The selection is being submitted for ratification or rejection by
the shareholders.
7. To transact such other business as may be properly brought before the
Meeting or any adjournments thereof.
The Trustees do not know of any matters to be presented at the Meeting
other than those set forth in the Proxy Statement.
2
<PAGE>
We welcome your attendance at the Special Meeting. If you are unable to
attend, please sign, date and return the enclosed proxy card promptly in order
to spare additional proxy solicitation expenses.
Sincerely,
Joseph N. St. Clair
President
DEVCAP Trust
3
