When it comes to selecting an investment adviser to manage the diminutive but fiercely independent Investors Research Fund of Santa Barbara, Calif., the board of directors takes its job very seriously.

Since 1994, the stand-alone broker-sold fund, which claims no ties to any bank, brokerage or mutual fund advisory firm, has had three different investment management firms and one sub-advisory firm managing its assets.

In the latest upheaval, the fund's board of directors fired Fox Asset Management of Little Silver, N.J., adviser to the fund since June 1998, and approved Westcap Investors as the new interim fund manager, effective April 1, 1999. Shareholders, by proxy, approved Westcap as the fund's new permanent adviser at a meeting July 29. Westcap, a seven-year-old, Los Angeles-based investment advisory firm, currently manages $1.4 billion, primarily for high-net-worth and institutional clients. This will be the first mutual fund it will have managed.

According to SEC filings, a reorganization this past fall within Fox, which included the departure of several key investment management employees, was one factor which led to the decision to look for a new investment adviser for the fund. Moreover, Fox, a resolute value fund manager, while it initially commanded support for its adherence to its investment style, ultimately lost its backing in an investment environment that favored growth investments, said J. Peter Skirkanich, president of Fox.

"The fund's board of directors was not satisfied with the investment performance of Fox..." said the fund's public filing. In a March 1999 letter sent on behalf of the fund to Fox, the fund president noted the fund's alarming shrinking share price and fund assets, and reminded Fox that it desired a more formal plan of action to market the fund.

But, Skirkanich said that performance was never an issue in Investors Research Fund's decision to sever the management agreement with Fox Asset Management.

"They told us our performance was good," he said. Although reorganization took place at Fox that spun off a separate marketing division from the firm's investment management unit, the internal changes had no effect on the firm's management of the fund, Skirkanich said.

"They wanted a manager who could do marketing," Skirkanich said. "Problems with marketing the fund had nothing to do with performance." Fox had agreed to do some marketing for the fund but there was no formal agreement that it would do so, Skirkanich said. Fox never did marketing for the fund because of discord over the placing of Fox executives on the fund board, according to Skirkanich.

Fox manages $2 billion for a variety of institutional and individual investors and is now the investment manager for a new series fund offering from The Timothy Plan. Fox has also been chosen to manage a Viking Series Fund beginning this month.

For long-time shareholders of Investors Research Fund, the swapping of investment managers is a case of deja` vu. In June 1998, the board hired Fox to become the fund's new manager while at the same time it was terminating the fund's advisory agreement with Lakeview Securities Corp. of Chicago, Ill. Lakeview had been serving as the fund's investment manager since January 1994. But the firm had strayed from the investment style based on a proprietary model to which it had agreed to adhere.

At the same time, the board also terminated the fund's sub-advisory agreement with Merrimac Advisors of Albuquerque, N.M., a firm founded by Fredric J. French, a former employee of Lakeview and co-portfolio manager of the fund.

The fund board made its second change in investment advisory firms within a year because of poor performance and lack of distribution, said Hugh Haferkamp, the fund's president for the past three years. Haferkamp previously was the fund's lawyer for 17 years.

While lackluster performance has definitely been at the heart of the load fund's troubles, it was also having great difficulty gaining recognition and, consequently, broker/dealer distribution, said Haferkamp.

"The two are tied together," he said. "We were losing shareholders because of performance and we (the board) decided we had to make moves." In its heyday at the start of 1994, the fund had grown to as large as $48 million, said Haferkamp. But it has since shrunk to $22 million as of June 30, he said.

The fund has performed near the bottom of its peer group over the past several years, according to Lipper, Inc. of Summit, N.J. During 1997, while the fund returned a respectable 21 percent, funds in its peer group had average returns of 27 percent and the fund ranked 529th of 603 funds in its class. In 1998, with a 6.4 percent return versus a peer group average of 15.8 percent, the fund ranked 625th of 757 funds in its peer group. Year-to-date through June 24, 1999, the fund returned 1.05 percent versus its peer group average of 7.31 percent.

Investors Research Fund is an independent fund in that it farms out all of its servicing - from investment advisory to administration to transfer agency - to outside firms. The fund was introduced in March 1959, sponsored by Investors Research Company, an independent firm. At that time, a two-man partnership managed the fund, Haferkamp said. But, in 1991, John Noble, one of the firm's partners, retired from the partnership. Shortly after that, another partner, Terry Wells, was forced to step down after being diagnosed with cancer.

The orphaned fund was then turned over to its board to run. Investors Research Co. continued as fund manager until it was eventually dissolved in 1993. Lakeview was chosen to run the fund beginning January 1, 1994.

Although the fund board was trying to protect the welfare of shareholders, the firing of two investment managers is highly uncommon, said Haferkamp.

"Terminating an advisory contract is pretty rare," said David Sturms, partner with Vedder, Price, Kaufman & Kammholz, a law firm in Chicago. It is highly unusual because most funds start out as spin-offs from investment advisory firms, he said. Investors commonly believe that they are buying the name, reputation and investment product of that adviser.

But when there is a deterioration of services that trustees have purchased on behalf of shareholders, such as poor performance, boards cannot be silent, said Sturms.

"They (the board) clearly have the right to cut the chord with the adviser and, some might argue, the obligation," said Sturms.

Recently, fund boards of directors have demanded that faltering performance be remedied. The most highly publicized case in which performance was an issue was the battle between Donald Yacktman and the independent trustees of the Yacktman Funds that took place earlier this year.

"Anyone that doesn't think performance is the most critical aspect of a mutual fund is crazy," said Stanislaw Maliszewski, former independent trustee for the Yacktman Fund. "What else is there?"

As the newest, but still interim, adviser to the fund, Westcap has already tweaked the portfolio of Investors Research Fund and has begun investing in large-cap growth stocks, said Glenn Weirick, Westcap president and co-founder. Westcap is investing $1 million of its own assets in the fund to demonstrate its commitment to the fund, said Weirick. The firm has also hired a consultant to conduct a marketing campaign aimed at increasing distribution and assets in the fund and lowering expenses, he said.

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