<PAGE>
As filed with the U.S. Securities and Exchange Commission
on September 11, 1997
Securities Act File No. 333-
Investment Company Act File No. 811-
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [x]
ACT OF 1940
Amendment No. [ ]
(Check appropriate box or boxes)
GTF Advantage Funds
................................................................................
(Exact Name of Registrant as Specified in Charter)
350 Park Avenue, 19th Floor
New York, New York 10022
........................... ................
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 634-0888
Amy N. Kong
GTF Advantage Funds
350 Park Avenue, 19th Floor
New York, New York 10022
.........................................
(Name and Address of Agent for Service)
Copy to:
Jon S. Rand, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed
Title of Proposed Maximum
Securities Maximum Aggregate Amount of
Being Amount Being Offering Price Offering Registration
Registered Registered per Unit Price Fee
---------- ---------- -------- ----- ---
Shares of
beneficial
interest,
$.001 par
value per
share
Indefinite* * Indefinite* $0
-----------------------
DECLARATION PURSUANT TO RULE 24F-2
* An indefinite number of shares of beneficial interest of the Registrant
is being registered by this Registration Statement pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended (the "1933 Act"), or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
GTF ADVANTAGE FUNDS
FORM N-1A
CROSS REFERENCE SHEET
---------------------
Part A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page.................. Cover Page
2. Synopsis.................... Expense Information
3. Condensed Financial
Information................. Not Applicable
4. General Description of
Registrant.................. Cover Page; Investment Objectives and Policies;
Risk Factors and Certain Investment Strategies;
Investment Restrictions; General Information
5. Management of the Fund...... Management of the Trust
6. Capital Stock and Other
Securities.................. General Information
7. Purchase of Securities Being
Offered..................... Purchase of Shares; Net Asset Value
8. Redemption or Repurchase.... Redemption of Shares; Net Asset Value
9. Legal Proceedings........... Not Applicable
Part B Heading for the Statement of
Item No. Additional Information
- -------- ----------------------
10. Cover Page................. Cover Page
11. Table of Contents.......... Contents
12. General Information and
<PAGE>
History.................... Management of the Trust
13. Investment Objectives and
Policies................... Investment Objectives; Investment Policies
14. Management of the
Registrant................. Management of the Trust; See Prospectus--
"Management of the Trust"
15. Control Persons and Principal
Holders of Securities...... Management of the Trust
16. Investment Advisory and
Other Services.............. Management of the Trust; See Prospectus --
"Management of the Trust"
17. Brokerage Allocation........ Investment Policies
18. Capital Stock and Other
Securities.................. Management of the Trust--Organization of the
Trust; See Prospectus -- "General Information"
19. Purchase, Redemption and
Pricing of Securities Being
Offered..................... Additional Purchase and Redemption Information;
See Prospectus--"Purchase of Shares; Redemption
of Shares"
20. Tax Status.................. Additional Information Concerning Taxes; See
Prospectus -- "Dividends, Distributions and
Taxes"
21. Underwriters................ Management of the Trust; See Prospectus --
"Management of the Trust"
22. Calculation of Performance
Data........................ Determination of Performance
23. Financial Statements........ Financial Statements
Part C
------
Information required to be included in Part C is set forth after
the appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Subject to Completion, Dated September 11, 1997
GTF ADVANTAGE FUNDS
350 Park Avenue, 19th Floor
New York, New York 10022
GTF ASIA GROWTH FUND
GTF GREATER CHINA FUND
GTF EUROGROWTH FUND
Prospectus November __, 1997
GTF Advantage Funds (the "Trust") is an open-end management investment
company that currently consists of three separate investment portfolios (each a
"Fund" and collectively, the "Funds") designed to offer investors a variety of
investment opportunities. Each Fund has distinct investment objectives and
policies. Information concerning the Funds has been combined into this one
Prospectus to aid investors in understanding the similarities and differences
among the Funds.
The Trust is organized as a Massachusetts business trust. GTF Asset
Management (USA), Inc. (the "Adviser") serves as the investment adviser to the
Funds and manages the investments of the Funds according to the investment
objectives of each Fund.
GTF Asia Growth Fund is a diversified portfolio that seeks to maximize
long-term capital appreciation by investing, under normal circumstances, at
least 65% of its total assets in equity securities of issuers located in
countries comprising the Asian continent ("Asian Countries"). Asian Countries
include, but are not limited to, Hong Kong, Malaysia, Singapore, Thailand,
China, Indonesia, the Philippines, South Korea and Taiwan.
GTF Greater China Fund is a diversified portfolio that seeks to
achieve long-term capital appreciation by investing, under normal circumstances,
at least 65% of its total assets in equity securities of companies located in
the People's Republic of China, Taiwan and Hong Kong.
GTF Eurogrowth Fund is a diversified portfolio that seeks to achieve
long-term capital appreciation by investing, under normal circumstances, at
least 65% of its total assets in equity securities of small capitalization
issuers located in countries in both Eastern and Western Europe.
Investments by the Funds in the securities of foreign issuers may
involve investment risks different from those of U.S. issuers. In addition, many
debt and convertible securities are not considered investment grade and the
Funds may invest in varying degrees in such securities. Securities of this type
(commonly referred to as "junk bonds") are subject to a greater risk of loss of
principal and interest. Investors should carefully assess these risks
1
<PAGE>
before investing in the Funds. See "RISK FACTORS AND CERTAIN INVESTMENT
STRATEGIES."
Each Fund offers two classes of shares, General Shares and Advisor
Shares, both of which are offered by this Prospectus.
The Prospectus sets forth concisely the information a prospective
investor should know before investing in any of the above Funds. Investors
should read and retain this Prospectus for future reference. Additional
Information about the Funds is contained in the Statement of Additional
Information, which has been filed with the Securities and Exchange Commission
(the "SEC") and is available for reference, along with other related materials,
on the SEC Internet Web site (http://www.sec.gov) or upon request without charge
by contacting the Trust at the address above or by calling (800) ________. The
Statement of Additional Information, as amended or supplemented from time to
time, bears the same date as this Prospectus and is incorporated by reference in
its entirety into this Prospectus.
This Prospectus is not an offering of the securities herein described
in any jurisdiction or to any person to whom it is unlawful for the Funds to
make such an offer or solicitation. No sales representative, dealer, or other
person is authorized to give any information or make any representation other
than those contained in this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
TABLE OF CONTENTS
PAGE
EXPENSE INFORMATION..........................................................4
INVESTMENT OBJECTIVES AND POLICIES...........................................7
RISK FACTORS AND CERTAIN INVESTMENT STRATEGIES..............................13
INVESTMENT RESTRICTIONS.....................................................30
PORTFOLIO TURNOVER RATE.....................................................31
MANAGEMENT OF THE TRUST.....................................................31
ADMINISTRATION OF THE FUNDS.................................................32
COUNSEL AND AUDITORS........................................................34
PURCHASE OF SHARES..........................................................34
EXCHANGE OF SHARES..........................................................37
REDEMPTION OF SHARES........................................................37
NET ASSET VALUE.............................................................39
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................................40
PERFORMANCE INFORMATION.....................................................41
GENERAL INFORMATION.........................................................43
3
<PAGE>
EXPENSE INFORMATION
General Shares
GTF
GTF Asia GTF Greater Eurogrowth
Expenses Growth Fund China Fund Fund
-------- ----------- ---------- ----
Shareholder Transaction Fees
Maximum Sales Load Imposed on
Purchases (as a percentage of offering
price............................ ___% ___% ___%
Redemption Fees (as a percentage of
amount redeemed,
if applicable)* ................ 1.00% 1.00% 1.00%
Annual Fund Operating Expenses
(as a percentage of average net
assets)..........................
Management Fees.................. ___% ___% ___%
12b-1 Fees....................... ___% ___% ___%
Other Expenses................... ___% ___% ___%
Total Fund Operating Expenses (after
fee waivers)..................... ___% ___% ___%
- --------
* The Funds will impose a redemption fee equal to 1.00% of the net asset
value of Shares redeemed within 90 days of purchase.
4
<PAGE>
Advisor Shares
GTF
GTF Asia GTF Greater Eurogrowth
Expenses Growth Fund China Fund Fund
-------- ----------- ---------- ----
Shareholder Transaction Fees
Maximum Sales Load Imposed on
Purchases (as a percentage of offering
price)........................... ___% ___% ___%
Redemption Fees (as a percentage of
amount redeemed,
if applicable)*.................. 1.00% 1.00% 1.00%
Annual Fund Operating Expenses
(as a percentage of average net
assets...........................
Management Fees.................. ___% ___% ___%
12b-1 Fees....................... ___% ___% ___%
Other Expenses................... ___% ___% ___%
Total Fund Operating Expenses (after ___% ___% ___%
fee waivers).....................
- -------------
* The Funds will impose a redemption fee equal to 1.00% of the net asset
value of Shares redeemed within 90 days of purchase.
5
<PAGE>
Example
General Shares Advisor Shares
-------------- --------------
You would pay the following
expenses on a $1,000
investment, assuming (1) 5%
annual return and (2)
redemption at the end of each
period
GTF Asia Growth Fund
1 year......................
3 years.....................
GTF Greater China Fund
1 year......................
3 years.....................
GTF Eurogrowth Fund
1 year......................
3 years.....................
The purpose of this table is to assist the investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly. While
the example assumes a 5% annual return, each Funds' actual performance will vary
and may result in actual returns greater or less than 5%. The above example
should not be considered a representation of past or future expenses or
performance. Actual expenses of the Funds may be greater or less than those
shown.
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The investment objective of each Fund is fundamental and may not be
changed without a vote of the holders of the majority of the outstanding voting
securities of the Fund. Unless otherwise noted, the Funds' investment policies
are not fundamental and may be changed without shareholder approval. Additional
investment policies and restrictions are described in the Statement of
Additional Information.
GTF Asia Growth Fund (the "Asia Growth Fund") is a diversified
portfolio that seeks to maximize long-term capital appreciation by investing,
under normal circumstances, at least 65% of its total assets in equity
securities of issuers located in countries comprising the Asian continent
("Asian Countries"). Asian Countries include, but are not limited to, Hong Kong,
Malaysia, Singapore, Thailand, China, Indonesia, the Philippines, South Korea
and Taiwan. Under normal circumstances, the Asia Growth Fund may invest up to
35% of its total assets (and in excess of that amount during temporary defensive
periods) in equity securities of issuers located outside the Asian continent.
GTF Greater China Fund (the "Greater China Fund") is a diversified
portfolio that seeks to achieve long-term capital appreciation by investing,
under normal circumstances, at least 65% of its total assets in equity
securities of companies located in the People's Republic of China, Taiwan and
Hong Kong (collectively, the "Greater China Region"). Under normal
circumstances, the Greater China Fund may invest up to 35% of its total assets
(and in excess of that amount during temporary defensive periods) in equity
securities of issuers located outside the Greater China Region.
GTF Eurogrowth Fund (the "Eurogrowth Fund") is a diversified portfolio
that seeks to achieve long-term capital appreciation by investing, under normal
circumstances, at least 65% of its total assets in equity securities of small
capitalization issuers located in countries comprising the United Kingdom and
the European continent ("European Countries"). European Countries include, but
are not limited to, Austria, Belgium, Denmark, Germany, Finland, France, Greece,
the Republic of Ireland, Italy, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, Turkey, the United Kingdom (collectively "Western Europe"),
Albania, Bulgaria, the Czech and Slovak Republics, Hungary, Poland, Romania, the
successor states of the former Yugoslavia and the Commonwealth of Independent
States (formerly the Union of Soviet Socialist Republics) (collectively,
"Eastern Europe"). An issuer will be considered to be a small capitalization
issuer if its total market capitalization (market price per share expressed in
U.S. Dollars multiplied by total shares outstanding) is less than $1 billion at
the time of purchase. Under normal circumstances, the Eurogrowth Fund may invest
up to 35% of its total assets (and in excess of that amount during temporary
defensive periods) in issuers located outside the European Countries or issuers
with total market capitalization in excess of $1 billion.
7
<PAGE>
Investment Policies Common To All Funds
The Funds' investment adviser, GTF Asset Management (USA), Inc. (the
"Adviser"), uses a multi-factor research approach when selecting investments for
the Funds. These factors include, among others, evaluation of each country's
political stability, prospects for economic growth (inflation, interest
direction, pro-business attitude, trade balance, current account balance,
capital flow and currency strength), identification of long-term trends that
might create investment opportunities, the status of the purchasing power of the
people and population and composition of the work force. In reviewing potential
companies in which to invest, the Adviser considers, among other factors, the
company's quality of management, plans for long-term growth, competitive
position in the industry, future expansion plans and growth prospects,
valuations compared with industry average, earnings track record and a
debt/equity ratio less than the market average. In addition, the Adviser will
visit countries and companies in person to derive firsthand information for
further evaluation. After evaluation of all factors, the Adviser attempts to
identify those companies in such countries and industries that are best
positioned and managed to take advantage of the varying economic and political
factors.
Equity Securities. An equity security is defined as common stock and
preferred stock (including convertible preferred stock); bonds, notes and
debentures convertible into common or preferred stock; stock purchase warrants
and rights; equity interests in trusts and partnerships; special classes of
shares available only to foreign persons in markets that restrict the ownership
of certain classes of equity to nationals or residents of the country; and
depositary receipts of an issuer. An issuer located in a particular country or
region means an issuer: (i) the principal securities trading market for which is
in that country or region; (ii) which derives at least 50% of its revenues or
earnings, either alone or on a consolidated basis, from goods produced or sold,
investments made or services performed in that country or region, or which has
at least 50% of its assets situated in that country or one or more countries
located in that region; or (iii) that is organized under the laws of, and with a
principal office in, that country or region. Determinations as to whether an
issuer is located in a particular country or region will be made by the Adviser
based on publicly available information and inquiries made to the issuer.
ADRs and EDRs. The Funds may also invest in securities of foreign
issuers in the form of American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs"). Generally, ADRs in registered form are dollar
denominated securities designed for use in the U.S. securities markets, which
represent and may be converted into an underlying foreign security. EDRs, in
bearer form, are designed for use in the European securities markets. See "RISK
FACTORS AND CERTAIN INVESTMENT STRATEGIES--Strategies and Risks Common to All
Funds."
Debt and Convertible Securities. The Funds may also invest in
convertible securities which are fixed-income securities such as corporate
bonds, notes and preferred stocks that can be exchanged for stock and other
securities (such as warrants) that also offer equity participation. Convertible
securities are hybrid securities, combining the investment
8
<PAGE>
characteristics of both bonds and common stocks. Like a bond, a convertible
security pays a pre-determined interest rate, but may be converted into common
stock at a specific price or conversion rate. The investor has the right to
initiate conversion into a specified quantity of the underlying stock at a
stated price, within a stipulated period of time. Convertible securities are
generally senior to common stock and junior to non-convertible debt. In addition
to the convertible securities denominated in the currency of the issuer, the
Funds may also invest in convertible securities which are denominated in another
currency (i.e., U.S. dollars). See "RISK FACTORS AND CERTAIN INVESTMENT
STRATEGIES--Strategies and Risks Common to All Funds."
Each of the Funds may invest and hold up to 35% of its net assets in
fixed income securities rated below investment grade, or if unrated, considered
to be of comparable quality. A security will be considered investment grade if
it is rated at the time of purchase within the four highest grades assigned by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings
Services ("S&P"). See "RISK FACTORS AND CERTAIN INVESTMENT STRATEGIES -- Risks
Associated with Lower Rated Securities."
Many of the debt and convertible securities in which the Funds will
invest may be unrated by any rating agency and, in that case, there may be no
objective standard against which the Adviser may evaluate such securities. The
Adviser seeks to minimize the risks of investing in lower-rated securities
through investment analysis and attention to current developments in interest
rates and economic conditions. In selecting debt and convertible securities for
the Funds, the Adviser will assess the following factors: 1) creditworthiness;
2) yield of security relative to yield of other fixed-income securities; 3)
price of security relative to price of other comparable securities; 4) interest
or dividend income; 5) potential for capital appreciation; 6) price of security
relative to price of underlying stock, if a convertible security; 7) impact of
security on diversification of the portfolios; 8) currency of issue; 9) call
and/or put features; and 10) size of issue. See "RISK FACTORS AND CERTAIN
INVESTMENT STRATEGIES--Foreign Debt Ratings."
When-Issued, Delayed-Delivery and Forward Commitment Transactions. The
Funds may purchase securities on a "when-issued" or "delayed-delivery" basis and
may purchase or sell securities on a "forward commitment" basis in order to
hedge against anticipated changes in interest rates and prices. See "RISK
FACTORS AND CERTAIN INVESTMENT STRATEGIES--Strategies and Risks Common to All
Funds."
Investments in Other Investment Companies. With respect to certain
countries, which currently include South Korea and Taiwan, investments by the
Funds may only be made through investment in other investment companies that in
turn are authorized to invest in the securities of such countries. The
investment in securities of other investment companies by the Funds will be
subject to limitations under the Investment Company Act of 1940, as amended (the
"1940 Act"). Each Fund may invest up to 10% of its total assets in other
investment companies. See "RISK FACTORS AND CERTAIN INVESTMENT
STRATEGIES--Strategies and Risks Common to All Funds."
9
<PAGE>
Money Market Instruments. The Adviser intends to be fully invested in
the economies appropriate to each Fund's investment objectives as is
practicable, in light of economic and market conditions and each Fund's cash
needs. When, in the opinion of the Adviser, a temporary defensive position is
warranted or during times of international political or economic uncertainty,
the Funds are permitted to invest temporarily and without limitation in high
quality short term money market instruments of U.S. or foreign issuers or
maintain a cash position. Such instruments include but are not limited to the
following: obligations issued or guaranteed by the United States government, its
agencies or instrumentalities ("Government Securities"); bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments or, if unrated, deemed by the Adviser to be
high quality investments; commercial paper rated no lower than A-2 by S&P or
Prime-2 by Moody's or the equivalent from another major rating service or, if
unrated, of an issuer having an outstanding, unsecured debt issue then rated
within the three highest rating categories; obligations of foreign governments,
their agencies or instrumentalities; and repurchase agreements with respect to
the foregoing portfolio securities. A Fund's investment objective may not be
achieved at such times when a temporary defensive position is maintained. A
description of the rating systems of Moody's and S&P is contained in an Appendix
to the Funds' Statement of Additional Information.
Options. The Funds may write covered call options and purchase put and
call options on securities to reduce overall risk. The Funds may also purchase
put and call options on foreign currencies to hedge against movements in
currency exchange rates. For the same purpose, the Funds may also purchase and
sell foreign currency futures contracts and write covered call options on such
contracts. Finally, the Funds may purchase and sell stock index futures to hedge
against equity markets. Collectively, these securities may be referred to as
"derivatives." See "RISK FACTORS AND CERTAIN INVESTMENT STRATEGIES--Strategies
and Risks Common to All Funds."
Investment Policies Specific to the Asia Growth Fund
The Adviser believes that in contrast to more developed economies, the
newly industrialized Asian Countries are in an earlier and more dynamic growth
stage of their economic development. This growth has been characterized by,
among other factors pro business governments and policies, a stable investment
environment, low production costs, a large and educated work force and a strong
work ethic. Historically, South Korea, Hong Kong, Singapore and Taiwan have been
examples of these traits. Today, however, the economies of China, Indonesia,
Malaysia, the Philippines and Thailand have started to exhibit many of these
same characteristics.
Many of the Asian stock markets are either fully open to foreign
investors or are in the process of becoming so. The Adviser believes that the
opening of these markets offers attractive opportunities for long-term
investment. Furthermore, the global trend of deregulation has also resulted in a
more dynamic environment for these Asian economies and financial markets.
10
<PAGE>
The Advisor uses a combination of top-down asset allocation and
bottom-up stock selection to investment. The top-down analytical aspect
emphasizes identifying major economic trends, policy directions and specific
risks in individual countries and examining the liquidity conditions of each
stock market. This process helps to make choices between asset classes within a
market.
With an increasingly globalized perspective, investors, both local and
foreign, tend to compare expected returns from a specific asset class on a
cross-border basis. Liquidity analysis which examines the flow of capital in
both a regional and global context, has become a key determinant of resources
and growth in developing countries.
Bottom-up stock selection evaluates companies based upon growth at a
reasonable rate. The Adviser will evaluate a particular company's growth
potential and value based upon its historical, industry and regional standards.
In addition to a particular company's financial position, profitability
prospects and capital needs going forward, the Adviser also considers the
quality, integrity and performance record of a company's management team in
order to determine whether a company is well poised to continue to maintain its
competitive advantage in its industry. Finally, the growth potential for a
particular company will be evaluated in conjunction with its valuations relative
to historical, industry and regional standards.
The assets of the Fund will be invested with geographic flexibility;
however, there is no limitation on the percentage of assets which may be
invested in the securities of issuers located in any one country. The Fund,
however, under normal circumstances will invest in at least three different
Asian Countries. The Fund may invest up to 35% of its total assets in equity and
other securities of issuers located outside of the Asian continent.
Investment Policies Specific to the Greater China Fund
The Fund's assets will be invested principally in equity securities
and, when and if available, equity related instruments such as convertible bonds
and warrants that are listed on China's nationally recognized stock exchanges,
currently consisting of the Shanghai Securities Exchange ("SHSE") and the
Shenzhen Stock Exchange ("SZSE"), the Hong Kong Stock Exchange, the Taiwan Stock
Exchange or other major international stock exchanges, having substantial
business operations in the Greater China Region. The Fund may invest in unlisted
Chinese companies (insofar as permitted by Chinese law), or in listed securities
of non-Chinese companies that derive or expect to derive a significant part of
their revenue and/or profits from the Greater China Region or which have or
expect to have substantial assets in the Greater China Region. The Fund may also
invest in fixed income securities issued by the government and enterprises in
the Greater China Region.
The Adviser believes that the economic and political transformation
that is currently taking place in the Greater China Region will generate
long-term growth and opportunity for superior investment returns. This growth is
supported by infrastructure investments, an expanding consumer market,
integration of the Greater China economy with other markets, and increasing
interaction with the Asia Pacific Region and the global economy. The Fund will
provide a vehicle for long-term investors.
11
<PAGE>
The Fund aims to invest in companies which the Adviser considers to
exhibit good growth potential, have sound management and attractive valuation.
The Adviser believes in adding value in investment by focusing on companies with
high growth potential, strong future profitability and prospects, competitive
advantage in domestic and international markets and sound management. The
investment style is a synthesis of the top-down, bottom-up approach previously
outlined in connection with the Asia Growth Fund, which is dynamic and flexible
to meet the developing nature of the diverse development in the Greater China
Region's changing economic environment. A fundamental, in depth and thorough
research process will be implemented through frequent visits to not only
individual companies, but also to various government economic and industrial
entities. The Adviser will combine this fundamental analysis with financial
analytic screening techniques to ensure that investment opportunities provide
for value and growth. The Adviser intends to invest fully the net assets of the
Fund at the earliest appropriate opportunity, but may be restrained from doing
so due to the limited availability of companies and market conditions.
Not more than 10% of the Fund's total net asset value will be invested
in unlisted securities. It is the intention of the Adviser that where
investments in unlisted securities are made, such investments are made in
securities where a listing can reasonably be expected to be obtained within a
reasonable period of time following the Fund's commitment.
Investment Policies Specific to the Eurogrowth Fund
The Fund's assets will be invested primarily in equity securities of
companies in the emerging capital markets of Eastern Europe and small- or
medium-sized companies (i.e. companies having stock market capitalizations of $1
billion or less at time of purchase) of Western Europe. The Adviser believes
that the newly developed capital markets of Eastern Europe, like the newly
industrialized Asian countries, are in a growth stage of their development,
characterized by, among other factors, low labor costs and a skilled labor
force. In Western Europe, the Adviser believes that the economic environment,
characterized by low inflation, low interest rates, low public sector deficits,
strong balance sheets in the corporate sector and deregulation of certain
industries, provides particular opportunities for investment.
In both Western and Eastern Europe, the Fund aims to invest in
companies which the Adviser considers to exhibit long-term growth potential,
strong future profitability and capital needs going forward. The investment
style is a synthesis of the top-down bottom up approach previously outlined in
connection with the Asia Growth Fund, which is particularly suited to meet the
dynamic nature of the changing markets in Eastern and Western Europe. The
Adviser seeks to identify companies believed to be undervalued in the
marketplace in relation to such factors as the company's assets, earnings and
growth potential or which the Adviser believes are best positioned within a
particular industry to take advantage of specific economic and political factors
likely to result in growth for that industry.
The stock markets of Eastern Europe and Western Europe are either
fully open for foreign investors or are in the process of opening further. The
Adviser believes that the further opening of these markets offer particular
opportunities for investment.
12
<PAGE>
The assets of the Fund will be invested with geographic flexibility;
however, there is no limitation on the percentage of assets which may be
invested in the securities of issuers located in any one country. The Fund,
however, under normal circumstances will invest in at least three different
European Countries. The Fund may invest up to 35% of its total assets in equity
and other securities of issuers located outside of the European continent,
including, without limitation, the United States, and in non-convertible bonds
and other debt securities issued by non-U.S. issuers and non-U.S. government
entities.
RISK FACTORS AND CERTAIN INVESTMENT STRATEGIES
Investment Strategies and Risks Common to All Funds
Below are explanations and the associated risks of certain securities
and investment techniques employed by the Funds. Shareholders should understand
that all investments involve risk and there can be no guarantee against loss
resulting from an investment in the Funds, nor can there be any assurance that
any Fund's investment objective will be attained.
Foreign Securities. Investments by the Funds in the securities of
foreign issuers may involve investment risks different from those of U.S.
issuers, including possible political or economic instability of the country of
the issuer, the difficulty of predicting international trade patterns, the
possibility of currency exchange controls, the possible imposition of foreign
withholding tax on the interest income payable on such instruments, the possible
establishment of foreign controls, the possible seizure or nationalization of
foreign deposits or assets, or the adoption of other foreign government
restrictions that might adversely affect the foreign securities held by the
Funds. Foreign securities may also be subject to greater fluctuations in price
than securities of domestic corporations or the U.S. Government. There may be
less publicly available information about a foreign company than about a
domestic company. Foreign companies generally are not subject to uniform
accounting, auditing, and financial reporting standards, practices and
requirements comparable to those applicable to domestic companies. There is
generally less government regulation of stock exchanges, brokers, and listed
companies abroad than in the United States, and the absence of negotiated
brokerage commissions in certain countries may result in higher brokerage fees.
With respect to certain foreign countries, there is a possibility of
expropriation, nationalization, confiscatory taxation, or diplomatic
developments that could affect investments in those countries. In addition,
brokerage commissions, custodian services, withholding taxes and other costs
relating to investment in foreign markets generally are more expensive than in
the United States.
Foreign Debt Ratings. Non-U.S. debt instruments are not required to
meet a minimum rating standard and may not be rated for creditworthiness by any
internationally recognized credit rating organization. To the extent that such
ratings are undertaken, they are related to evaluations of the country in which
the issuer of the instrument is located. Ratings generally take into account the
currency in which a non-U.S. debt instrument is denominated; instruments issued
by a foreign government in other than the local currency, for example, typically
have a lower rating than local currency instruments due to the existence of an
additional risk that the government will be unable to obtain the required
foreign currency to
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service its foreign currency-denominated debt. In general, the ratings of debt
securities or obligations issued by a non-U.S. public or private entity will not
be higher than the rating of the currency or the foreign currency debt of the
central government of the country in which the issuer is located, regardless of
the intrinsic creditworthiness of the issuer. The Funds will invest in such
securities only if the Adviser determines that such instruments do not present
unreasonable risks to the Funds.
Emerging Markets. Investing in securities of issuers in emerging
markets involves special risks. The risks of investing in foreign markets
generally are amplified for investments in developing markets. Additional risks
of investment in such markets include (i) less social, political, and economic
stability; (ii) the smaller size of the securities markets in such countries and
the lower volume of trading, which may result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Funds' investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests, or expropriation or
confiscation of assets or property, which could result in a Fund's loss of its
entire investment in that market; and (iv) less developed legal structures
governing private or foreign investment or allowing for judicial redress for
injury to private property.
The Eurogrowth Fund's investments will include issuers in countries
that constitute emerging economies and markets including the current or formerly
communist countries of Eastern Europe, as well as the Commonwealth of
Independent States (formerly the Union of Soviet Socialist Republics). The
Greater China Fund's investments will include issuers in the People's Republic
of China. (These countries are referred to collectively as the "Communist
Countries"). Upon the accession to power the Communist regimes approximately 40
to 70 years ago, the governments of a number of the Communist Countries
expropriated a large amount of property. The claims of the many property owners
against these governments were never finally settled. There can be no assurance
that any Fund investment in Communist Countries would not also be expropriated,
nationalized or otherwise confiscated. In the event of such expropriation,
nationalism or other confiscation, a Fund could lose its entire investment in
the country involved. In addition, any change in leadership or policies or
unanticipated political or social developments of Communist Countries may halt
the expansion of or reverse the liberalization of foreign investment policies
now occurring and adversely affect the existing investment opportunities and the
availability to a Fund of additional investments in those countries.
ADRs and EDRs. For many foreign securities, there are U.S. dollar
denominated American Depositary Receipts ("ADRs"), which are bought and sold in
the United States and are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in the domestic bank or a
correspondent bank. ADRs do not eliminate all the risk inherent in investing in
the securities of foreign issuers. By investing in ADRs rather than directly in
foreign issuer's stock however, the Funds will avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the United States for most ADRs. The Funds may also invest in
European Depositary Receipts ("EDRs"), also known as Continental Depositary
Receipts or CDRs, which are receipts evidencing an arrangement with a European
bank similar to that for ADRs and are
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designed for use in the European securities markets. EDRs are not necessarily
denominated in the currency of the underlying security. The Funds may invest in
unsponsored ADRs and EDRs.
IDRs. International Depositary Receipts ("IDRs"), also known as Global
Depositary Receipts or GDRs, are similar to ADRs except that they are bearer
securities for investors or traders outside the U.S., and for companies wishing
to raise equity capital in securities markets outside the U.S. Most IDRs have
been used to represent shares although it is possible to use them for bonds,
commercial paper and certificates of deposit. IDRs can be convertible to ADRs in
New York making them particularly useful for arbitrage between the markets. The
funds may invest in unsponsored IDRs.
Investment and Repatriation Restrictions. Foreign investment in
certain Asian Countries and European Countries is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain securities and increase the costs and expenses of
the Fund. Certain foreign countries require governmental approval prior to
investments by foreign persons, limit the amount of investment by foreign
persons in a particular issuer, limit the investment by foreign persons only to
a specific class of securities of an issuer that may have less advantageous
rights than the classes available for purchase by domiciliaries of the countries
and/or impose additional taxes on foreign investors. Certain foreign countries
may also restrict investment opportunities in issuers in industries deemed
important to national interests.
Certain foreign countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in a
foreign country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investments. Investing in local markets in certain Asian
Countries and other European Countries may require the Fund to adopt special
procedures, seek local government approvals or take other actions, each of which
may involve additional costs to the Fund.
Foreign Currency Transactions. The Funds may engage in foreign
currency transactions in connection with their investment in foreign securities
but will not speculate in foreign currency exchange. Each Fund will conduct its
foreign currency exchange transactions (i) on a spot (i.e. cash) basis at the
rate prevailing in the currency exchange market, (ii) through entering into
futures contracts or options on such contracts, (iii) through entering into
forward contracts to purchase or sell foreign currency or (iv) by purchasing
exchange traded currency options. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date, which may be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. These contracts
are traded directly between currency traders and their customers.
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When a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the U.S.
dollar cost or proceeds, as the case may be. By entering into a forward contract
in U.S. dollars for the purchase or sale of the amount of foreign currency
involved in an underlying security transaction, a Fund is able to protect itself
against a possible loss between trade and settlement dates resulting from an
adverse change in the relationship between the U.S. dollar and such foreign
currency. This tends to limit potential gains, however, that might result from a
positive change in such currency relationships. The Funds' currency hedging will
be limited to hedging involving either specific transactions or portfolio
positions. See "Futures Contracts and Related Options" below.
When the Adviser believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, a Fund may
enter into a forward contract to sell an amount of foreign currency
approximating the value of some or all of the Fund's securities denominated in
that foreign currency. In this situation the Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed U.S.
dollar amount when the Adviser believes that the U.S. dollar value of the
currency to be sold pursuant to the forward contract will fall whenever there is
a decline in the U.S. dollar value of the currency in which portfolio securities
of the Fund are denominated ("cross-hedge"). The forecasting of short-term
currency market movements is extremely difficult and whether such a short-term
hedging strategy will be successful is highly uncertain. In addition, some
currency prices may be volatile, and there is a possibility of governmental
controls on currency exchange or governmental intervention in currency markets
which could adversely affect a Fund.
Options on Securities and Securities Indices. The Funds may purchase
and write put and call options on foreign or U.S. securities and indices and
enter into related closing transactions. A call option enables the purchaser, in
return for the premium paid, to purchase securities from the writer (the seller
of the option) of the option at an agreed price up to an agreed date. The
advantage is that the purchaser may hedge against an increase in the price of
securities it ultimately wishes to buy or may take advantage of a rise in a
particular index. A Fund will only purchase call options to the extent premiums
paid on all outstanding call options do not exceed 10% of that Fund's total
assets. The Funds will only write call options on a covered basis. A Fund will
receive premium income from writing call options, which may offset the cost of
purchasing put options and may also contribute to the Fund's total return. The
Funds may lose potential market appreciation, however, if the Adviser's judgment
is incorrect with respect to interest rates, security prices or the movement of
indices.
A put option enables the purchaser of the option, in return for the
premium paid, to sell the security underlying the option to the writer (the
seller of the option) at the exercise price during the option period and the
writer of the option has the obligation to purchase the security from the
purchaser of the option. A Fund will only purchase put options to the extent
that the premiums on all outstanding put options do not exceed 10% of the Fund's
total assets. The advantage is that the purchaser can be protected should the
market value of the security decline or should a particular index decline. The
Funds will, at all times during which they hold a put option, own the security
underlying such option. The Funds will receive premium income
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from writing put options, although they may be required, when the put is
exercised, to purchase securities at higher prices than the current market
price.
Futures Contracts and Related Options. Each Fund may invest in futures
contracts and options on futures contracts, including index contracts or foreign
currencies for hedging purposes or to maintain liquidity. Aggregate initial
margin and premiums required to establish positions other than those considered
by the Commodity Futures Trading Commission to constitute "bona fide hedging"
will not exceed 5% of a Fund's net asset value, after taking into account
unrealized profits and unrealized losses on any such contracts. Although a Fund
is limited in the amount of assets that may be invested in futures transactions,
there is no overall limit on the percentage of a Fund's assets that may be at
risk with respect to futures activities.
At maturity, a futures contract obligates the Funds to take or make
delivery of certain securities or the cash value of a securities index. A Fund
may sell a futures contract in order to offset a decrease in the market value of
its portfolio securities that might otherwise result from a market decline. A
Fund may do so either to hedge the value of its portfolio of securities as a
whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund may purchase a
futures contract in anticipation of purchases of securities. In addition, a Fund
may utilize futures contracts in anticipation of changes in the composition of
its portfolio holdings.
Each Fund may purchase and sell call and put options on futures
contracts traded on an exchange or board of trade. When a Fund purchases an
option on a futures contract, it has the right to assume a position as a
purchaser or seller of a futures contract at a specified exercise price at any
time during the option period. When a Fund sells an option on a futures
contract, it becomes obligated to purchase or sell a futures contract if the
option is exercised. In anticipation of a market advance, a Fund may purchase
call options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
the Fund intends to purchase. Similarly, if the market is expected to decline,
the Fund might purchase put options or sell call options on futures contracts
rather than sell futures contracts. The primary risks associated with the use of
futures contracts and options (commonly referred to as "derivatives") are: (i)
imperfect correlation between the change in market value of the securities held
by the Fund and the price of futures contracts and options; (ii) possible lack
of a liquid secondary market for a futures contract and the resulting inability
to close a futures contract when desired; (iii) losses, which are potentially
unlimited, due to unanticipated market movements; and (iv) the Adviser's ability
to predict correctly the direction of security prices, interest rates and other
economic factors.
Hedging Considerations. Each Fund may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency
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exchange transactions for hedging purposes could limit any potential gain from
an increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. Each Fund will engage in hedging transactions only when deemed advisable
by the Adviser, and successful use of hedging transactions will depend on the
Adviser's ability to predict correctly movements in the hedge and the hedged
position and the correlation between them, which could prove to be inaccurate.
Even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or trends.
Asset Coverage. Each Fund will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Fund on securities, indexes and currencies; currency,
interest rate and stock index futures contracts and options on these futures
contracts; and forward currency contracts. The use of these strategies may
require that the Fund maintain cash or other liquid assets that are acceptable
as collateral to the broker to the appropriate regulatory authority in a
segregated account with its custodian or a designated sub-custodian to the
extent the Fund's obligations with respect to these strategies are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency or by other portfolio positions or by other means consistent with
applicable regulatory policies. Segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. As a result, there is a possibility that
segregation of a large percentage of a Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. The
Funds may purchase or sell securities on a when-issued or delayed-delivery basis
and make contracts to purchase or sell securities for a fixed price at a future
date beyond customary settlement time. Debt securities are often issued on this
basis. No income will accrue on securities purchased on a when-issued or
delayed-delivery basis until the securities are delivered. A Fund will establish
a segregated account in which it will maintain cash and other liquid assets at
least equal in value to its commitments for when-issued securities, forward
commitments and delayed-delivery transactions. Securities purchased or sold on a
when-issued, delayed-delivery or forward commitment basis involve a risk of loss
if the value of the security to be purchased declines prior to the settlement
date. Although a Fund would generally purchase securities on a when-issued,
delayed-delivery or a forward commitment basis with the intention of acquiring
the securities, the Fund may dispose of such securities prior to settlement if
the Adviser deems it appropriate to do so.
Lower-Rated Securities. There are certain risk factors associated with
lower-rated securities. Securities rated in the fourth highest grade have
speculative characteristics, and securities rated B have speculative elements
and a greater vulnerability to default than higher-rated securities. Investors
should be aware that ratings are relative and subjective and are not absolute
standards of quality. Subsequent to its purchase by a Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities by the Fund, although the Adviser will
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consider such event in its determination of whether the Fund should continue to
hold the securities.
Each of the Funds may invest up to 35% of its net assets, in
securities rated as low as C by Moody's or D by S&P and in unrated securities
considered to be of equivalent quality. Securities that are rated C by Moody's
are the lowest rated class and can be regarded as having extremely poor
prospects of ever attaining any real investment standing. Debt rated D by S&P is
in default or is expected to default upon maturity or payment date.
Lower-rated and comparable unrated securities (commonly referred to as
"junk bonds") (i) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, are outweighted by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, medium- and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.
The market value of securities in lower-rated categories is more
volatile than that of higher quality securities. In addition, the Funds may have
difficulty disposing of certain of these securities because there may be a thin
trading market. The lack of a liquid secondary market for certain securities may
have an adverse impact on the Funds' ability to dispose of particular issues and
may make it more difficult for the Funds to obtain accurate market quotations
for purposes of valuing the Funds and calculating their respective net asset
values.
For a complete description of the rating systems of Moody's and S&P,
see the Appendix to the Statement of Additional Information.
Illiquid Securities. The Funds may invest up to 15% of the value of
their respective net assets in securities that are illiquid because of
restrictions on transferability or other reasons, including securities issued
pursuant to Rule 144A ("Rule 144A Securities") under the Securities Act of 1933,
as amended (the "1933 Act") and sold to qualified institutional buyers. A Rule
144A Security will be considered illiquid and therefore subject to each Fund's
limitation on the purchase of illiquid securities, unless the Board determines
on an ongoing basis that an adequate trading market exists for the security. In
addition to an adequate trading market, the Board will also consider factors
such as trading activity, availability of reliable price information and other
relevant information in determining whether a Rule 144A Security is liquid. This
investment practice could have the effect of increasing the level of illiquidity
in the Funds to the extent that qualified institutional buyers become
uninterested for a time in purchasing Rule 144A Securities. The Board will
carefully monitor any investments by the Funds in Rule 144A Securities. The
Board may adopt guidelines and delegate to the Adviser
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the daily function of determining and monitoring the liquidity of Rule 144A
Securities, although the Board will retain ultimate responsibility for any
determination regarding liquidity.
Convertible Securities. Convertible securities in which the Funds may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than nonconvertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by a Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require the sale of the
securities, although the Adviser will consider this event in its determination
of whether the Fund should continue to hold the securities.
Warrants. At the time of issue, the cost of a warrant is substantially
less than the underlying security itself, and price movements in the underlying
security are generally magnified in the price movements of the warrant. This
leveraging effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment. This leveraging increases an
investor's risk, however, in the event of a decline in the value of the
underlying security and can result in a complete loss of the amount invested in
the warrant. In addition, the price of a warrant tends to be more volatile than,
and may not correlate exactly to, the price of the underlying security. If the
market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.
Short Sales Against the Box. Each Fund may enter into a short sale of
securities such that when the short position is open a Fund owns an equal amount
of the securities sold or owns preferred stocks or debt securities, convertible
or exchangeable without payment of further consideration, into an equal number
of securities sold short. This kind of short sale, which is referred to as one
"against the box," will be entered into by a Fund for the purpose of receiving a
portion of the interest earned by the executing broker from the proceeds of the
sale. The proceeds of the sale will generally be held by the broker until the
settlement date when the Fund delivers securities to close out its short
position. Although prior to delivery a Fund will have to pay an amount equal to
any dividends paid on the securities sold short, the Fund will receive the
dividends from the securities sold short or the dividends from the preferred
stock or interest from the debt securities convertible or exchangeable into the
securities sold short, plus a portion of the interest earned from the proceeds
of the short sale. The Funds will deposit, in a segregated account with its
custodian or a qualified subcustodian, the securities sold short or convertible
or exchangeable preferred stocks or debt securities in connection with short
sales against the box. The Funds will endeavor to offset transaction costs
associated with short sales against the box with the income from the investment
of the cash proceeds. Not more than 10% of each Fund's net assets (taken at
current value) may be held as collateral for short sales against the box at any
one time.
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Repurchase Agreements. The Funds may enter into repurchase agreements
to earn income. The Funds may only enter into repurchase agreements with
financial institutions that are deemed to be creditworthy by the Adviser,
pursuant to guidelines established by the Board. During the term of any
repurchase agreement, the Adviser will continue to monitor the creditworthiness
of the seller. Repurchase agreements are considered under the 1940 Act to be
collateralized loans by the Fund to the seller secured by the securities
transferred to the Fund. Repurchase agreements under the 1940 Act will be fully
collateralized by securities in which the Fund may invest directly. Such
collateral will be marked-to-market daily. If the seller of the underlying
security under the repurchase agreement should default on its obligation to
repurchase the underlying security, a Fund may experience delay or difficulty in
exercising its right to realize upon the security and, in addition, may incur a
loss if the value of the security should decline, as well as disposition costs
in liquidating the security. A Fund will not invest more than 15% of its net
assets in illiquid securities, including repurchase agreements maturing in more
than seven days. The Funds must treat each repurchase agreement as a security
for tax diversification purposes and not as cash, a cash equivalent or
receivable.
Securities Lending. To increase return on portfolio securities, each
Fund may lend its portfolio securities on a short-term basis to banks,
broker-dealers and other institutional investors pursuant to agreements
requiring that the loans be continuously secured by collateral equal at all
times in value to at least the market value of the securities loaned. A Fund
will not lend portfolio securities in excess of 33-1/3% of the value of its
total assets. There may be risks of delay in receiving additional collateral or
in recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. Loans are made only to
borrowers deemed by the Adviser to be of good standing however, and when, in the
Adviser's judgment, the income to be earned from the loan justifies the
attendant risks.
Securities of Other Investment Companies. The Funds may invest in
securities issued by other investment companies which invest primarily in
securities in which the Funds are permitted to invest. Under the 1940 Act, a
Fund may invest up to 10% of its assets in shares of investment companies and up
to 5% of its assets in any one investment company as long as the investment does
not represent more than 3% of the voting stock of the acquired investment
company. As a shareholder of another investment company, a Fund would bear along
with other shareholders its pro rata portion of the investment company's
expenses, including advisory fees, in addition to the advisory and other
expenses that a Fund bears directly in connection with its own operations.
Small Capitalization and Emerging Growth Companies. Investing in
securities of small-sized and emerging growth companies may involve greater
risks since these securities may have limited marketability and, thus, may be
more volatile than securities of larger, more established companies or the
market averages in general. Because small-sized companies normally have fewer
shares outstanding than larger companies, it may be more difficult for the Fund
to buy or sell significant amounts of such shares without an unfavorable impact
on
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prevailing prices. Small-sized companies may have limited product lines, markets
or financial resources and may lack management depth. In addition, small-sized
companies are typically subject to a greater degree of changes in earnings and
business prospect that are larger, more established companies. There is
typically less publicly available information concerning small-sized companies
than for larger, more established ones. Although investing in securities of
emerging growth companies offers potential for above-average returns if the
companies are successful, the risk exists that the companies will not succeed
and the prices of the companies' shares could significantly decline in value.
Investment Strategies and Risks Specific to the Greater China Fund
Certain information set forth in this section has been extracted from
various governmental publications and other sources. The Trust makes no
representation as to the accuracy of the information, nor has the Trust
attempted to verify it.
Since the Fund will invest its assets primarily in the People's
Republic of China ("China"), as well as in securities of issuers with
substantial assets or interests in the Greater China Region listed on the
securities exchanges in Hong Kong and Taiwan, its investment performance will be
especially affected by events affecting companies that invest or have
significant assets, production, trading or other business interests in the
Greater China Region or that derive a significant part of their revenue or
profit from the Greater China Region. The value and liquidity of these
investments may be affected favorably or unfavorably by political, economic,
fiscal, regulatory or other developments in China or neighboring countries.
Economic and Political Evolution. Political and economic structures in
China are undergoing significant evolution and rapid development, and may lack
the social, political and economic stability characteristic of the United
States. In the past decade, China's economic growth rate has been characterized
by wide swings; and as the Renminbi, the official currency of China, becomes
fully convertible, it is likely that it will be under pressure from other
currencies causing unpredictable and perhaps unstable economic growth. Although
the Chinese government is improving monetary and fiscal standards, there can be
no assurance that China's economic growth will be better managed.
Revocation of the United States' Most Favored Nation Status. As an
export-driven economy, China is affected by developments in the economies of
their principal trading partners. Revocation by the United States of China's
"Most Favored Nation" trading status, which the U.S. President and Congress have
reconsidered annually, would adversely affect the trade and economic development
of China and Hong Kong.
China's Resumption of Sovereignty. The United Kingdom and China signed
the Joint Declaration on the Question of Hong Kong (the "Joint Declaration") in
1984 pursuant to which China resumed the exercise of sovereignty over Hong Kong
from the United Kingdom on July 1, 1997, at which time Hong Kong became a
Special Administrative Region ("SAR") of China. Under the Joint Declaration and
the Chinese law implementing certain commitments
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(the "Basic Law"), the current social and economic systems in Hong Kong are to
remain unchanged for at least 50 years from July 1, 1997, and Hong Kong is to
enjoy a high degree of autonomy except in foreign and defense affairs. The SAR
will be vested with executive, legislative and judicial power. Laws currently in
force, as amended by the SAR Legislature, are to remain in force except to the
extent they contravene the Basic Law. China may not levy taxes on the SAR, the
Hong Kong dollar is to remain fully convertible, and Hong Kong is to remain a
free port. Under the Basic Law, Hong Kong's current social freedoms, including
freedoms of speech, press, assembly, travel and religion, are not to be
affected. It cannot be predicted how future developments in Hong Kong and China
may affect the implementation of the Basic Law with the resumption of
sovereignty.
Volatility of Chinese Securities Markets. Stock markets in China are
still emerging and are undergoing a period of rapid growth and change that may
result in trading volatility and difficulties in the settlement and recording of
transactions, and in interpreting and applying the relevant law and regulations.
At present, although China does not yet have a comprehensive body of securities
laws and the regulatory framework of the Chinese securities industry is still in
the early stages of its development, recently there has been a higher level of
regulation and enforcement activity than in the past.
The securities markets in the Greater China Region, are substantially
smaller, less liquid and more volatile than the major securities markets in the
United States. Fewer securities are available for trading and the trading volume
on these stock exchanges is lighter than for stock exchanges in the United
States and the market capitalization of individual issuers and the market as a
whole is smaller. A high proportion of the shares of many issuers may be held by
a limited number of persons and financial institutions, which may limit the
number of shares available for investment by the Fund. A limited number of
issuers in the Greater China Region's securities markets may represent a
disproportionately large percentage of market capitalization and trading value.
The limited liquidity of securities markets in the Greater China Region may also
affect the Fund's ability to acquire or dispose of securities at the price and
time it wishes to do so. Accordingly, during periods of rising securities prices
in these more illiquid securities markets, the Fund's ability to participate
fully in price increases may be limited because the Fund cannot invest more than
15% of its net assets in illiquid securities. Conversely, the Fund's inability
to dispose fully and promptly of positions in declining markets may cause the
Fund's net asset value to decline as the value of the unsold positions is marked
to lower prices. In addition, the Greater China Region's securities markets are
susceptible to being influenced by large investors trading significant blocks of
securities.
The Hong Kong and Taiwan Stock Markets. The Hong Kong stock market has
a high correlation with the U.S. long-term bond market primarily because the
Hong Kong currency is "pegged" against the U.S. dollar. At times, the Hong Kong
market behaves as if it were a U.S. interest rate sensitive investment. However,
this relationship is expected to change over time as Hong Kong's economy becomes
increasingly integrated with that of China. A substantial risk premium has been
priced into the Hong Kong market. Should Hong Kong maintain its growth and
prosperity as a SAR, the risk premium could fall, resulting in a favorable
assessment.
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The continuation of the current form of the economic system in Hong
Kong will depend on the actions of the Chinese government. Business confidence
in Hong Kong, therefore, may be adversely affected by such developments, which
in turn may affect markets and business performance. In addition, although Hong
Kong is becoming increasingly less dependent on property development income, it
still has a high real estate exposure risk. Although the real estate market in
Hong Kong has been quite resilient compared to the Japanese real estate market,
concentration of income sources may make stock prices more volatile. There can
be no assurance that a correction in real estate prices may not adversely affect
the stock market.
In Taiwan, ongoing concern about possible reunification with China
continues to cause volatility in the market, particularly in light of China's
resumption of sovereignty of Hong Kong. However, if the Hong Kong transition
does not significantly affect the operation of the Hong Kong economy and
financial markets, the Taiwan political risk premium may receive a favorable
reassessment.
Reporting Standards. Accounting, auditing and financial reporting
standards and requirements in China, Hong Kong and Taiwan, in many respects
(particularly in the case of China) are less stringent than those applicable to
companies in the United States, and less information is available to investors
investing in securities of China companies listed in Hong Kong or China. The
items appearing on the financial statements of a company listed in such foreign
markets may not reflect its financial position or results of operations in the
way they would be reflected had such financial statements been prepared in
accordance with U.S. generally accepted accounting principles.
China's Legal System. Since 1979, many laws and regulations dealing
with economic matters in general have been promulgated in China. Despite this
activity in developing the legal system, China does not have a comprehensive
system of laws. In addition, enforcement of existing laws may be uncertain and
sporadic, and implementation and interpretation thereof inconsistent. China's
legal system is based on written statutes and, therefore, decided legal cases
are without binding legal effect, although they are often followed by judges as
guidance. The interpretation of Chinese laws may be subject to policy changes
reflecting domestic political changes.
There are significant differences between the corporate securities and
tax laws of the China and those of western developed countries. The "Company Law
of the People's Republic of China" (the "Company Law") became effective on July
1, 1994. Prior to the Company Law, companies were established pursuant to
various laws, administrative regulations and regional regulations, including the
Shenzhen Municipality Provisional Regulations on Joint Stock Limited Companies
and the Shanghai Municipality Provisional Regulations on Joint Stock Limited
Companies, as well as the Standard Opinion on Joint Stock Limited Companies and
the Standard Opinion on Limited [Liability] Companies. Each of these laws and
regulations currently remain in effect and companies formed under such laws and
regulations have a prescribed time period in which to satisfy in any additional
requirements imposed by the Company Law.
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The People's Republic of China does not yet have any well-established
national securities law. Certain securities ordinances or rules and regulations
have been promulgated and implemented by the State Council and by the Securities
Commission of the State Council, as well as by the China Securities Regulatory
Commission. In addition, there are regional ordinances in both Shenzhen and
Shanghai. On December 25, 1995, the State Council promulgated the State Council
Regulations on the issue of Foreign Investment Shares by Joint Stock Limited
Companies listed in the People's Republic of China (the "B Share Regulations").
The Shanghai Municipality Administrative Measures for Renminbi-denominated
Special Shares and the Shenzhen Administrative Measures for Renminbi-denominated
Special Shares have been repealed. The State Council Securities Commission
promulgated the "Implementing Rules for the Listing of Foreign Investment Shares
Inside China by a Company Limited by Shares" on May 3, 1996 (the "Implementing
Rules"). These new regulations are now the principal regulations concerning
trading in foreign investment shares of joint stock limited companies.
There has not yet been any reported case of attempted enforcement by
shareholders of joint stock limited companies of their rights under the Company
Law, the B Share Regulations, the Implementing Rules, the securities laws or
under the articles of association of those companies formed under the Company
Law. Nor has there been any reported case on the enforcement, in general, of the
Company Law, securities and tax laws and regulations in relation to joint stock
limited companies or their shareholders, whether in court or in arbitration.
As the Chinese legal system develops, the promulgation of new laws,
changes to existing laws and the preemption of local regulations by national
laws may adversely affect foreign investors. The trend of legislation over the
past 13 years has, however, significantly enhanced the protection afforded
foreign investors in enterprises in China. Moreover, there can be no assurance
that the current trend in economic legislation towards promoting market reforms
and experimentation will not be slowed, curtailed or reversed, especially in the
event of a change in leadership, social or political disruption or unforeseen
circumstances affecting China's political, economic or social life. Such a shift
could have a material adverse effect upon the business and prospects of the
Fund.
Foreign Investment Restrictions. Securities markets in the Greater
China Region are smaller and offer fewer investment alternatives than the equity
securities markets in Europe and the United States. These countries may prohibit
or impose substantial restrictions on investments in their capital markets,
particularly their equity markets, by foreign entities such as the Fund which
can lead to higher investment costs for foreigners. For example, certain
countries require governmental approval prior to investments by foreign persons,
or limit the amount of investment by foreign persons in a particular company, or
limit the investment by foreign persons to only a specific class of securities
of a company that may have less advantageous terms than securities of the
company available for purchase by nationals.
At present, Taiwan restricts foreign ownership of the shares of
publicly-listed companies to 10% per foreign investor and to 25% for all foreign
investors. Effective March 3, 1996,
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foreign individual investors are permitted to participate in the Taiwanese
domestic stock market. Moreover, the national policies of Taiwan may restrict
investment opportunities in issuers or industries deemed sensitive to national
interests. Taiwan imposes a maximum investment limitation of $50 million on
foreign institutional investors if the foreign institution does not qualify as a
Qualified Foreign Institutional Investor ("QFII"). In order to qualify as a
QFII, an institution must currently meet the following conditions (among
others):
a) Banks must be ranked among the top 1,000 banks in the free world (in
terms of total assets) and have experience in international financial,
securities or trust business;
b) Insurance companies must have been in business for more than three
years and hold securities of at least $300 million;
c) Fund management companies must also have been in business for more
than three years with at least $200 million under management;
d) Securities firms must have a net worth of at least $100 million and be
experienced in international securities investments; or
e) Mutual funds, unit trusts or investment trusts which have been
established for three years and have assets of at least $200 million.
The Adviser intends to enable the Fund to invest directly in Taiwan
Stock Exchange listed companies, either as a QFII approved by the Securities and
Futures Commission (the "ROCSFC") of the Republic of China ("ROC") or as a
non-QFII approved by the Taiwan Stock Exchange using a registered securities
brokerage house. The Fund intends to make Taiwan-related investments in global
depositary receipts, Euro-Convertible Bonds and listed beneficiary certificates
that represent, or are convertible into, shares of Taiwan-based corporations.
Although Taiwan no longer requires governmental approval for the
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors, it does require a tax agent for profit repatriation.
During the period when the capital gains on securities transactions
are exempt from ROC income tax, the repatriation of the earnings derived from
securities investment may be made against a tax payment/exemption certificate
which will be issued by the tax authorities as a routine matter.
Under current ROC law, capital gains on securities transactions are
exempt from income tax. This exemption currently applies to capital gains
derived from the sale of common stock. On January 4, 1996, the ROC Legislative
Yuan passed a bill for the amendment of the ROC Income Tax Law that would have
eliminated the exemption from the ROC income tax for gains realized on the sale
of ROC securities and imposed a capital gains tax. On January 12, 1996, this
amendment was repealed by the Legislative Yuan. The reintroduction of a capital
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gains tax would require the Legislative Yuan to engage in the full legislative
process for the enactment of tax legislation.
Securities Markets in China. There currently are two officially
recognized exchanges in China, the Shanghai Securities Exchange ("SHSE"), which
commenced trading on December 19, 1990, and the Shenzhen Stock Exchange
("SZSE"), which commenced trading on July 3, 1991. A number of organized
securities markets exist in other cities in China, but these are primarily
over-the-counter markets. Certain shares on both exchanges are made available
only to Chinese investors, known as "A" Shares, and are traded only in RMB, thus
avoiding the issues of repatriation of profits and the remittance of foreign
currency that would arise with the participation of foreign investors in the
market. In 1993, however, these issues were addressed in legislation concerning
a special class of shares, commonly referred to as "B" shares, which are
denominated in RMB and are offered exclusively for investment by foreign
investors and such other investors as the authorities may approve. The first
issues of "B" shares were listed and traded on the SHSE and SZSE in February
1992.
Prior to the establishment of the SHSE and SZSE, trading of securities
in China was conducted in over-the-counter ("OTC") markets in a number of major
cities, including Shanghai, Chongqing, Wuhan, Guangzhou and Shenyang. The OTC
markets have no fixed location for trading; transactions are negotiated by
telephone or similar means. The SHSE and SZSE confine trading of listed shares
to the two exchanges, while unlisted stocks continue to be traded in the OTC
markets. In addition to the two exchanges and the OTC markets, a nationwide
computer system for trading of treasury bills and bonds, the Securities Trading
Automated Quotations System ("STAQ"), commenced operations on December 5, 1990
and currently links licensed trading corporations in several cities.
Currently, trading of treasury bills constitutes the majority of the
activity in the Chinese securities markets, while trading of equity securities
constitutes only a small portion of the trading activity. Bonds are considered
less controversial than equity securities as their issuance does not raise
questions of enterprise and ownership. The OTC markets trade only treasury bills
and equity securities that are not listed on the SHSE or the SZSE. The SHSE and
the SZSE trade both treasury bills and shares of listed companies. Shares are
divided into four types based on the type of entity holding them: (1) State
shares held by designated State entities on behalf of the State; (2) shares held
by Chinese corporations; (3) shares held by Chinese individuals; and (4) shares
held by foreign investors. The first three categories are generally referred to
as "A" shares. The fourth category is referred to as "B" shares. State shares
cannot be sold or transferred without the approval of the State asset
administrative departments. "A" shares are quoted and traded in RMB, while "B"
shares are quoted in RMB but traded in foreign currencies (currently Hong Kong
dollars and U.S. dollars). The same company may simultaneously list "A" shares
and "B" shares.
As of May 31, 1997, there were 381 "A" shares and 47 "B" shares listed
on the SHSE and 285 "A" shares and 47 "B" shares listed on the SZSE. The market
value of all shares listed on the SHSE and the SZSE as of May 30, 1997 was
RMB847 billion (approximately US$106 billion) and RMB699 billion (approximately
US$74.6 billion), respectively. The
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market capitalization of all "B" shares listed on the SHSE and SZSE was RMB22
billion and RMB 26 billion, respectively and the average daily turnover of the
SHSE "B" share market was RMB113.7 million (approximately US$14 million) and was
RMB894.3 million (approximately US$106 million) for the SZSE market as of the
same date. Although "A" shares and "B" shares are exposed to the same economic
and social environment, their price movements are not highly correlated.
Historically, "B" shares in both markets have traded at a discount to "A"
shares. Currently, "B" shares on the SHSE and the SZSE are trading at a discount
of approximately 63% and 40%, respectively. On December 16, 1996 the China
Securities and Regulatory Commission (the "CSRC") imposed a 10% floor and
ceiling restriction on the daily share movement of "B" shares.
China has not yet promulgated a national securities law although some
national securities regulations have been introduced by the People's Bank of
China and in 1993, interim national securities laws were issued. Consequently,
the SHSE and SZSE are governed by local securities regulations.
The Hong Kong Securities Market. The Stock Exchange of Hong Kong Ltd.
("Hong Kong Stock Exchange" or "HKSE"), which commenced trading on April 2, 1986
as a result the merger of four predecessor exchanges.
The HKSE is now the second largest stock market in Asia, behind only
that of Japan. As of May 31, 1997, 623 companies were listed on the HKSE. Market
capitalization as of the same date was approximately US$534.3 billion. Average
daily turnover on the HKSE for January 1997 through May 1997 was US$1.8 billion.
As of May 30, 1997, the sectoral market weighting of the Hang Seng Index was as
follows: Conglomerates 25%, Finance 25%, Hotel 2%, Industrial 8%, Property 29%,
Utilities 10%, and Others 1%. On June 16, 1997, the Hang Seng China-affiliated
Corporations Index (HSCCI) was officially launched. This index currently has 32
companies and is weighted by their market capitalization.
In addition to an active stock market, Hong Kong has an active foreign
exchange market, an interbank money market, a large gold bullion market and a
futures exchange. Hong Kong is also one of the major Asian centers for venture
capital businesses, and many such businesses have their Asian headquarters in
Hong Kong.
In July 1993, a new class of equity securities of Chinese companies,
"H shares," began trading on the HKSE. "H" shares are listed and traded on the
HKSE, and may only be held by non-PRC individuals and entities. H-share
companies are primarily State-owned enterprises in China. As of May 31, 1997,
there were 28 companies with "H" Shares listed on the HKSE, with a total market
capitalization of US$6.6 billion. The number of Mainland Chinese companies
seeking public listing in Hong Kong is expected to increase over time.
Recently, a new class of company stocks, known as "Red Chips," has
emerged. Although there are no official definitions for this category of
companies and their equity securities, Red Chip companies are primarily
conglomerates or mini-conglomerates with operations and administration based
primarily in Hong Kong although partly also in Mainland
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China. Often, Red Chip companies are related to different levels of government
bureaus in Mainland China or their parent companies are influential State-owned
conglomerates.
The Securities and Futures Commission (the "SFC") was established by
the Hong Kong government in May 1989 as an autonomous statutory body outside the
civil service which provides a general regulatory framework for the securities
and futures industries. The SFC's role is to supervise the stock and futures
exchanges, to license and monitor intermediaries, such as brokers and dealers,
to devise and enforce detailed rules for conduct of business and capital
adequacy for intermediaries. It also monitors the securities market to ensure
compliance by all participants with legislation. In 1994, additional legislation
was introduced to regulate leveraged foreign exchange dealers, for which the SFC
is also responsible.
The staff of the SFC and the HKSE monitor dealings in securities on
the HKSE for unusual transactions and price movements. Possible instances of
insider dealing in securities are investigated. Shareholders representing not
less than 10% of a company's issued shares or 100 shareholders may request the
Financial Secretary of the Government of Hong Kong Special Administrative Region
to investigate a company's affairs if malpractice is suspected. No restrictions
are imposed on foreign ownership of brokerage operations or foreign
participation in the securities market.
The Taiwan Securities Market. The Taiwan Stock Exchange (the "TSE"),
Taiwan's only stock exchange, is a corporation owned by private banks and
governmental controlled enterprises. The TSE commenced operations in 1962 with
18 listed companies, with an average daily trading volume of NT$1.6 million. The
ROCSFC helped to establish an over-the-counter market in Taiwan in September
1982. As of May 31, 1997, there were 391 listed companies on the TSE and 95
companies listed on the over-the-counter market. At May 31, 1997 the aggregate
market value of all companies listed on the TSE was US$313 billion and the
aggregate market value for securities of companies traded on the
over-the-counter market was US$33 billion. The Taiwan stock market is affected
by the behavior of local investors and is mainly liquidity driven. Approximately
89.3% of the total daily turnover is accounted for by local retail investors,
while local institutional investors are responsible for 8.6%. The remaining 2.1%
is accounted for by foreign institutional investors. Average daily turnover of
the TSE was NT$93 billion (US$3.3 billion) in May 1997, while that of the
over-the-counter market was NT$4 billion (US$143 million) during the same
period.
Although foreign individual investors were not permitted to invest
directly in securities listed on the TSE until 1995, since 1990 certain foreign
institutional investors have been permitted access to the Taiwan securities
market. See "Foreign Investment Restrictions." As of May 31, 1997, the sectoral
market weighting for the TSE is as follows: Finance 31%, Electronics 21%,
Textiles 7%, Plastics 6%, Construction 5%, Steel 5%, Transport 3% and others
22%.
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INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions with
respect to each Fund that may not be changed without approval of a majority of
the Fund's outstanding voting securities (as defined in the 1940 Act). Included
among those fundamental restrictions are those listed below.
1. No Fund may borrow money, except that each Fund may borrow from
banks for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests and cash payments of dividends and distributions
that might otherwise require the untimely disposition of securities, in an
amount not to exceed 33-1/3% of the value of the Fund's total assets (including
the amount borrowed) valued at market less liabilities (not including the amount
borrowed) at the time the borrowing is made. Whenever borrowings of 5% or more
of a Fund's total assets are outstanding, the Fund will not make any additional
investments (including roll-overs).
2. No Fund may lend its assets or money to other persons, except
through (a) purchasing and holding fixed income securities including loan
participations, assignments and structured securities debt obligations, (b)
lending portfolio securities in an amount not to exceed 33-1/3% of the Fund's
assets taken at market value, (c) entering into repurchase agreements and (d)
trading in options, futures contracts and options on futures contracts.
3. No Fund may purchase securities (other than U.S. Government
securities) of any issuer if, as a result of the purchase, more than 5% of the
Fund's total assets would be invested in the securities of the issuer or the
Fund would own more than 10% of the outstanding voting securities of the issuer,
except that up to 25% of the value of the total assets of each Fund may be
invested without regard to these limitations.
4. No Fund may invest more than 25% of the value of its total assets
in securities of issuers in any one industry. For purposes of this restriction,
the term industry will be deemed to include (a) the government of any one
country other than the United States, but not the U.S. Government and (b) all
supranational organizations.
5. No Fund may purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments, although this policy
does not prevent the Fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real estate
business.
6. No Fund may purchase or sell physical commodities unless such
commodities were acquired as a result of ownership of securities or other
instruments, however, a Fund may purchase or sell futures contracts and related
options or invest in securities or other instruments backed by physical
commodities.
Except with respect to the Fund's borrowing limitation, investment
restrictions are considered at the time of acquisition of assets; the sale of
portfolio assets is not required in the event of a subsequent change in
circumstances. Certain other investment restrictions adopted
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by the Trust with respect to the Funds are described in the Statement of
Additional Information.
PORTFOLIO TURNOVER RATE
The Adviser buys and sells securities for the Funds whenever it
believes it is appropriate to do so. The rate of portfolio turnover will not be
a limiting factor in making portfolio decisions. Portfolio turnover rates may
vary greatly from year to year as well as within a particular year. It is
currently estimated that under normal market conditions the annual portfolio
turnover rate for the Asia Growth Fund and the Eurogrowth Fund will not exceed
100% and the portfolio turnover rate for the Greater China Fund will not exceed
200%. High portfolio turnover rates (i.e. over 100%) will generally result in
higher transaction costs to the Fund and also may result in a higher level of
taxable gain for a shareholder.
MANAGEMENT OF THE TRUST
The Board of Trustees
The Trust has a Board of Trustees that establishes the Funds' policies
and supervises and reviews the management of the Funds. The day-to-day
operations of the Funds are administered by the officers of the Trust and by the
Adviser pursuant to the terms of the Investment Advisory Agreement with each
Fund. The Board reviews the various services provided by the Adviser to ensure
that the Funds' general investment policies and strategies are being properly
carried out and that administrative services are being provided to the Funds in
a satisfactory manner.
The Investment Adviser
The Funds employ the GTF Asset Management (USA), Inc. as investment
adviser to the Funds. The Adviser, subject to the control of the Fund's officers
and the Board, manages the investment and reinvestment of the assets of the
Funds in accordance with the Funds' investment objective and stated investment
policies. The Adviser makes investment decisions for each Fund and places order
to purchase or sell securities on behalf of each Fund. The Adviser also employs
a support staff of management personnel to provide services to the Funds and
furnishes the Funds with office space, furnishings and equipment.
For the services provided by the Adviser, each Fund pays the Adviser a
fee calculated at an annual rate of 1.00% of the Fund's average daily net
assets. The Adviser may voluntarily waive a portion of its fees from time to
time and temporarily limit the expenses to be borne by the Funds.
Total assets under management as of September 30, 1997 were $____. The
Adviser's address is 350 Park Avenue, 19th Floor, New York, New York 10022.
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Fund Management
The Asia Fund is managed by Carol Chuang, a Senior Vice President of
GTF Asset Management (USA). Ms. Chuang has over 12 years of investment
experience in Asia. Prior to joining GTF Asset Management (USA) in 1997, she was
a vice president of the San Francisco-based Matthews International Capital
Management and the lead portfolio manager for Matthews Pacific Tiger Fund, a
U.S. registered mutual fund investing in nine countries in Asia from 1994 to
1996. From 1992 to 1993, Ms. Chuang was president of and portfolio manager for
San-Francisco-based JYCP Investment Management. From 1990 to 1992, Ms. Chuang
served as a portfolio manager for Prudential Asia, from 1988 to 1989 as a senior
investment analyst for Barings, and from 1986 to 1988 as an investment analyst
for Smith New Court, all of which were located in Hong Kong.
The Greater China Fund is managed by Ching Ju Yeh, the Senior Vice
President of GTF Asset Management (Hong Kong). Ms. Yeh is also responsible for
managing various country funds including Taiwan, South Korea, and
Singapore/Malaysia, as well as overseeing the operation of the GTF China office.
Ms. Yeh has over eight years of investment experience in the Asia Pacific
region. She was ranked one of the top 20 fund managers in Asia Pacific equities
by Asiamoney Magazine in 1993 and 1996. Prior to joining GTF in November 1996,
she was a Senior Investment Manager in HSBC Asset Management Hong Kong from 1994
to 1996. Ms. Yeh was an analyst specializing in East Asia markets with Emerging
Markets Investors Corporation based in Washington, D.C. from 1990 to 1994.
The Eurogrowth Fund is managed by Herve van Caloen, a Senior Vice
President of GTF Asset Management (USA), Inc. Mr. van Caloen has 12 years of
investment experience in international markets, particularly in Europe. Raised
in Belgium, Mr. van Caloen received his B.A. degree in 1981 from the European
University of Antwerp, Belgium, and an M.B.A. in 1985 from Claremont Graduate
School, California. Upon graduation, he joined Scudder, Stevens & Clark, Inc. as
an international analyst and portfolio manager. In 1989, he joined Mitchell
Hutchins where he launched and managed the Paine Webber Europe Growth Fund. From
1992 to 1995 at Provident Capital Management, he was the head of international
investments responsible for growing the assets to over $1 billion and launching
an emerging markets fund. Mr. van Caloen was a First Vice President at Schroder
Capital Management before joining GTF.
ADMINISTRATION OF THE FUNDS
The Administrator
The Funds employ _______________ (the "Administrator"), as the
Administrator. The Administrator provides shareholder liaison services to the
Funds including responding to shareholder inquiries and providing information on
shareholder investments. The Administrator also performs a variety of other
services, including furnishing certain executive and administrative services,
acting as liaison between the Funds and their various service
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providers, furnishing corporate secretarial services, which include preparing
materials for meetings of the Board, preparing proxy statements and annual,
semiannual and quarterly reports, assisting in other regulatory filings as
necessary and monitoring and developing compliance procedures for the Funds.
The Administrator also calculates each Fund's net asset value,
provides all accounting services for the Funds and assists in related aspects of
the Funds' operations. As compensation for its services, each of the Funds pays
the Administrator a fee calculated at an annual rate of ____________. The
Administrator's principal business address is ___________________.
The Custodian
____________________, serves as custodian of the Funds' assets. Its
principal place of business is -----------------------.
The Transfer Agent
_________________________ serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Funds. ______________'s
principal place of business is _______________________________.
The Distributor
__________________ serves as distributor for shares of the Funds (the
"Distributor") and is located at ______________________. The Distributor
receives a fee of at an annual rate equal to ___% of the average daily net
assets attributable to the Funds' General Shares for distribution services,
pursuant to a shareholder servicing and distribution plan (the "12b-1 Plan")
adopted by each of the Funds pursuant to Rule 12b-1 of the 1940 Act. Amounts
paid to the Distributor under the 12b-1 Plan may be used by the Distributor to
cover expenses that are primarily intended to result in, or that are primarily
attributable to, (i) the sale of the General Shares, (ii) ongoing servicing
and/or maintenance or the accounts of the General Shareholders of the Funds and
(iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the General Shares, all as set forth in the
12b-1 Plan. Payments under the 12b-1 Plan are not tied exclusively to the
distribution expenses actually incurred by the Distributor and the payments may
exceed distribution expenses actually incurred. The Board evaluates the
appropriateness of the 12b-1 Plan on a continuing basis and in doing so
considers all relevant factors, including expenses borne by the Distributor and
amounts received under the 12b-1 Plan.
[No compensation is payable by the Funds to the Distributor for its
distribution services to the Advisor Shares.]
The Adviser may, at its own expense, provide promotional incentives to
parties who support the sale of shares of the Funds, consisting of securities
dealers who have sold shares of the Funds to others, including banks and other
financial institutions, under special
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arrangements. In some instances these incentives may be offered only to certain
institutions whose representatives provide services in connection with the sale
or expected sale of significant amounts of shares of the Funds.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as legal counsel to the Trust and the
Adviser. L.L.P. serves as independent auditors for the Trust.
PURCHASE OF SHARES
No Load Class of General Shares
A class of General Shares that is "no load" is offered (i) directly
from the Funds' distributor, and (ii) through selected brokerage firms including
____________________. General Shares of the Funds are subject to a 12b-1 fee of
.25% per annum.
Advisor Class of Shares
A second class of Shares of each of the Funds are sold under the name
"Advisor Shares." Individual investors may only purchase Advisor Shares through
institutional shareholders of record, broker-dealers, financial institutions,
depository institutions, retirement plans and other financial intermediaries
("Institutions"). The Funds reserve the right to make Advisor Shares available
to other investors in the future. The Funds also reserve the right to suspend
the offering of Advisor Shares for a period of time or to reject any specific
purchase order. References in this Prospectus to shareholders or investors also
include Institutions which may act as record holders of the Advisor Shares. The
Advisor Shares impose a 12b-1 fee of ___% per annum, which is the economic
equivalent of a sales charge.
Each Institution separately determines the rules applicable to its
customers investing in the Funds, including minimum initial and subsequent
investment requirements and the procedures to be followed to effect purchases,
redemptions and exchanges of Advisor Shares. There is no minimum amount of
initial or subsequent purchases of Advisor Shares imposed on Institutions,
although the Funds reserve the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an
Institution by its customers. The Institution is responsible for the prompt
transmission of the order to the particular Fund or its agent.
Minimum Investment
The minimum initial investment in the GTF Asia Growth Fund is
$________ and the minimum subsequent investment is $____________. The minimum
initial investment in the GTF Greater China Fund $10,000 and the minimum
subsequent investment is $1,000. The minimum initial investment in the GTF
Eurogrowth Fund is [$10,000 and the minimum subsequent investment is $5,000.]
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Each Fund reserves the right to change the initial and subsequent
investment minimum requirements at any time. In addition, each Fund may, in its
sole discretion, waive the initial and subsequent investment minimum
requirements with respect to investors who are employees of the Trust or its
affiliates or persons with whom the Trust has entered into an investment
advisory agreement.
After an investor has made his initial investment, additional shares
may be purchased at any time by mail or by wire in the manner outlined below.
Wire payments for initial and subsequent investments should be preceded by an
order placed with a Fund and should clearly indicate with investor's account
number and the name of the Fund in which shares are being purchased. The Funds
reserve the right to suspend the offering of shares for a period of time or to
reject any specific purchase order. In the interest of economy and convenience,
physical certificates representing shares in the Funds are not normally issued.
Purchases by Mail
If the investor desires to purchase Shares by mail, a check or money
order made payable to the specific Fund should be sent along with the completed
account application to GTF Advantage Funds through the Distributor at [Address
to be provided]. Checks payable to the investor and endorsed to the order of a
Fund will not be accepted as payment and will be returned to the sender. If
payment is received in proper form by the close of regular trading on the New
York Stock Exchange (the "NYSE") (currently 4:00 p.m., Eastern time) on a day
that such Fund calculates its net asset value (a "business day"), the purchase
will be made at the Fund's net asset value calculated at the end of that day. If
payment is received after the close of regular trading on the NYSE, the purchase
will be effected at the Fund's net asset value determined for the next business
day after payment has been received. Checks or money orders that are not in
proper form or that are not accompanied or preceded by a complete account
application will be returned to the sender. Shares purchased by check or money
order are entitled to receive dividends and distributions beginning on the day
after payment has been received. Checks or money orders in payment for shares of
more than one Fund should be made payable to the Trust and should be accompanied
by a breakdown of amounts to be invested in each Fund. If a check used for
purchase does not clear, the Fund will cancel the purchase and the investor may
be liable for losses or fees incurred. For a description of the manner of
calculating each Fund's net asset value, see "NET ASSET VALUE" below.
Purchases by Wire
Investors may also purchase Shares in the Funds by wiring funds from
their banks. Telephone orders by wire will not be accepted until a completed
account application has been received and an account number has been
established. Investors purchasing General Shares should place an order with the
Fund prior to wiring funds by telephoning (800)_____________. Federal funds may
be wired to __________ using the following wire address: [Insert address and
wire instructions]. Institutions may purchase Advisor Shares by telephoning the
Funds at the telephone number listed above and sending payment by wire as
indicated above.
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If a telephone order is received by the close of regular trading on
the NYSE and payment by wire is received on the same day in proper form in
accordance with instructions set forth above, the shares will be priced
according to the net asset value of the Fund on that day and are entitled to
dividends and distributions beginning on that day. If payment by wire is
received in proper form by the close of the NYSE without a prior telephone
order, the purchase will be priced according to the net asset value of the Fund
on that day and is entitled to dividends and distributions beginning on that
day. However, if a wire in proper form that is not preceded by a telephone order
is received after the close of regular trading on the NYSE, the payment will be
held uninvested until the order is effected at the close of business on the next
business day. Payment for orders that are not accepted will be returned to the
prospective investor after prompt inquiry. If a telephone order is placed and
payment by wire is not received on the same day, the Fund will cancel the
purchase and the investor may liable for losses or fees incurred.
Purchases through Broker-Dealers
General Shares of the Funds are available through selected
broker-dealers, including ____________________________. Generally, these
programs do not require customers to pay a transaction fee in connection with
purchases or redemptions. The Funds are also available through certain
broker-dealers, financial institutions and other industry professionals
(including the programs described above, collectively, "Service Organizations").
Certain features of the Funds, such as the initial or subsequent investment
minimums, redemption fees or certain trading restrictions, may be modified or
waived by Service Organizations, and administrative charges or other direct fees
may be imposed. Therefore, a client or customer should contact the Service
Organization acting on his behalf concerning the fees (if any) charged in
connection with a purchase or redemption of Fund shares and should read this
Prospectus in light of the terms governing his accounts with the Service
Organization. Service Organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to the Fund in
accordance with their agreements with the Funds and with clients or customers.
Service Organizations that have entered into agreements with the Funds or its
agent may enter confirmed purchase orders on behalf of clients and customers,
with payment to follow no later than the Funds' pricing on the following
business day. If payment is not received by such time, the Service Organization
could be held liable for resulting fees or losses.
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Automatic Monthly Investing
Automatic monthly investing allows shareholders of General Shares to
authorize the Funds to debit their bank account monthly for the purchase of Fund
shares on or about either the tenth or twentieth calendar day of each month. To
establish the automatic monthly investing option, obtain a separate application
or complete the "Automatic Investment Program" section of the account
applications and include a voided, unsigned check from the bank account to be
debited. Only an account maintained at a domestic financial institution which is
an automated clearing house member may be used. Shareholders using this service
must satisfy the initial investment minimums of the Funds prior to or concurrent
with the start of any Automatic Investment Program. Please refer to an account
application for further information or contact the Trust at (800)__________ for
information or to modify or terminate the program. Investors should allow a
period of up to 30 days in order to implement an automatic investment program.
The failure to provide complete information could result in further delays.
EXCHANGE OF SHARES
An investor may exchange General Shares of a Fund for General Shares
of another Fund or an Institution may exchange Advisor Shares of a Fund for
Advisor Shares of another Fund, as the case may be, at their respect net asset
values. Exchanges may be effected by mail or by telephone in the manner
described under "REDEMPTION OF SHARES" below. If an exchange request is received
by a Fund or its agent prior to the close of regular trading on the NYSE, the
exchange will be made at each Fund's net asset value determined at the end of
that business day. Exchanges may be effected without a sales charge but must
satisfy the minimum dollar amount necessary for new purchases. Due to the costs
involved in effecting exchanges, each Fund reserves the right to refuse to honor
more than three exchange requests by a shareholder exchanging General Shares in
any 30-day period. The exchange privilege for either General Shares or Advisor
Shares may be modified or terminated at any time upon 60 days' notice to
shareholders.
The exchange privilege is available to shareholders residing in any
state in which the General Shares or Advisor Shares, as the case may be, being
acquired may legally be sold. When an investor effects an exchange of shares,
the exchange is treated for federal income tax purposes as a redemption.
Therefore, the investor may realize a taxable gain or loss in connection with
the exchange.
REDEMPTION OF SHARES
Shareholders may redeem their shares of the Funds on any day that the
Funds' net asset value is calculated. See "NET ASSET VALUE." A redemption fee
equal to 1.00% of the net asset value of the Shares being redeemed will be
charged if the Shares are redeemed within 90 days of purchase.
Requests for the redemption of Advisor Shares are placed with an
Institution by its customers, which is then responsible for the prompt
transmission of the request to the
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particular Fund or its agent. General Shares of the Funds may either be redeemed
by mail or by telephone. Investors should realize that in using the telephone
redemption and exchange option, they may be giving up a measure of security that
they may have if they were to redeem or exchange their shares in writing.
General Shares may be redeemed by submitting a written request for
redemption to the Trust. An investor should be sure that the redemption request
identifies the Fund, the number of shares to be redeemed and the investor's
account number. In order to change the bank account address designated to
receive the redemption proceeds, the investor must send a written request (with
signature guarantee of all investors listed on the account when such a change is
made in conjunction with a redemption request) to the Trust. Each mail
redemption requests must be signed by the registered owner(s) (or his legal
representative(s)) exactly as the shares are registered.
If an investor of General Shares has applied for the telephone
redemption feature on his account application, he may redeem his shares by
calling the Trust at (800)_______ between 9:00 a.m. and 4:00 p.m. (Eastern time)
on any business day. An investor making a telephone withdrawal should state (i)
the name of the Fund, (ii) the account number of the Fund, (iii) the name of the
investor(s) appearing on the Fund's records, (iv) the amount to be withdrawn and
(v) the name of the person requesting the redemption.
After receipt of the redemption request by mail or telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. The Funds do
not currently impose a service charge for effecting wire transfers but reserve
the right to do so in the future. During periods of significant or economic or
market change, telephone redemptions may be difficult to implement. If an
investor in unable to contact the Trust by telephone, an investor may deliver
the redemption request to the Trust by mail at the at the address shown above.
Although a Fund will redeem General Shares purchased by check or through the
Automatic Investment Program before the funds or check clear, payments of the
redemption proceeds will be delayed for five days (for funds received through
the Automatic Investment Program ) or 10 days (for check purchases) from the
date or purchase. Investors should consider purchasing shares using a certified
or bank check or money order if they anticipate an immediate need for redemption
proceeds.
If a redemption order is received by a Fund or its agent, prior to the
close of regular trading on the NYSE, the redemption order will be effected at
the net asset value per share as determined on that day. If a redemption order
is received after the close of regular trading on the NYSE, the redemption order
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be mailed or wired to an investor on
the next business day following the date a redemption order is effected. If,
however, in the judgment of the Adviser, immediate payment would adversely
affect a Fund, such Fund reserves the right the pay the redemption proceeds
within seven days after the redemption order is effected. Furthermore, a Fund
may suspend the right of redemption or postpone the
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date payment upon redemption (as well as suspend or postpone the recordation of
an exchange of shares) for such periods as are permitted under the 1940 Act.
The proceeds payable upon redemption may be more or less than the
amount invested depending upon a share's net asset value at the time of
redemption. If an investor redeems all the shares in his account, all dividends
and distributions declared up to and including the date of redemption are paid
along with the proceeds of the redemption.
If due to redemption, the value of an investor holding General Shares
in his account in the Asia Growth Fund is reduced to less than $_______, in the
Greater China Fund is reduced to less than $______ or in the Eurogrowth Fund is
reduced to less than $______, the respective Fund reserves the right to redeem
the shares in that account at net asset value. Prior to any redemption, the
particular Fund will notify an investor in writing that this account has a value
of less than the minimum. the investor will then have 60 days to make an
additional investment before a redemption will be processed by that Fund.
Telephone Transactions
In order to request redemptions by telephone, investors must have
completed and returned to the Trust an account application containing a
telephone election. Unless contrary instructions are elected, an investor will
be entitled to make exchanges by telephone. Neither the Funds nor their agents
will be liable for following instructions communicated by telephone that it
reasonably believes to be genuine. Reasonable procedures will be employed on
behalf of the Funds to confirm that instructions communicated by telephone are
genuine. Such procedures including providing written confirmation of telephone
transactions, tape recording telephone instructions and requiring specific
personal information prior to acting upon telephone instructions.
NET ASSET VALUE
The Funds' net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of the Funds' generally changes each day.
The net asset value per class of each Fund's shares is computed by
adding the class' pro rata share of the value of the Fund's assets, deducting
the class' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to that class and then dividing the result by the total
number of outstanding shares.
Securities listed on a U.S. securities exchange (including securities
traded through the Nasdaq National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made.
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Options and futures contracts will be valued similarly. Debt obligations that
mature in 60 days or less from the valuation date are valued on the basis of
amortized cost, unless the Board determines that using this valuation method
would not reflect the investments' value. Securities, options and futures
contracts for which market quotations are not readily available and other assets
will be valued at their fair value as determined in good faith pursuant to
consistently applied procedures established by the Board. Further information
regarding valuation policies is contained in the Statement of Additional
Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
Each Fund calculates its dividends from net investment income. Net
investment income includes interest accrued and dividends earned on a Fund's
portfolio securities for the applicable period less applicable expenses. Each
Fund declares dividends from its net realized short-term and long-term capital
gains annually and pays them in the calendar year in which they are declared.
Each Fund declares dividends from net investment income annually. Net investment
income earned on weekends and when the NYSE is not open will be computed as of
the next business day. Unless an investor instructs a Fund to pay dividends or
distributions in cash, dividends and distributions will automatically be
reinvested in additional General Shares or Advisor Shares, as the case may be,
of that Fund at net asset value. The election to received dividends in cash may
be made on the account application or, subsequently, by writing to the Trust at
the address set forth above or by calling the Trust at (800)__________
The Funds may be required to withhold for U.S. federal income taxes
31% of all distributions payable to shareholders who fail to provide the Funds
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the U.S. Internal Revenue Service
that they are subject to backup withholding.
Taxes
Each of the Funds intends to qualify each year as a "regulated
investment company" within the meaning of the Internal Revenue Code of 1986, as
amended. The Funds, if each qualifies as a regulated investment company, will be
subject to a 4% non-deductible excise tax measured with respect to certain
undistributed amounts of ordinary income and capital gain. The Funds expect to
pay such additional dividends and to make such additional distributions as are
necessary to avoid the application of this tax.
Dividends paid from net investment income and distributions of net
realized short-term capital gains are taxable to investors as ordinary income,
and distributions derived from net realized long-term capital gains are taxable
to investors as long-term capital gains, in each case regardless of how long the
shareholder has held Fund shares and whether received in cash or reinvested in
additional Fund shares. The Funds will provide information relating to that
portion of a "capital gain dividend" that may be treated by investors as
eligible for the reduced capital gains rate for capital assets held for more
than 18 months. As a general rule, an investor's gain or loss on a sale or
redemption of his Fund shares will be a long-term capital
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gain or loss if he has held his shares for more than one year and will be
short-term capital gain or loss if he has held his shares for one year or less.
However, any loss realized upon the sale or redemption of shares within six
months from the date of their purchase will be treated as a long-term capital
loss to the extent of any amounts treated as distributions of long-term capital
gain during such six-month period with respect to such shares. Investors may be
proportionately liable for taxes on income and gains of the Funds, but investors
not subject to tax on their income will not be required to pay tax on amounts
distributed to them. The Funds' investment activities, including short sales of
securities, will not result in unrelated business taxable income to a tax-exempt
investor. The Funds' dividends, to the extent not derived from dividends
attributable to certain types of stock issued by U.S. domestic corporations,
will not qualify for the dividend received deduction for corporations.
The Funds may be subject to certain taxes imposed by foreign countries
with respect to dividends, interest, capital gains and other income. The U.S.
has entered into tax treaties with many foreign countries that entitle the Funds
to a reduced rate of tax or exemption from tax on this income and gains. The
Funds will seek to operate so as to qualify for treaty-reduced rates of tax when
applicable. In addition, if a Fund qualifies as a regulated investment company,
if certain distribution requirements are satisfied and if more than 50% in value
of the Fund's assets at the close of any taxable year consists of stocks or
securities of foreign corporations, which for this purpose should include
obligations issued by foreign governmental issuers, the Fund may elect to treat
any foreign income taxes paid by it (if such taxes are treated as income taxes
under U.S. income tax principles) as paid by its shareholders. Each Fund expects
to qualify for and may make this election. For any year that a Fund makes such
an election, the Fund will report to its shareholders, in writing, the amount
per share of such foreign income taxes that must be included in each
shareholder's gross income and the amount that the shareholder may deduct from
his taxable income or credit (subject to certain limitations) against his U.S.
tax liabilities. In general, a shareholder may elect each year whether to claim
deductions or credits for foreign taxes, although noncorporate shareholders may
not claim the deduction they do not itemize deductions.
Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of each Fund's prior taxable
year with respect to certain dividends and distributions that were paid (or that
are treated as having been paid) by the Fund during the Fund's prior taxable
year. Investors should consult their own tax advisers with specific reference to
their own tax situations, including their state and local tax liabilities.
PERFORMANCE INFORMATION
The Funds will quote the performance of General Shares separately from
Advisor Shares. The net asset value of General Shares is listed in The Wall
Street Journal each business day under the heading _____________. The net asset
value of Advisor Shares is listed in The Wall Street Journal under the heading
__________. From time to time, the Funds may advertise the average annual total
return of its General Shares or Advisor Shares, as the case may be, over various
periods of time. These total return figures show the average
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percentage change in value of an investment in the General Shares or the Advisor
Shares, as the case may be, from the beginning of the measuring period to the
end of the measuring period. The figures reflect changes in the price of the
General Shares or the Advisor Shares, as the case may be, assuming that any
income dividends and/or capital gain distributions made by the Funds during the
period were reinvested in General Shares or Advisor Shares, as the case may be,
of the Funds. Total returns will be shown for recent one-, five- and ten-year
periods, and may be shown for other periods as well (such as from commencement
of the Funds' operations or on a year-by-year, quarterly or current to date
basis).
When considering average total return figures for periods longer than
one year, it is important to note that the annual total return for one year in
the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that the Funds seek long-term appreciation and
that such return may not be representative of the Funds' return over a longer
market cycle. The Funds may also advertise aggregate total return figures of its
General Shares or Advisor Shares, as the case may be, for various periods,
representing the cumulative change in value of an investment in the General
Shares or the Advisor Shares, as the case may be, for the specific period (again
reflecting changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e. change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on
historical earnings and are not intended to indicate future performance. The
Funds' Statement of Additional Information describes the method used to
determine the total return. Current total return figures for the General Shares
may be obtained by calling the Trust at (800)______________. Current total
return figures for the Advisor Shares may be obtained by calling the Trust at
(800)______________.
In reports and other communications to investors or in advertising
material, the Funds may describe general economic and market conditions
affecting the Funds. The Funds may compare is performance with (i) that of other
mutual funds as listed in the rankings prepared by Lipper Analytical Services,
Inc. or similar investment services that monitor the performance of mutual funds
or as set forth in the publications listed below; (ii) the Morgan Stanley
International Capital Europe, Australasia and Far East (EAFE) Index, the Salomon
Russell Global Equity Index, the FT-Actuaries World Indices (jointly compiled by
The Financial Times, Ltd., Goldman, Sachs & Co. and NatWest Securities Ltd.) and
the S&P 500 Index; or (iii) other appropriate indexes of investment securities
or with data developed by the Adviser derived from such indexes. The Funds may
also make comparisons using data and indexes compiled by the National Venture
Capital Association, VentureOne and Private Equity Analysts Newsletter and
similar organizations and publications. The Funds may include evaluations of the
Funds published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Daily, Money, Morningstar, Inc., Mutual Fund Magazine, SmartMoney and The Wall
Street Journal.
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In reports or other communications to investors or in advertising, the
Funds may also describe the general biography or work experience of the Funds'
managers and may include quotations attributable to the managers describing
approaches taken in managing the Funds' investments, research methodology
underlying stock selection or the Funds' investment objectives. In addition, the
Funds and its managers may render periodic updates of Fund activity, which may
include a discussion of significant portfolio holdings and analysis of holdings
by industry, country, credit quality and other characteristics. The Funds may
discuss characteristics of venture capital financed companies and the benefits
expected to be achieved from investing in these companies. The Funds may also
discuss measures of risk, the continuum of risk and return relating to different
investments. Morningstar, Inc. rates funds in broad categories based on
risk/reward analyses over various time periods. In addition, the Funds may from
time to time compare the expense ratio of its General Shares or the Advisor
Shares, as the case may be, to that of investment companies with similar
objectives and policies, based on data generated by Lipper Analytical Services,
Inc., or similar investment services that monitor mutual funds.
GENERAL INFORMATION
Organization
Each Fund is a separate series of shares of the Trust, a Massachusetts
business trust organized pursuant to a Declaration of Trust dated August 31,
1997. The Trust is registered under the 1940 Act as an open-end management
investment company, commonly known as a mutual fund. The Trustees of the Trust
may establish additional series or classes of shares without the approval of
shareholders. The assets of each series will belong only to that series, and the
liabilities of each series will be borne solely by that series and no other.
Description of Shares
Each Fund is authorized to issue an unlimited number of shares of
beneficial interest with a par value of $0.001. When issued, shares of each Fund
will be fully paid and non-assessable. Shares are freely transferable and have
no preemptive, subscription or conversion rights. Each class of shares (a
"Class") represents an identical interest in a Fund's investment portfolio. As a
result, the Classes have the same rights, privileges and preferences, except
with respect to: (1) the designation of each Class; (2) the sales arrangement
with respect to a Class of shares; (3) the expenses allocable exclusively to
each Class; (4) voting rights on matters exclusively affecting a single class;
and (5) the exchange privilege of each Class. The Board of Trustees does not
anticipate that there will be any conflicts among the interests of the holders
of the different Classes. The Trustees, on an ongoing basis will consider
whether any conflict exists and, if so, take appropriate action. Certain aspects
of the share may be changed, upon notice to Fund shareholders, to satisfy
certain tax regulatory requirements, if the change is deemed necessary by the
Board of Trustees. Currently, there are two classes of shares issued by each
Fund.
Voting Rights
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Each issued and outstanding full and fractional share of each Fund is
entitled to one full and fractional vote in each Fund and all shares of each
Fund participate equally in dividends, distributions, and liquidations.
Shareholders do not have preemptive, conversion or cumulative voting rights.
Shareholder Meetings
The Trustees of the Trust do not intend to hold annual meetings of
shareholders of the Funds. However, they will promptly call a meeting for the
purpose of voting upon the question of removal of any Trustee when requested to
do so by holders of not less than 10% of the outstanding shares of the
respective Fund. In addition, subject to certain conditions, shareholders of
each Fund may apply to the Funds to communicate with other shareholders to
request a shareholders' meeting to vote upon the removal of a Trustee or
Trustees.
Certain Provisions of Trust Instrument
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Funds.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of a Fund and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Funds
or a Trustee.
Shareholder Reports and Inquiries
Shareholders will receive annual financial statements which are
examined by the Funds' independent accountants, as well as unaudited semiannual
financial statements. Shareholder inquiries should be addressed to the
respective Fund, c/o GTF Advantage Funds, 350 Park Avenue, 19th Floor, New York,
New York 10022.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>
Subject to Completion, Dated September 11, 1997
STATEMENT OF ADDITIONAL INFORMATION
November ___, 1997
GTF ADVANTAGE FUNDS
GTF ASIA GROWTH FUND
GTF GREATER CHINA FUND
GTF EUROGROWTH FUND
350 Park Avenue, 19th Floor
New York, New York 10022
Contents
--------
Page
----
Investment Objectives..........................................................2
Investment Policies............................................................2
Investment Limitations........................................................18
Management of the Fund........................................................24
Additional Purchase and Redemption Information................................27
Exchange Privilege............................................................28
Additional Information Concerning Taxes.......................................28
Determination of Performance..................................................34
Auditors and Counsel..........................................................36
Financial Statements..........................................................36
Appendix -- Description of Ratings ..........................................A-1
Report of ________________ L.L.P., Independent Auditors......................A-4
This Statement of Additional Information is meant to be read in
conjunction with the combined Prospectus for the General Shares and Advisor
Shares of the following series of GTF Advantage Funds (the "Trust"): GTF Asia
Growth Fund (the "Asia Growth Fund"), GTF Greater China Fund (the "Greater China
Fund") and GTF Eurogrowth Fund (the "Eurogrowth Fund") (each a "Fund" and
collectively, the "Funds") as amended or supplemented from time to time, and is
incorporated by reference in its entirety into that Prospectus. Because this
Statement of Additional Information is not itself a prospectus, no investment in
shares of any Funds should be made solely upon the information contained herein.
Copies of the Prospectus and information regarding the Funds' current
performance may be obtained by calling the Trust at (800)_______. Information
regarding the status of shareholder accounts may be obtained by calling the
Trust at (800)____________ or by writing to the Trust, at 350 Park Avenue, 19th
Floor, New York, New York 10022.
<PAGE>
INVESTMENT OBJECTIVES
The investment objective of the Asia Growth Fund is to maximize
long-term capital appreciation by investing, under normal circumstances, at
least 65% of its total assets in equity securities of issuers located in
countries comprising the Asian Continent.
The investment objective of the Greater China Fund is to maximize
long-term capital appreciation by investing, under normal circumstances, at
least 65% of its total assets in equity securities of companies located in the
People's Republic of China, Taiwan and Hong Kong.
The investment objective of the Eurogrowth Fund is to achieve long-term
capital appreciation by investing, under normal circumstances, at least 65% of
its total assets in equity securities of small capitalization issuers located in
countries in both Eastern and Western Europe..
INVESTMENT POLICIES
The following policies supplement the descriptions of each Fund's
investment objectives and policies in the Prospectus.
Foreign Investments
- -------------------
Investors should recognize that investing in foreign companies involves
certain risks, including those discussed below, which are not typically
associated with investing in U.S. issuers.
Foreign Currency Exchange. Since the Funds will be investing in
securities denominated in currencies of non-U.S. countries, and since the Funds
may temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, the Funds may be affected favorably or
unfavorably by exchange control regulations or changes in the exchange rate
between such currencies and the dollar. A change in the value of a foreign
currency relative to the U.S. dollar will result in a corresponding change in
the dollar value of Fund assets denominated in that foreign currency. Changes in
foreign currency exchange rates may also affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to shareholders by the
Funds. The rate of exchange between the U.S. dollar and other currencies is
determined by the forces of supply and demand in the foreign exchange markets.
Changes in the exchange rate may result over time from the interaction of many
factors directly or indirectly affecting economic and political conditions in
the United States and a particular foreign country, including economic and
political developments in other countries. Of particular importance are rates of
inflation, interest rate levels, the balance of payments and the extent of
government surpluses or deficits in the United States and the particular foreign
country, all of which are in turn sensitive to the monetary, fiscal and trade
policies pursued by the governments of the United States and foreign countries
important to international trade and finance. Governmental intervention may also
play a significant role.
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National governments rarely voluntarily allow their currencies to float freely
in response to economic forces. Sovereign governments use a variety of
techniques, such as intervention by a country's central bank or imposition of
regulatory controls or taxes, to affect the exchange rates of their currencies.
Each Fund may use hedging techniques with the objective of protecting against
loss through the fluctuation of the value of foreign currencies against the U.S.
dollar, particularly the forward market in foreign exchange, currency options
and currency futures. See "Currency Exchange Transactions" and "Futures
Activities" below.
Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments positions. A Fund may invest in securities of foreign
governments (or agencies or instrumentalities thereof), and many, if not all, of
the foregoing considerations apply to such investments as well.
Information. Many of the securities held by the Funds will not be
registered with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available information about
the securities and about the foreign company or government issuing them than is
available about a domestic company or government entity. Foreign companies are
generally not subject to uniform financial reporting standards, practices and
requirements comparable to those applicable to U.S. companies.
Political Instability. With respect to some foreign countries, there is
the possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Fund, political or social instability,
or domestic developments which could affect U.S. investments in those and
neighboring countries. For example, tensions in Asia have increased following
the announcement in March 1993 by The Democratic People's Republic of Korea
("North Korea") of its intention to withdraw from participation in the Nuclear
Non-Proliferation Treaty and its refusal to allow the International Atomic
Energy Agency to conduct full inspections of its nuclear facilities. Military
action involving North Korea or the economic deterioration of North Korea could
adversely affect the entire region and the performance of the Asia Growth Fund,
in particular.
Delays. Securities of some foreign companies are less liquid and their
prices are more volatile than securities of comparable U.S. companies. Certain
foreign countries are known to experience long delays between the trade and
settlement dates of securities purchased or sold. Due to the increased exposure
of the Funds to market and foreign exchange fluctuations brought about by such
delays, and due to the corresponding negative impact on Fund liquidity, the
Funds will avoid investing in countries which are known to experience settlement
delays which may expose the Fund to unreasonable risk of loss.
Increased Expenses. The operating expenses of the Funds can be expected
to be higher than that of an investment company investing exclusively in U.S.
securities, since the expenses of the Funds, such as custodial costs, valuation
costs and communication costs, as well as the rate of the investment advisory
fees, though similar to such expense of some other international funds, are
higher than those costs incurred by other investment companies.
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General. In general, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. The Funds may invest in
securities of foreign governments (or agencies or instrumentalities thereof),
and many, if not all, of the foregoing considerations apply to such investments
as well.
Options, Futures and Currency Exchange Transactions
- ---------------------------------------------------
Securities Options. The Funds may purchase put and call options on
stock and debt securities that are traded on foreign and U.S. exchanges, as well
as over-the-counter ("OTC").
A Fund realizes fees (referred to as "premiums") for granting the
rights evidenced by the options it has written. A put option embodies the right
of its purchaser to compel the writer of the option to purchase from the option
holder an underlying security at a specified price for a specified time period
or at a specified time. In contrast, a call option embodies the right of its
purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified time.
The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the securities alone. In return for a premium, a Fund as the
writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Fund as a put or call writer retains the risk of a decline in the price of
the underlying security. The size of the premiums that a Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline.
In the case of options written by a Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying securities with respect to which the Fund has written
options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, a Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace
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the borrowed securities, but the Fund may incur additional transaction costs or
interest expenses in connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the securities for
which a Fund may write covered call options. For example, if the Fund writes
covered call options on mortgage-backed securities, the mortgage-backed
securities that it holds as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. If this occurs, the Fund
will compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.
Options written by a Fund will normally have expiration dates between
one and nine months from the date written. The exercise price of the options may
be below, equal to or above the market values of the underlying securities at
the times the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. A Fund may write (i) in-the-money call options when GTF Asset
Management (USA), Inc., each Fund's investment adviser (the "Adviser"), expects
that the price of the underlying security will remain flat or decline moderately
during the option period, (ii) at-the-money call options when the Adviser
expects that the price of the underlying security will remain flat or advance
moderately during the option period and (iii) out-of-the-money call options when
the Adviser expects that the premiums received from writing the call option plus
the appreciation in market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. In any of the preceding situations, if the market price of the
underlying security declines and the security is sold at this lower price, the
amount of any realized loss will be offset wholly or in part by the premium
received. Out-of-the-money, at-the-money and in-the-money put options (the
reverse of call options as to the relation of exercise price to market price)
may be used in the same market environments that such call options are used in
equivalent transactions. To secure its obligation to deliver the underlying
security when it writes a call option, a Fund will be required to deposit in
escrow the underlying security or other assets in accordance with the rules of
the Options Clearing Corporation (the "Clearing Corporation") and of the
securities exchange on which the option is written.
Prior to their expirations, put and call options may be sold in closing
sale or purchase transactions (sales or purchases by a Fund prior to the
exercise of options that it has purchased or written, respectively, of options
of the same series) in which the Fund may realize a profit or loss from the
sale. An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized securities exchange or
in the over-the-counter market. When a Fund has purchased an option and engages
in a closing sale transaction, whether the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is more
or less than the premium the Fund initially paid for the original option plus
the related transaction costs. Similarly, in cases where a Fund has written an
option, it will realize a profit if the cost of the closing purchase transaction
is less than the premium received upon writing the original option and will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. The Fund may engage in a closing
purchase transaction to realize a profit,
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to prevent an underlying security with respect to which it has written an option
from being called or put or, in the case of a call option, to unfreeze an
underlying security (thereby permitting its sale or the writing of a new option
on the security prior to the outstanding option's expiration). The obligation of
a Fund under an option it has written would be terminated by a closing purchase
transaction, but the Fund would not be deemed to own an option as a result of
the transaction. So long as the obligation of the Fund as the writer of an
option continues, the Fund may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the Fund to deliver
the underlying security against payment of the exercise price. This obligation
terminates when the option expires or the Fund effects a closing purchase
transaction. The Fund can no longer effect a closing purchase transaction with
respect to an option once it has been assigned an exercise notice.
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, a Fund's ability to
terminate options positions established in the over-the-counter market may be
more limited than for exchange-traded options and may also involve the risk that
securities dealers participating in over-the-counter transactions would fail to
meet their obligations to that Fund. The Funds, however, intend to purchase
over-the-counter options only from dealers whose debt securities, as determined
by the Adviser, are considered to be investment grade.
Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held or
exercised within certain time periods by an investor or group of investors
acting in concert (regardless of whether the options are held or exercised in
one or more accounts or through one or more brokers). It is possible that the
Funds and other clients of the Adviser and certain of its affiliates may be
considered to be such a group. A securities exchange may order the liquidation
of positions found to be in violation of these limits and it may impose certain
other sanctions. These limits may restrict the number of options the Funds will
be able to purchase on a particular security.
Securities Index Options. A Fund may purchase and write exchange-listed
and OTC put and call options on securities indexes. A securities index measures
the movement of a certain group of securities by assigning relative values to
the securities included in the index, fluctuating with changes in the market
values of the securities included in the index. Securities index options may be
based on a broad or narrow market index or on a particular industry or market
segment.
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Options on securities indexes are similar to options on securities
except that (i) the expiration cycles of securities index options are monthly,
while those of securities options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of securities at a specified price, an option on a securities index gives the
holder the right to receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the index upon which the option is based being greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the index and
the exercise price of the option times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Index options may be offset by entering into closing transactions
as described above for securities options.
OTC Options. A Fund may purchase OTC or dealer options or sell covered
OTC options. Unlike exchange-listed options where an intermediary or clearing
corporation, such as the Clearing Corporation, assures that all transactions in
such options are properly executed, the responsibility for performing all
transactions with respect to OTC options rests solely with the writer and the
holder of those options. A listed call option writer, for example, is obligated
to deliver the underlying stock to the clearing organization if the option is
exercised, and the clearing organization is then obligated to pay the writer the
exercise price of the option. If a Fund were to purchase a dealer option,
however, it would rely on the dealer from whom it purchased the option to
perform if the option were exercised. If the dealer fails to honor the exercise
of the option by a Fund, the Fund would lose the premium it paid for the option
and the expected benefit of the transaction.
Listed options generally have a continuous liquid market while dealer
options have none. Consequently, a Fund will generally be able to realize the
value of a dealer option it has purchased only by exercising it or reselling it
to the dealer who issued it. Similarly, when a Fund writes a dealer option, it
generally will be able to close out the option prior to its expiration only by
entering into a closing purchase transaction with the dealer to which the Fund
originally wrote the option. Although the Funds will seek to enter into dealer
options only with dealers who will agree to and that are expected to be capable
of entering into closing transactions with the Funds, there can be no assurance
that the Funds will be able to liquidate a dealer option at a favorable price at
any time prior to expiration. The inability to enter into a closing transaction
may result in material losses to the Funds. Until a Fund, as a covered OTC call
option writer, is able to effect a closing purchase transaction, it will not be
able to liquidate securities (or other assets) used to cover the written option
until the option expires or is exercised. This requirement may impair a Fund's
ability to sell portfolio securities or, with respect to currency options,
currencies at a time when such sale might be advantageous. In the event of
insolvency of the other party, a Fund may be unable to liquidate a dealer
option.
Futures Activities. The Funds may enter into foreign currency, interest
rate and stock index futures contracts and purchase and write (sell) related
options traded on exchanges designated by the Commodity Futures Trading
Commission (the "CFTC") or consistent with
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CFTC regulations on foreign exchanges. These transactions may be entered into
for "bona fide hedging" purposes as defined in CFTC regulations and other
permissible purposes including hedging against changes in the value of portfolio
securities due to anticipated changes in currency values, interest rates and/or
market conditions and increasing return.
Futures Contracts. A foreign currency futures contract provides for the
future sale by one party and the purchase by the other party of a certain amount
of a specified non-U.S. currency at a specified price, date, time and place. An
interest rate futures contract provides for the future sale by one party and the
purchase by the other party of a certain amount of a specific interest rate
sensitive financial instrument (debt security) at a specified price, date, time
and place. Securities indexes are capitalization weighted indexes which reflect
the market value of the securities listed on the indexes. A securities index
futures contract is an agreement to be settled by delivery of an amount of cash
equal to a specified multiplier times the difference between the value of the
index at the close of the last trading day on the contract and the price at
which the agreement is made.
No consideration is paid or received by a Fund upon entering into a
futures contract. Instead, the Fund is required to deposit in a segregated
account with its custodian an amount of cash or other liquid assets acceptable
as collateral to the broker and the appropriate regulatory authority, equal to
approximately 1% to 10% of the contract amount (this amount is subject to change
by the exchange on which the contract is traded, and brokers may charge a higher
amount). This amount is known as "initial margin" and is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. The broker will have access to amounts in the
margin account if the Fund fails to meet its contractual obligations. Subsequent
payments, known as "variation margin," to and from the broker, will be made
daily as the currency, financial instrument or stock index underlying the
futures contract fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking-to-market." The
Funds will also incur brokerage costs in connection with entering into futures
transactions.
At any time prior to the expiration of a futures contract, a Fund may
elect to close the position by taking an opposite position, which will operate
to terminate that Fund's existing position in the contract. Positions in futures
contracts and options on futures contracts (described below) may be closed out
only on the exchange on which they were entered into (or through a linked
exchange). No secondary market for such contracts exists. Although the Funds
intend to enter into futures contracts only if there is an active market for
such contracts, there is no assurance that an active market will exist at any
particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting a Fund to substantial losses. In such event, and in the
event of adverse price movements, a Fund would be required to make daily cash
payments of variation margin. In such situations, if the Fund had insufficient
cash, it might have to sell securities to meet daily variation
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margin requirements at a time when it would be disadvantageous to do so. In
addition, if the transaction is entered into for hedging purposes, in such
circumstances the Fund may realize a loss on a futures contract or option that
is not offset by an increase in the value of the hedged position. Losses
incurred in futures transactions and the costs of these transactions will affect
the Fund's performance.
Options on Futures Contracts. The Funds may purchase and write put and
call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or securities index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of a
Fund.
Currency Exchange Transactions. The value in U.S. dollars of the assets
of the Funds that are invested in foreign securities may be affected favorably
or unfavorably by changes in exchange control regulations, and each Fund may
incur costs in connection with conversion between various currencies. Currency
exchange transactions may be from any non-U.S. currency into U.S. dollars or
into other appropriate currencies. Each Fund will conduct its currency exchange
transactions (i) on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, (ii) through entering into futures contracts or
options on such contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing
exchange-traded currency options.
Forward Currency Contracts. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract as agreed upon by the
parties, at a price set at the time of the contract. These contracts are entered
into in the interbank market conducted directly between currency traders
(usually large commercial banks and brokers) and their customers. Forward
currency contracts are similar to currency futures contracts, except that
futures contracts are traded on commodities exchanges and are standardized as to
contract size and delivery date.
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At or before the maturity of a forward contract, a Fund may either sell
a portfolio security and make delivery of the currency, or retain the security
and fully or partially offset its contractual obligation to deliver the currency
by negotiating with its trading partner to purchase a second, offsetting
contract. If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices.
Currency Options. The Funds may purchase and write exchange-traded put
and call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
Currency Hedging. The Funds' currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of a Fund generally accruing in connection with
the purchase or sale of its portfolio securities. Position hedging is the sale
of forward currency with respect to portfolio security positions. The Funds may
not position hedge to an extent greater than the aggregate market value (at the
time of entering into the hedge) of the hedged securities.
A decline in the U.S. dollar value of a foreign currency in which a
Fund's securities are denominated will reduce the U.S. dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying prices
of the securities, but it does establish a rate of exchange that can be achieved
in the future. For example, in order to protect against diminutions in the U.S.
dollar value of securities it holds, the Funds may purchase currency put
options. If the value of the currency does decline, each Fund will have the
right to sell the currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on the U.S. dollar value of its
securities that otherwise would have resulted. Conversely, if a rise in the U.S.
dollar value of a currency in which securities to be acquired are denominated is
projected, thereby potentially increasing the cost of the securities, a Fund may
purchase call options on the particular currency. The purchase of these options
could offset, at least partially, the effects of the adverse movements in
exchange rates. The benefit to the Fund derived from purchases of currency
options, like the benefit derived from other types of options, will be reduced
by premiums and other transaction costs. Because transactions in currency
exchange are generally conducted on a principal basis, no fees or commissions
are generally involved. Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments. Although currency
hedges limit the risk of loss due to a decline in the value of a hedged
currency, at the same time, they also limit any potential gain that might result
should the value of the currency increase. If a devaluation is generally
anticipated, a Fund may not be able to contract to sell a currency at a price
above the devaluation level it anticipates.
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While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not reflect other factors that may affect the value of
the Funds' investments and a currency hedge may not be entirely successful in
mitigating changes in the value of the Fund's investments denominated in that
currency. A currency hedge, for example, should protect a Renminbi-denominated
bond against a decline in the Renminbi ("RMB"), but will not protect a Fund
against a price decline if the issuer's creditworthiness deteriorates.
Hedging. In addition to entering into options, futures and currency
exchange transactions for other purposes, including generating current income to
offset expenses or increase return, each Fund may enter into these transactions
as hedges to reduce investment risk, generally by making an investment expected
to move in the opposite direction of a portfolio position. A hedge is designed
to offset a loss in a portfolio position with a gain in the hedged position; at
the same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedged position. As a result,
the use of options, futures, contracts and currency exchange transactions for
hedging purposes could limit any potential gain from an increase in the value of
the position hedged. In addition, the movement in the portfolio position hedged
may not be of the same magnitude as movement in the hedge. With respect to
futures contracts, since the value of portfolio securities will far exceed the
value of the futures contracts sold by a Fund, an increase in the value of the
futures contracts could only mitigate, but not totally offset, the decline in
the value of the Fund's assets.
In hedging transactions based on an index, whether a Fund will realize
a gain or loss from the purchase or writing of options on an index depends upon
movements in the level of securities prices in the stock market generally or, in
the case of certain indexes, in an industry or market segment, rather than
movements in the price of a particular security. The risk of imperfect
correlation increases as the composition of a Fund's portfolio varies from the
composition of the index. In an effort to compensate for imperfect correlation
of relative movements in the hedged position and the hedge, the Fund's hedge
positions may be in a greater or lesser dollar amount than the dollar amount of
the hedged position. Such "over hedging" or "under hedging" may adversely affect
a Fund's net investment results if market movements are not as anticipated when
the hedge is established. Securities index futures transactions may be subject
to additional correlation risks. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which would distort the normal relationship
between the stock index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in an index and
movements in the price of index futures, a correct forecast of general market
trends by the Adviser still may not result in a successful hedging transaction.
A Fund will engage in hedging transactions only when deemed advisable
by the Adviser, and successful use by a Fund of hedging transactions will be
subject to the Adviser's ability to
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predict trends in currency, interest rate or securities markets, as the case may
be, and to correctly predict movements in the directions of the hedge and the
hedged position and the correlation between them, which predictions could prove
to be inaccurate. This requires different skills and techniques than predicting
changes in the price of individual securities, and there can be no assurance
that the use of these strategies will be successful. Even a well-conceived hedge
may be unsuccessful to some degree because of unexpected market behavior or
trends. Losses incurred in hedging transactions and the costs of these
transactions will affect a Fund's performance.
Asset Coverage for Forward Contracts, Options, Futures and Options on
Futures. As described in the Prospectus, each Fund will comply with guidelines
established by the U.S. Securities and Exchange Commission (the "SEC") with
respect to coverage of forward currency contracts; options written by the Fund
on securities, currencies and indexes; and currency, interest rate and index
futures contracts and options on these futures contracts. These guidelines may,
in certain instances, require segregation by the Funds of cash or other liquid
assets that are acceptable as collateral to the appropriate regulatory
authority.
For example, a call option written by a Fund on securities may require
the Fund to hold the securities subject to the call (or securities convertible
into the securities without additional consideration) or to segregate assets (as
described above) sufficient to purchase and deliver the securities if the call
is exercised. A call option written by a Fund on an index may require the Fund
to own portfolio securities that correlate with the index or to segregate assets
(as described above) equal to the excess of the index value over the exercise
price on a current basis. A put option written by a Fund may require the Fund to
segregate assets (as described above) equal to the exercise price. A Fund could
purchase a put option if the strike price of that option is the same or higher
than the strike price of a put option sold by the Fund. If a Fund holds a
futures or forward contract, the Fund could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. A Fund may enter into fully or partially offsetting
transactions so that its net position, coupled with any segregated assets (equal
to any remaining obligation), equals its net obligation. Asset coverage may be
achieved by other means when consistent with applicable regulatory policies.
Additional Information on Other Investment Practices
- ----------------------------------------------------
Lower-Rated Securities. Each Fund may invest in below investment grade
convertible debt and preferred securities and it is not required to dispose of
securities downgraded below investment grade subsequent to acquisition by a
Fund. While the market values of medium- and lower-rated securities and unrated
securities of comparable quality tend to react less to fluctuations in interest
rate levels than do those of higher-rated securities, the market values of
certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-quality
securities. In addition, medium- and lower-rated securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
medium- and lower-rated securities and unrated securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
The risk of loss due to default by such issuers is significantly
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greater because medium- and lower-rated securities and unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness.
The market for medium- and lower-rated and unrated securities is
relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers of
such securities to repay principal and pay interest thereon.
The Funds may have difficulty disposing of certain of these securities
because there may be a thin trading market. Because there is no established
retail secondary market for many of these securities, the Funds anticipate that
these securities could be sold only to a limited number of dealers or
institutional investors. To the extent a secondary trading market for these
securities does exist, it generally is not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market, as well as
adverse publicity and investor perception with respect to these securities, may
have an adverse impact on market price and a Fund's ability to dispose of
particular issues when necessary to meet its liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of the
issuer. The lack of a liquid secondary market for certain securities also may
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund and calculating its net asset value.
The market value of securities in medium- and lower-rated categories is
more volatile than that of higher quality securities. Factors adversely
impacting the market value of these securities will adversely impact the Fund's
net asset value. The Fund will rely on the judgment, analysis and experience of
the Adviser in evaluating the creditworthiness of an issuer. In this evaluation,
the Adviser will take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, its
operating history, the quality of the issuer's management and regulatory
matters. Normally, medium- and lower-rated and comparable unrated securities are
not intended for short-term investment. A Fund may incur additional expenses to
the extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings of such securities. Recent
adverse publicity regarding lower-rated securities may have depressed the prices
for such securities to some extent. Whether investor perceptions will continue
to have a negative effect on the price of such securities is uncertain.
U.S. Government Securities. Each Fund may invest in debt obligations of
varying maturities issued or guaranteed by the United States government, its
agencies or instrumentalities ("U.S. Government Securities"). Direct obligations
of the U.S. Treasury include a variety of securities that differ in their
interest rates, maturities and dates of issuance. U.S. Government Securities
also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, GNMA, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks, FHLMC,
Federal Intermediate Credit Banks, Federal Land Banks, FNMA, Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. Each Fund may also invest in instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are
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supported by the credit of the instrumentality. Because the U.S. government is
not obligated by law to provide support to an instrumentality it sponsors, the
Fund will invest in obligations issued by such an instrumentality only if the
Adviser determines that the credit risk with respect to the instrumentality does
not make its securities unsuitable for investment by the Fund.
Lending of Portfolio Securities. Each Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Trust's Board of Trustees (the "Board"). The Funds will not lend portfolio
securities to the Trust or its affiliates unless a Fund has applied for and
received specific authority to do so from the SEC. Loans of portfolio securities
will be collateralized by cash, letters of credit or U.S. government securities,
which are maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Fund. From time to time, the Fund may return a
part of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is unaffiliated with
the Fund and that is acting as a "finder."
By lending its securities, a Fund can increase its income by continuing
to receive interest and any dividends on the loaned securities as well as by
either investing the collateral received for securities loaned in short-term
instruments or obtaining yield in the form of interest paid by the borrower when
U.S. government securities are used as collateral. The Funds will adhere to the
following conditions whenever its portfolio securities are loaned: (i) the Fund
must receive at least 100% cash collateral or equivalent securities of the type
discussed in the preceding paragraph from the borrower; (ii) the borrower must
increase such collateral whenever the market value of the securities rises above
the level of such collateral; (iii) the Fund must be able to terminate the loan
at any time; (iv) the Fund must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material event
adversely affecting the investment occurs, the Board must terminate the loan and
regain the right to vote the securities. Loan agreements involve certain risks
in the event of default or insolvency of the other party including possible
delays or restrictions upon the Fund's ability to recover the loaned securities
or dispose of the collateral for the loan.
When-Issued Securities and Delayed-Delivery Transactions. Each Fund may
utilize up to 20% of its total assets to purchase securities on a "when-issued"
basis or purchase or sell securities for delayed delivery (i.e., payment or
delivery occur beyond the normal settlement date at a stated price and yield).
When-issued transactions normally settle within 30-45 days. A Fund will enter
into a when-issued transaction for the purpose of acquiring portfolio securities
and not for the purpose of leverage, but may sell the securities before the
settlement date if the Adviser deems it advantageous to do so. The payment
obligation and the interest rate that will be received on when-issued securities
are fixed at the time the buyer enters into the commitment. Due to fluctuations
in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the yields obtained on such securities may be higher or
lower than the
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<PAGE>
yields available in the market on the dates when the investments are actually
delivered to the buyers.
When a Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or other liquid assets that are
acceptable as collateral to the appropriate regulatory authority equal to the
amount of the commitment in a segregated account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case the Fund may be required subsequently to place additional assets in the
segregated account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. It may be expected that a Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
a Fund engages in when-issued or delayed-delivery transactions, it relies on the
other party to consummate the trade. Failure of the seller to do so may result
in the Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Short Sales "Against the Box." In a short sale, a Fund sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. The seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
If a Fund engages in a short sale, the collateral for the short position will be
maintained by the Fund's custodian or qualified sub-custodian. While the short
sale is open, the Fund will maintain in a segregated account an amount of
securities equal in kind and amount to the securities sold short.
While a short sale is made by selling a security a Fund does not own, a
short sale is "against the box" to the extent that a Fund contemporaneously owns
or has the right to obtain, at no added cost, securities identical to those sold
short. The Funds may make a short sale as a hedge, when it believes that the
price of a security may decline, causing a decline in the value of a security
owned by the Fund (or a security convertible or exchangeable for such security).
In such case, any future losses in a Fund's long position should be offset by a
gain in the short position and, conversely, any gain in the long position should
be reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount a Fund owns. There will be certain additional transaction
costs associated with short sales against the box, but the Funds will endeavor
to offset these costs with the income from the investment of the cash proceeds
of short sales.
Warrants. A Fund may purchase warrants issued by domestic and foreign
companies to purchase newly created equity securities consisting of common and
preferred stock. The equity security underlying a warrant is outstanding at the
time the warrant is issued or is issued together with the warrant.
Investing in warrants can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and, thus, can be
a speculative investment. The value of a warrant may decline because of a
decline in the value of the underlying
15
<PAGE>
security, the passage of time, changes in interest rates or in the dividend or
other policies of the company whose equity underlies the warrant or a change in
the perception as to the future price of the underlying security, or any
combination thereof. Warrants generally pay no dividends and confer no voting or
other rights other than to purchase the underlying security.
Stand-By Commitments. The Funds may acquire "stand-by commitments" with
respect to securities held in its portfolio. Under a stand-by commitment, a
dealer agrees to purchase at a Fund's option specified securities at a specified
price. A Fund's right to exercise stand-by commitments is unconditional and
unqualified. Stand-by commitments acquired by the Funds may also be referred to
as "put" options. A stand-by commitment is not transferable by a Fund, although
the Fund can sell the underlying securities to a third party at any time.
The principal risk of stand-by commitments is that the writer of a
commitment may default on its obligation to repurchase the securities acquired
with it. The Funds intend to enter into stand-by commitments only with brokers,
dealers and banks that, in the opinion of the Adviser, present minimal credit
risks. In evaluating the creditworthiness of the issuer of a stand-by
commitment, the Adviser will periodically review relevant financial information
concerning the issuer's assets, liabilities and contingent claims. The Funds
will acquire stand-by commitments only in order to facilitate portfolio
liquidity and does not intend to exercise its rights under stand-by commitments
for trading purposes.
The amount payable to a Fund upon its exercise of a stand-by commitment
is normally (i) the Fund's acquisition cost of the securities (excluding any
accrued interest which the Fund paid on their acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in the Fund's portfolio will
not exceed 1/2 of 1% of the value of a Fund's total assets calculated
immediately after each stand-by commitment is acquired.
The Funds would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying securities. Stand-by commitments
acquired by a Fund would be valued at zero in determining net asset value. Where
a Fund paid any consideration directly or indirectly for a stand-by commitment,
its cost would be reflected as unrealized depreciation for the period during
which the commitment was held by the Fund. Stand-by commitments would not affect
the average weighted maturity of a Fund's portfolio. Each Fund currently
anticipates that it will not invest more than 5% of its net assets in stand-by
commitments.
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Non-Publicly Traded and Illiquid Securities. Each Fund may invest up to
15% of its net assets in non-publicly traded and illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market, repurchase agreements which have a maturity of longer than seven days
and master demand notes providing for settlement upon more than seven days
notice by the Fund, and time deposits maturing in more than seven calendar days.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not considered illiquid for purposes of this
limitation. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted by the
SEC allows for a broader institutional trading market for securities otherwise
subject to restriction on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act for
resales of certain securities to qualified institutional buyers. The Adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid and
therefore subject to the Fund's limit on the purchase of illiquid securities
unless the Board or its delegates determines that the Rule 144A Securities are
liquid. In reaching liquidity decisions, the Adviser may consider, inter alia,
the following factors: (i) the unregistered nature of the security; (ii) the
frequency of trades and quotes for the security; (iii) the number of dealers
wishing to purchase or
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sell the security and the number of other potential purchasers; (iv) dealer
undertakings to make a market in the security and (v) the nature of the security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer).
Borrowing. Each Fund may borrow up to 33 1/3% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Investments (including
roll-overs) will not be made when borrowings exceed 5% of a Fund's net assets.
Although the principal of such borrowings will be fixed, a Fund's assets may
change in value during the time the borrowing is outstanding. The Funds expect
that some of its borrowings may be made on a secured basis. In such situations,
either the custodian will segregate the pledged assets for the benefit of the
lender or arrangements will be made with a suitable subcustodian, which may
include the lender.
INVESTMENT LIMITATIONS
The investment limitations numbered 1 through 10 may not be changed
without the affirmative vote of the holders of a majority of a Fund's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more of
the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares. Investment limitations 11 through 14 may be
changed by a vote of the Board at any time.
Each Fund may not:
1. Borrow money, except that each Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests and cash payments of dividends and distributions that might
otherwise require the untimely disposition of securities, in an amount not to
exceed 33-1/3% of the value of the Fund's total assets (including the amount
borrowed) valued at market less liabilities (not including the amount borrowed)
at the time the borrowing is made. Whenever borrowings of 5% or more of a Fund's
total assets are outstanding, the Fund will not make any additional investments
(including roll-overs).
2. Invest more than 25% of the value of its total assets in securities
of issuers in any one industry. For purposes of this restriction, the term
industry will be deemed to include (a) the government of any country other than
the United States, but not the U.S. Government and (b) all supranational
organizations.
3. Make loans, except that each Fund may purchase or hold fixed-income
securities, including loan participations, assignments and structured
securities, lend portfolio securities in an amount not to exceed 33-1/3% of a
Fund's assets taken at market value, enter into repurchase agreements and trade
in options, futures contracts and options on futures contracts.
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<PAGE>
4. Underwrite any securities issued by others except to the extent that
the investment in restricted securities and the sale of securities in accordance
with the Fund's investment objective, policies and limitations may be deemed to
be underwriting.
5. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Funds may invest in (a)
securities or other instruments backed by real estate or securities of companies
engaged in the real estate business, and (b) securities of companies that invest
in or sponsor oil, gas or mineral exploration or development programs.
6. Make short sales of securities or maintain a short position, except
that a Fund may maintain short positions in forward currency contracts, options,
futures contracts and options on futures contracts and may enter into short
sales "against the box".
7. Purchase securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
8. Invest in physical commodities, except that the Fund may purchase
and sell futures contracts, including those relating to securities, currencies
and indexes, and options on futures contracts, securities, currencies or
indexes, and purchase and sell currencies or securities on a forward commitment
or delayed-delivery basis and enter into stand-by commitments.
9. Issue any senior security except as permitted by these investment
limitations.
10. Purchase securities (other than U.S. Government securities) of any
issuer if, as a result of the purchase, more than 5% of the Fund's total assets
would be invested in the securities of the issuer or the Fund would own more
than 10% of the outstanding voting securities of the issuer, except that up to
25% of the value of the total assets of each Fund may be invested without regard
to these limitations.
11. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange or as otherwise permitted under the 1940 Act.
12. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Portfolio may (a) purchase put and call
options on securities and foreign currencies, (b) write covered call options on
securities and (c) purchase or write options on futures contracts.
13. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
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14. Invest more than 15% of a Fund's net assets in securities which may
be illiquid because of legal or contractual restrictions on resale or securities
for which there are no readily available market quotations. For purposes of this
limitation, repurchase agreements with maturities greater than seven days shall
be considered illiquid securities, (b) master demand notes providing for
settlement upon more than seven days notice by a Fund and (c) time deposits
maturing in more than seven calendar days shall be considered illiquid
securities.
If a percentage restriction (other than the percentage limitation set
forth in No. 1 above) is adhered to at the time of an investment, a later
increase or decrease in the percentage of assets resulting from a change in the
values of portfolio securities or in the amount of the Fund's assets will not
constitute a violation of such restriction.
Portfolio Valuation
- -------------------
The Prospectus discusses the time at which the net asset value of the
Funds is determined for purposes of sales and redemptions. The following is a
description of the procedures used by the Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including securities
traded through the Nasdaq National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
as of the time the valuation is made or, in the absence of sales, at the mean
between the bid and asked quotations. If there are no such quotations, the value
of the securities will be taken to be the highest bid quotation on the exchange
or market. Options or futures contracts will be valued similarly. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the Board.
Amortized cost involves valuing a portfolio instrument at its initial cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. The amortized cost method of valuation may also be used
with respect to other debt obligations with 60 days or less remaining to
maturity. Notwithstanding the foregoing, in determining the market value of
portfolio investments, the Funds may employ outside organizations (a "Pricing
Service") which may use a matrix or formula method that takes into consideration
market indexes, matrices, yield curves and other specific adjustments. The
procedures of Pricing Services are reviewed periodically by the officers of the
Trust under the general supervision and responsibility of the Board, which may
replace any such Pricing Service at any time. Securities, options and futures
contracts for which market quotations are not available and certain other assets
of the Funds will be valued at their fair value as determined in good faith
pursuant to consistently applied procedures established by the Board. In
addition, the Board or its delegates may value a security at fair value if it
determines that such security's value determined by the methodology set forth
above does not reflect its fair value.
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Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the New York Stock Exchange (the "NYSE") is open for
trading). In addition, securities trading in a particular country or countries
may not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which the Fund's net asset value is not calculated. As a result,
calculation of each Fund's net asset value may not take place contemporaneously
with the determination of the prices of certain portfolio securities used in
such calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of regular trading on
the NYSE will not be reflected in a Fund's calculation of net asset value unless
the Board or its delegates deems that the particular event would materially
affect net asset value, in which case an adjustment may be made. All assets and
liabilities initially expressed in foreign currency values will be converted
into U.S. dollar values at the prevailing exchange rate as quoted by a Pricing
Service. If such quotations are not available, the rate of exchange will be
determined in good faith pursuant to consistently applied procedures established
by the Board.
Portfolio Transactions
- ----------------------
The Adviser is responsible for establishing, reviewing and, where
necessary, modifying the Funds' investment strategies to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by a Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the price
of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. government securities are generally purchased from
underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the U.S. Treasury or from the issuing
agency or instrumentality.
The Adviser will select specific portfolio investments and effect
transactions for each Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions, the
Adviser will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. The Adviser may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to
the Funds
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and/or other accounts over which the Adviser exercises investment discretion.
The Adviser may place portfolio transactions with a broker or dealer with whom
it has negotiated a commission that is in excess of the commission another
broker or dealer would have charged for effecting the transaction if the Adviser
determines in good faith that such amount of commission was reasonable in
relation to the value of such brokerage and research services provided by such
broker or dealer viewed in terms of either that particular transaction or of the
overall responsibilities of the Adviser. Research and other services received
may be useful to the Adviser in serving both the Funds and its other clients
and, conversely, research or other services obtained by the placement of
business of other clients may be useful to the Adviser in carrying out its
obligations to the Funds. Research may include furnishing advice, either
directly or through publications or writings, as to the value of securities, the
advisability of purchasing or selling specific securities and the availability
of securities or purchasers or sellers of securities; furnishing seminars,
information, analyses and reports concerning issuers, industries, securities,
trading markets and methods, legislative developments, changes in accounting
practices, economic factors and trends and portfolio strategy; access to
research analysts, corporate management personnel, industry experts, economists
and government officials; comparative performance evaluation and technical
measurement services and quotation services; and products and other services
(such as third party publications, reports and analyses, and computer and
electronic access, equipment, software, information and accessories that
deliver, process or otherwise utilize information, including the research
described above) that assist the Adviser in carrying out its responsibilities.
Research received from brokers or dealers is supplemental to the Adviser's own
research program. The fees to the Adviser under its advisory agreement with the
Fund are not reduced by reason of its receiving any brokerage and research
services.
Investment decisions for each Fund concerning specific portfolio
securities are made independently from those for other clients advised by the
Adviser. Such other investment clients may invest in the same securities as the
Funds. When purchases or sales of the same security are made at substantially
the same time on behalf of such other clients, transactions are averaged as to
price and available investments allocated as to amount, in a manner which the
Adviser believes to be equitable to each client, including any given Fund. In
some instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold for that Fund.
To the extent permitted by law, the Adviser may aggregate the securities to be
sold or purchased for each Fund with those to be sold or purchased for such
other investment clients in order to obtain best execution.
Any portfolio transaction for the Funds may be executed through the
Funds' distributor (the "Distributor"), if, in the Adviser's judgment, the use
of the Distributor is likely to result in price and execution at least as
favorable as those of other qualified brokers, and if, in the transaction, the
Distributor charges a Fund a commission rate consistent with those charged by
the Distributor to comparable unaffiliated customers in similar transactions.
All transactions with affiliated brokers will comply with Rule 17e-1 under the
1940 Act.
In no instance will portfolio securities be purchased from or sold to
the Adviser or the Distributor or any affiliated person of such companies. In
addition, no Fund will give preference
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to any institutions with whom the Fund enters into distribution or shareholder
servicing agreements concerning the provision of distribution services or
support services.
Each Fund may participate, if and when practicable, in bidding for the
purchase of securities for the Fund's portfolio directly from an issuer in order
to take advantage of the lower purchase price available to members of such a
group. A Fund will engage in this practice, however, only the Adviser, in its
sole discretion, believes such practice to be otherwise in the Fund's interest.
Portfolio Turnover
- ------------------
The Funds do not intend to seek profits through short-term trading, but
the rate of turnover will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. The Funds' portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by the Funds could result in
high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold.
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MANAGEMENT OF THE TRUST
Officers and Board of Trustees
- ------------------------------
The names (and ages) of the Trust's Trustees and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
Amy N. Kong (43)....................Trustee, President and Secretary
350 Park Avenue, 19th Floor President and Managing Director of GTF Asset
New York, New York 10022 Management (USA), Inc. since June 1996;
Portfolio Manager with TIAA-CREF from
September 1985 until February 1996.
Carol Chuang (35)...................Vice President and Treasurer
350 Park Avenue, 19th Floor Senior Vice President and Portfolio
New York, New York 10022 Manager of GTF Asset Management (USA)
Inc. since January 1997; Portfolio
Manager of Matthews International
Capital Management frrom May 1994
until October 1996; Portfolio Manager
of JYCP Investment Management from May
1992 until April 1994.
No employee of the Adviser or any of its affiliates receives any
compensation from the Trust for acting as an officer or Trustee of the Trust.
Each Trustee who is not a director, trustee, officer or employee of the Adviser
or any of its affiliates receives an annual fee of $___, and $___ for each
meeting of the Board attended by him for his services as Trustee and is
reimbursed for expenses incurred in connection with his attendance at Board
meetings.
Trustees' Compensation
- ----------------------
(estimated for the fiscal year ended December 31, 1997)
Total Annual Compensation
Total Compensation from all Investment Companies
Name of Trustee from Trust Managed by the Adviser*
--------------- ---------- -----------------------
Amy N. Kong ** -0- -0-
[Other Trustees to be provided]
- --------------------
* There are currently no investment companies other than the Funds
advised by the Adviser.
** Ms. Kong is considered to be an interested person of the Trust and the
Adviser, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receives no compensation from the Trust.
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Investment Adviser and Administrator
- ------------------------------------
GTF Asset Management (USA) Inc. serves as investment adviser to the
Funds and ______________________ (the "Administrator") serves as administrator
to the Funds pursuant to separate written agreements (the "Advisory Agreement,"
and the "Administration Agreement," respectively). The services provided by, and
the fees payable by the Funds to, the Adviser under the Advisory Agreement and
the Administrator, under the Administration Agreement are described in the
Prospectus. See the Prospectus, "Administration of the Funds." Each class of
shares of the Funds bears its proportionate share of fees payable to the Adviser
and the Administrator in the proportion that its assets bear to the aggregate
assets of the Funds at the time of calculation.
Custodian and Transfer Agent
- ----------------------------
____________________ (the "Custodian") serves as custodian of the
Funds' assets pursuant to a custodian agreement (the "Custodian Agreement").
Under the Custodian Agreement, the Custodian (i) maintains a separate account or
accounts in the name of the Funds, (ii) holds and transfers portfolio securities
on account of the Funds, (iii) makes receipts and disbursements of money on
behalf of the Funds, (iv) collects and receives all income and other payments
and distributions on account of the Funds' portfolio securities and (v) makes
periodic reports to the Board concerning the Funds' custodial arrangements. The
Custodian is authorized to select one or more foreign or domestic banks or trust
companies and securities depositories to serve as sub-custodian on behalf of the
Funds.
____________________ also serves as the shareholder servicing, transfer
and dividend disbursing agent of the Funds pursuant to a Transfer Agency and
Service Agreement, under which it (i) issues and redeems shares of the Funds,
(ii) addresses and mails all communications by the Funds to record owners of
Fund shares, including reports to shareholders, dividend and distribution
notices and proxy material for its meetings of shareholders, (iii) maintains
shareholder accounts and, if requested, sub-accounts and (iv) makes periodic
reports to the Board concerning the transfer agent's operations with respect to
the Fund. The principal business address of _____________________ is
___________________________________.
Organization of the Trust
- -------------------------
The Trust's Declaration of Trust authorizes each Fund to issue an
unlimited number of shares of beneficial interest, $.001 par value per share,
which are currently classified into two
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classes, General Shares and Advisor Shares. Only General Shares and Advisor
Shares have been issued by the Trust.
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Funds.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of a Fund and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Funds
or a Trustee.
All shareholders of each Fund in each class, upon liquidation, will
participate ratably in a Fund's net assets. Shares do not have cumulative voting
rights, which means that holders of more than 50% of the shares voting for the
election of Trustees can elect all Trustees. Shares are transferable but have no
preemptive, conversion or subscription rights.
Distribution and Shareholder Servicing
- --------------------------------------
General Shares. The Fund has entered into a Shareholder Servicing and
Distribution Plan (the "12b-1 Plan"), pursuant to Rule 12b-1 under the 1940 Act,
pursuant to which the Fund will pay the Distributor, in consideration for
Services (as defined below), a fee calculated at an annual rate of .25% of the
average daily net assets of the General Shares of the Fund. Services performed
by the Distributor include (i) the sale of the General Shares, as set forth in
the 12b-1 Plan ("Selling Services"), (ii) ongoing servicing and/or maintenance
of the accounts of General Shareholders of the Funds, as set forth in the 12b-1
Plan ("Shareholder Services"), and (iii) sub-transfer agency services,
subaccounting services or administrative services related to the sale of the
General Shares, as set forth in the 12b-1 Plan ("Administrative Services" and
collectively with Selling Services and Administrative Services, "Services")
including, without limitation, (a) payments reflecting an allocation of overhead
and other office expenses of the Distributor related to providing Services; (b)
payments made to, and reimbursement of expenses of, persons who provide support
services in connection with the distribution of the General Shares including,
but not limited to, office space and equipment, telephone facilities, answering
routine inquiries regarding the Funds, and providing any other Shareholder
Services; (c) payments made to compensate selected dealers or other authorized
persons for providing any Services; (d) costs relating to the formulation and
implementation of marketing and promotional activities for the General Shares,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising, and related travel and
entertainment expenses; (e) costs of printing and distributing prospectuses,
statements of additional information and reports of the Funds to prospective
shareholders of the Funds; and (f) costs involved in obtaining whatever
information, analyses and reports with respect to marketing and promotional
activities that the Funds may, from time to time, deem advisable.
Pursuant to the 12b-1 Plan, the Distributor provides the Board with
periodic reports of amounts expended under the 12b-1 Plan and the purpose for
which the expenditures were made.
Advisor Shares. The Funds have entered into agreements with
institutional shareholders of record, broker-dealers, financial institutions,
depository institutions, retirement plans and
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<PAGE>
financial intermediaries ("Institutions") to provide certain distribution,
shareholder servicing, administrative and/or accounting services for their
clients or customers (or participants in the case of retirement plans)
("Customers") who are beneficial owners of Advisor Shares. Agreements will be
governed by a distribution plan (the "Distribution Plan") pursuant to Rule 12b-1
under the 1940 Act. The Distribution Plan requires the Board, at least
quarterly, to receive and review written reports of amounts expended under the
Distribution Plan and the purpose for which such expenditures were made.
An Institution with which a Fund has entered into an Agreement with
respect to either its Advisor Shares may charge a Customer one or more of the
following types of fees, as agreed upon by the Institution and the Customer,
with respect to the cash management or other services provided by the
Institution: (i) account fees (a fixed amount per month or per year); (ii)
transaction fees (a fixed amount per transaction processed); (iii) compensation
balance requirements (a minimum dollar amount a Customer must maintain in order
to obtain the services offered); or (iv) account maintenance fees (a periodic
charge based upon the percentage of assets in the account or of the dividend
paid on those assets). Services provided by an Institution to Customers are in
addition to, and not duplicative of, the services to be provided under the
Fund's administration and distribution and shareholder servicing arrangements. A
Customer of an Institution should read the Prospectus and this Statement of
Additional Information in conjunction with the Agreement and other literature
describing the services and related fees that would be provided by the
Institution to its Customers prior to any purchase of Fund shares. Prospectuses
are available from the Fund's distributor upon request. No preference will be
shown in the selection of Fund portfolio investments for the instruments of
Institutions.
General Provisions. The Distribution Plan and the 12b-1 Plan will
continue in effect for so long as their continuance is specifically approved at
least annually by the Board, including a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Distribution Plan or the 12b-1 Plan, as the
case may be ("Independent Trustees"). Any material amendment of the Distribution
Plan or the 12b-1 Plan would require the approval of the Board in the same
manner. Neither the Distribution Plan nor the Rule 12b-1 Plan may be amended to
increase materially the amount to be spent thereunder without shareholder
approval of the relevant class of shares. The Distribution Plan or the 12b-1
Plan may be terminated at any time, without penalty, by vote of a majority of
the Independent Trustees or by a vote of a majority of the outstanding voting
securities of the relevant class of shares of a Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of a Fund's shares is equal to the per share net
asset value of the relevant class of shares of the Fund. Information on how to
purchase and redeem Fund shares and how such shares are priced is included in
the Prospectus.
Under the 1940 Act, each Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than
27
<PAGE>
customary weekend and holiday closings, or during which trading on the NYSE is
restricted, or during which (as determined by the SEC) an emergency exists as a
result of which disposal or fair valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (The
Fund may also suspend or postpone the recordation of an exchange of its shares
upon the occurrence of any of the foregoing conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, a Fund may make
payment wholly or partly in securities or other investment instruments which may
not constitute securities as such term is defined in the applicable securities
laws. If a redemption is paid wholly or partly in securities or other property,
a shareholder would incur transaction costs in disposing of the redemption
proceeds. Each Fund intends to comply with Rule 18f-1 promulgated under the 1940
Act with respect to redemptions in kind.
EXCHANGE PRIVILEGE
An Investor may exchange General Shares of a Fund for General Shares of
another Fund or an Institution may exchange Advisor Shares of a Fund for Advisor
Shares of another Fund, as the case may be, at their respect net asset values.
The exchange privilege enables shareholders to acquire shares in a fund
with a different investment objective when they believe that a shift between
funds is an appropriate investment decision. This privilege is available to
shareholders residing in any state in which the General Shares or Advisor Shares
being acquired, as relevant, may legally be sold.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value of the relevant class and the proceeds are invested on the same day,
at a price as described above, in shares of the relevant class of the fund being
acquired. The Adviser reserves the right to reject more than three exchange
requests by a shareholder exchanging General Shares in any 30-day period. The
exchange privilege may be modified or terminated at any time upon 60 days'
notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States federal income
tax considerations regarding the purchase, ownership and disposition of shares
in the Funds. Each prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local and foreign tax
consequences of investing in the Funds. The summary is based on the laws in
effect on the date of this Statement of Additional Information, which are
subject to change.
28
<PAGE>
United States Federal Income Taxes
----------------------------------
The Funds and Their Investments
- -------------------------------
The Funds and Their Investments. Each Fund intends to qualify and elect
to be treated as a regulated investment company for each taxable year under the
Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, each Fund
must, among other things: (a) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stock or securities or foreign
currencies, or other income (including, but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) diversify its holdings so that,
at the end of each quarter of the Fund's taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, securities of other
regulated investment companies, United States government securities and other
securities, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the Fund's assets and not greater than 10% of
the outstanding voting securities of such issuer and (ii) not more than 25% of
the value of its assets is invested in the securities (other than United States
government securities or securities of other regulated investment companies) of
any one issuer or any two or more issuers that the Fund controls and are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. Each Fund expects that all of its foreign currency gains
will be directly related to its principal business of investing in stocks and
securities.
As a regulated investment company, a Fund will not be subject to United
States federal income tax on its net investment income (i.e., income other than
its net realized long- and short-term capital gains) and its net realized long-
and short-term capital gains, if any, that it distributes to its shareholders,
provided that an amount equal to at least 90% of the sum of its investment
company taxable income (i.e., 90% of its taxable income minus the excess, if
any, of its net realized long-term capital gains over its net realized
short-term capital losses (including any capital loss carryovers), plus or minus
certain other adjustments as specified in the Code) and its net tax-exempt
income for the taxable year is distributed, but will be subject to tax at
regular corporate rates on any taxable income or gains that it does not
distribute. Furthermore, each Fund will be subject to a United States corporate
income tax with respect to such distributed amounts in any year that it fails to
qualify as a regulated investment company or fails to meet this distribution
requirement. Any dividend declared by a Fund in October, November or December of
any calendar year and payable to shareholders of record on a specified date in
such a month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by the Fund not later
than such December 31, provided that such dividend is actually paid by the Fund
during January of the following calendar year.
The Funds intend to distribute annually to their shareholders
substantially all of their investment company taxable income. The Board of
Directors of the Funds will determine annually whether to distribute any net
realized long-term capital gains in excess of net realized short-term capital
losses (including any capital loss carryovers). The Funds currently expect to
distribute any excess annually to their shareholders. However, if a Fund retains
for investment an amount equal to all or a portion of its net long-term capital
gains in excess of its net short-term
29
<PAGE>
capital losses and capital loss carryovers, it will be subject to a corporate
tax (currently at a rate of 35%) on the amount retained. In that event, the Fund
will designate such retained amounts as undistributed capital gains in a notice
to its shareholders who (a) will be required to include in income for United
States federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (b) will be entitled to credit
their proportionate shares of the 35% tax paid by the Fund on the undistributed
amount against their United States federal income tax liabilities, if any, and
to claim refunds to the extent their credits exceed their liabilities, if any,
and (c) will be entitled to increase their tax basis, for United States federal
income tax purposes, in their shares by an amount equal to 65% of the amount of
undistributed capital gains included in the shareholder's income.
The Code imposes a 4% nondeductible excise tax on the Funds to the
extent the Funds do not distribute by the end of any calendar year at least 98%
of their net investment income for that year and 98% of the net amount of their
capital gains (both long- and short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this purpose, however, any income
or gain retained by the Funds that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the minimum
amounts that must be distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or overdistribution, as
the case may be, from the previous year. The Funds anticipate that they will pay
such dividends and will make such distributions as are necessary in order to
avoid the application of this tax.
Exchange control regulations may restrict repatriations of investment
income and capital or the proceeds of securities sales by foreign investors such
as the Funds and may limit the Funds' ability to pay sufficient dividends and to
make sufficient distributions to satisfy the 90% and excise tax distribution
requirements.
If, in any taxable year, a Fund fails to qualify as a regulated
investment company under the Code, it would be taxed in the same manner as an
ordinary corporation and distributions to its shareholders would not be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits would constitute
dividends (eligible for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the shareholders' hands
as long-term capital gains. If a Fund fails to qualify as a regulated investment
company in any year, it must pay out its earnings and profits accumulated in
that year in order to qualify again as a regulated investment company. In
addition, if a Fund failed to qualify as a regulated investment company for a
period greater than one taxable year, the Fund may be required to recognize any
net built-in gains (the excess of the aggregate gains, including items of
income, over aggregate losses that would have been realized if it had been
liquidated) in order to qualify as a regulated investment company in a
subsequent year.
The Funds' short sales against the box, if any, and transactions in
foreign currencies, forward contracts, options and futures contracts (including
options and futures contracts on foreign currencies) will be subject to special
provisions of the Code that, among other things, may affect the character of
gains and losses realized by the Funds (i.e., may affect
30
<PAGE>
whether gains or losses are ordinary or capital), accelerate recognition of
income to the Funds and defer Fund losses. These rules could therefore affect
the character, amount and timing of distributions to shareholders. These
provisions also (a) will require the Funds to mark-to-market certain types of
the positions in their portfolios (i.e., treat them as if they were closed out)
and (b) may cause the Funds to recognize income without receiving cash with
which to pay dividends or make distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise taxes. The Funds will
monitor their transactions, will make the appropriate tax elections and will
make the appropriate entries in their books and records when they acquire any
foreign currency, forward contract, option, futures contract or hedged
investment in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.
Passive Foreign Investment Companies. If a Fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United States federal income tax on
a portion of any "excess distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable dividend by the Fund to
its shareholders. Additional charges in the nature of interest may be imposed on
the Fund in respect of deferred taxes arising from such distributions or gains.
Any tax paid by the Fund as a result of its ownership of shares in a PFIC will
not give rise to any deduction or credit to the Fund or any shareholder. If the
Fund were to invest in a PFIC and elected to treat the PFIC as a "qualified
electing fund" under the Code, in lieu of the foregoing requirements, the Fund
might be required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing fund, even if not
distributed to the Fund, and such amounts would be subject to the 90% and excise
tax distribution requirements described above. In order to make this election,
the Fund would be required to obtain certain annual information from the passive
foreign investment companies in which it invests, which may be difficult or not
possible to obtain.
Recently, legislation was enacted that provides a mark-to market
election for regulated investment companies effective for taxable years
beginning after December 31, 1997. This election would result in a Fund being
treated as if it had sold and repurchased all of its PFIC stock at the end of
each year. In this case, a Fund would report gains as ordinary income and would
deduct losses as ordinary losses to the extent of previously recognized gains.
The election, once made, would be effective for all subsequent taxable years of
a Fund, unless revoked with the consent of the IRS. By making the election, a
Fund could potentially ameliorate the adverse tax consequences with respect to
its ownership of shares in a PFIC, but in any particular year may be required to
recognize income in excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC company stock.
Dividends and Distributions. Dividends of net investment income and
distributions of net realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net long-term capital gains, if any, that a Fund designates as
capital gains dividends are taxable as long-term capital gains, whether paid in
cash or in shares and regardless of how long a shareholder has held shares of
the Fund. Dividends and distributions paid by a Fund (except for the portion
thereof, if any, attributable to dividends on stock of U.S. corporations
received by the Fund) will not qualify for the deduction for dividends received
by corporations. Distributions in excess of a Fund's current
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<PAGE>
and accumulated earnings and profits will, as to each shareholder, be treated as
a tax-free return of capital, to the extent of a shareholder's basis in his
shares of the Fund, and as a capital gain thereafter (if the shareholder holds
his shares of the Fund as capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
purposes as receiving a distribution in the amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares just
purchased at that time may reflect the amount of the forthcoming distribution,
such dividend or distribution may nevertheless be taxable to them.
If a Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends are included in
the Fund's gross income not as of the date received but as of the later of (a)
the date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares, a shareholder
will realize a taxable gain or loss equal to the difference between the amount
realized and his basis in his shares. Such gain or loss will be treated as
capital gain or loss, if the shares are capital assets in the shareholder's
hands, and will be long-term capital gain or loss if the shares are held for
more than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be disallowed
to the extent the shares disposed of are replaced, including replacement through
the reinvesting of dividends and capital gains distributions in a Fund, within a
61-day period beginning 30 days before and ending 30 days after the disposition
of the shares. In such a case, the basis of the shares acquired will be
increased to reflect the disallowed loss. Any loss realized by a shareholder on
the sale of a Fund share held by the shareholder for six months or less will be
treated for United States federal income tax purposes as a long-term capital
loss to the extent of any distributions or deemed distributions of long-term
capital gains received by the shareholder with respect to such share.
Foreign Taxes. If a Fund qualifies as a regulated investment company,
if certain distribution requirements are satisfied and if more than 50% of the
value of the Fund's assets at the close of the taxable year consists of stocks
or securities of foreign corporations, that Fund may elect, for United States
federal income tax purposes, to treat any foreign income taxes paid by the Fund
that can be treated as income taxes under United States income tax principles as
paid by its shareholders (the "foreign tax passthrough election").
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<PAGE>
Each Fund expects to qualify for and make the foreign tax passthrough
election in some, but not necessarily all, of its taxable years. For any year
that a Fund makes such an election, an amount equal to the foreign taxes paid by
the Fund will be included in the income of its shareholders and each shareholder
will be entitled (subject to certain limitations) to credit the amount included
in his income against such shareholder's United States tax liabilities, if any,
or to deduct such amount from such shareholder's United States taxable income,
if any. Shortly after any year for which it makes such an election, a Fund will
report to its shareholders, in writing, the amount per share of such foreign
income taxes that must be included in each shareholder's gross income and the
amount which will be available for deduction or credit. In general, a
shareholder may elect each year whether to claim deductions or credits for
foreign taxes. However, no deductions for foreign taxes may be claimed by
noncorporate shareholders (including certain foreign shareholders as described
below) who do not itemize deductions.
Backup Withholding. Each Fund may be required to withhold, for United
States federal income tax purposes, 31% of the dividends and distributions
payable to shareholders who fail to provide a Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Certain shareholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount withheld may be credited
against a shareholder's United States federal income tax liabilities. Additional
tax withholding requirements which apply with respect to foreign investors are
discussed below.
Foreign Shareholders. Taxation of a shareholder who, as to the United
States, is a foreign investor (such as a nonresident alien individual, a foreign
trust or estate, a foreign corporation or a foreign partnership) depends, in
part, on whether the shareholder's income from a Fund is "effectively connected"
with a United States trade or business carried on by the shareholder.
If the foreign investor is not a resident alien and the income from a
Fund is not effectively connected with a United States trade or business carried
on by the foreign investor, distributions of net investment income and net
realized short-term capital gains will be subject to a 30% (or lower treaty
rate) United States withholding tax. Furthermore, foreign investors may be
subject to an increased United States tax on their income resulting from a
Fund's election (described above) to "pass-through" amounts of foreign taxes
paid by the Fund, but may not be able to claim a credit or deduction with
respect to the foreign taxes treated as having been paid by them. Distributions
to a non-resident alien of net realized long-term capital gains, amounts
retained by the Fund which are designated as undistributed capital gains, and
gains realized upon the sale of shares of the Fund generally will not be subject
to United States tax unless the foreign investor who is a nonresident alien
individual is physically present in the United States for more than 182 days
during the taxable year and, in the case of gain realized upon the sale of Fund
shares, unless (a) such gain is attributable to an office or fixed place of
business in the United States or (b) such nonresident alien individual has a tax
home in the United States and such gain is not attributable to an office or
fixed place of business located outside the United States. However, a
determination by the Fund not to distribute long-term capital gains will cause
the Fund to incur a U.S. federal tax liability with respect to retained
long-term capital gains, thereby
33
<PAGE>
reducing the amount of cash held by a Fund that is available for investment, and
the foreign investor may not be able to claim a credit or deduction with respect
to such taxes.
In general, if a foreign investor is a resident alien or if dividends
or distributions from a Fund are effectively connected with a United States
trade or business carried on by the foreign investor, then dividends of net
investment income, distributions of net short-term and long-term capital gains,
amounts retained by the Fund that are designated as undistributed capital gains
and any gains realized upon the sale of shares of the Fund will be subject to
United States income tax at the rates applicable to United States citizens or
domestic corporations. If the income from the Fund is effectively connected with
a United States trade or business carried on by a foreign investor that is a
corporation, then such foreign investor may also be subject to the 30% (or lower
treaty rate) branch profits tax.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Shareholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income from a Fund is or is not effectively connected with a
United States trade or business carried on by them, (b) whether they may claim
the benefits of an applicable tax treaty, and (c) any other tax consequences to
them of an investment in a Fund.
Notices. Shareholders will be notified annually by the Funds as to the
United States federal income tax status of the dividends, distributions and
deemed distributions made by the Funds to its shareholders. Furthermore,
shareholders will also receive, if appropriate, various written notices after
the close of a Fund's taxable year regarding the United States federal income
tax status of certain dividends, distributions and deemed distributions that
were paid (or that are treated as having been paid) by the Fund to its
shareholders during the preceding taxable year.
Other Taxation
- --------------
Distributions also may be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES AFFECTING
THE FUNDS AND THEIR SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
INVESTMENTS IN THE FUNDS.
DETERMINATION OF PERFORMANCE
From time to time, each Fund may quote the total return of its General
Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. The annual total return and actual total return
for a given period will be calculated by finding the average compounded rates of
return for the one-, five- and ten- (or such shorter period as the
34
<PAGE>
relevant class of shares has been offered) year periods that would equate the
initial amount invested to the ending redeemable value according to the
following formula: P(1+T)n = ERV. For purposes of this formula, "P" is a
hypothetical investment of $1,000; "T" is average annual total return; "n" is
number of years; and "ERV" is the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the one-, five- or ten-year periods (or
fractional portion thereof). Total return or "T" is computed by finding the
average annual change in the value of an initial $1,000 investment over the
period and assumes that all dividends and distributions are reinvested during
the period.
The Funds may advertise, from time to time, comparisons of the
performance of its General Shares and/or Advisor Shares with that of one or more
other mutual funds with similar investment objectives. The Funds may advertise
average annual calendar year-to-date and calendar quarter returns, which are
calculated according to the formula set forth in the preceding paragraph, except
that the relevant measuring period would be the number of months that have
elapsed in the current calendar year or most recent three months, as the case
may be. Investors should note that this performance may not be representative of
the Fund's total return in longer market cycles.
The performance of a class of Fund shares will vary from time to time
depending upon market conditions, the composition of a Fund's portfolio and
operating expenses allocable to it. As described above, total return is based on
historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, a Fund's performance will fluctuate, unlike
certain bank deposits or other investments which pay a fixed yield for a stated
period of time. Any fees charged by Institutions or other institutional
investors directly to their customers in connection with investments in Fund
shares are not reflected in a Fund's total return, and such fees, if charged,
will reduce the actual return received by customers on their investments.
The Funds intend to diversify their assets among countries, and in
doing so, would expect to be able to reduce the risk arising from economic
problems affecting a single country. The Adviser thus believes that, by
spreading risk throughout many diverse markets outside the United States, the
Fund will reduce its exposure to country-specific economic problems. The Adviser
also believes that a diversified portfolio of international equity securities,
when combined with a similarly diversified portfolio of domestic equity
securities, tends to have a lower volatility than a portfolio composed entirely
of domestic securities. Furthermore, international equities have been shown to
reduce volatility in single asset portfolios regardless of whether the
investments are in all domestic equities or all domestic fixed-income
instruments, and research has indicated that volatility can be significantly
decreased when international equities are added. Advertising or supplemental
sales literature relating to the Fund may describe the percentage decline from
all-time high levels for certain foreign stock markets.
35
<PAGE>
AUDITORS AND COUNSEL
________________ ("_________"), with principal offices at
______________, serves as independent auditors for the Funds. The statements of
assets and liabilities dated as of October __, 1997 that appear in this
Statement of Additional Information for the fiscal period ended [September 30,
1997] have been audited by _____________, whose report thereon appears elsewhere
herein and has been included herein in reliance upon the report of such firm of
independent auditors given upon their authority as experts in accounting and
auditing.
Willkie Farr & Gallagher serves as counsel for the Trust and the
Adviser.
FINANCIAL STATEMENTS
A statement of assets and liabilities for each Fund dated as of
September 30, 1997 follows the Reports of Independent Auditors.
36
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
- ------------------------
Commercial paper rated A-1 by Standard and Poor's Ratings Services
("S&P") indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on commercial
paper rated A-2 is satisfactory, but the relative degree of safety is not as
high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
- ----------------------
The following summarizes the ratings used by S&P for corporate bonds:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB - This is the lowest investment grade. Debt rated BBB is regarded as
having an adequate capacity to pay interest and repay principal. Although
it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for bonds in this
category than for bonds in higher rated categories.
BB, B and CCC - Debt rated BB and B is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the
A-1
<PAGE>
obligation. BB represents a lower degree of speculation than B and
CCC the highest degree of speculation. While such bonds will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category
is also used for debt subordinated to senior debt that is assigned an
actual or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on which no interest is
being paid. Such debt is rated between debt rated C and debt rated D.
To provide more detailed indications of credit quality, the ratings may be
modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the ratings used by Moody's for corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
A-2
<PAGE>
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the bonds rated
"Aa" through "B". The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These issues may be in
default or present elements of danger may exist with respect to principal
or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-3
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements included in Part B (to be filed
by amendment):
(1) Reports of Independent Accountants
(2) Statements of Assets and Liabilities
(b) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 Agreement and Declaration of Trust.
2 By-Laws.
3 Not applicable.
4 Forms of Share Certificates.*
5 Form of Investment Advisory Agreements.*
6 Form of Distribution Agreement.*
7 Not applicable.
8 Form of Custodian Agreement.*
9(a) Form of Transfer Agency Agreement.*
(b) Form of Administration Agreement.*
- ----------------------------
* To be filed by amendment.
C-1
<PAGE>
10(a) Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Trust.*
(b) Opinion and Consent of Bingham, Dana & Gould,
Massachusetts counsel to the Trust.*
11 Consent of _________________, Independent Accountants.*
12 Not Applicable.
13 Form of Purchase Agreement.*
14 Not Applicable.
15 Not Applicable
16 Not Applicable.
17 Financial Data Schedules.*
- ----------------------------
* To be filed by amendment.
Item 25. Persons Controlled by or Under Common Control with
Registrant
--------------------------------------------------
All of the outstanding shares of beneficial interest of Registrant on
the date Registrant's Registration Statement becomes effective will be owned by
GTF Asset Management (USA), Inc. ("GTF"), a corporation formed under New York
law.
Item 26. Number of Holders of Securities
-------------------------------
It is anticipated that GTF will hold all Registrant's shares of
beneficial interest, par value $0.001 per share, on the date Registrant's
Registration Statement becomes effective.
Item 27. Indemnification
---------------
Registrant, officers and directors of GTF and of Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. These policies provide insurance
for any "Wrongful Act" of an officer, director or trustee. Wrongful Act is
defined as breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by an officer, director or
trustee in connection with the operation of Registrant. Insurance coverage does
not extend to (a) conflicts of interest or gaining in fact any profit or
advantage to which one is not legally entitled, (b) intentional non-compliance
with any statute or regulation or (c) commission of
C-2
<PAGE>
dishonest, fraudulent acts or omissions. Insofar as it relates to Registrant,
the coverage is limited in amount and, in certain circumstances, is subject to a
deductible.
Under Section 1 of Article XII of the Declaration of Trust (the
"Declaration"), the Trustees and officers of Registrant, in incurring any debts,
liabilities or obligations, or in taking or omitting any other actions for or in
connection with Registrant, are or shall be deemed to be acting as Trustees or
officers of Registrant and not in their own capacities. No Trustee, officer,
employee or agent of Registrant shall be subject to any personal liability
whatsoever in tort, contract, or otherwise, to any other person or persons in
connection with the assets or affairs of Registrant or of any series of the
Registrant (a "Fund") save only that arising from his own willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. Registrant (or if the matter relates only to a particular
Fund, that Fund) shall be solely liable for any and all debts, claims, demands,
judgments, decrees, liabilities or obligations of any and every kind, against or
with respect to Registrant or such Fund in tort, contract or otherwise in
connection with the assets or the affairs of Registrant or such Fund and all
persons dealing with Registrant or any Portfolio shall be deemed to have agreed
that resort shall be had solely to the assets of the Trust or the Fund, as the
case may be, for the payment or performance thereof.
Section 2 of Article XII of the Declaration further limits the
liability of the Trustees by providing that a Trustee shall not be liable for
errors of judgment or mistakes of fact or law. Furthermore, (i) the Trustees
shall not be responsible or liable in any event for any neglect or wrongdoing of
any officer, agent, employee, investment adviser, sub-adviser, administrator,
distributor or custodian of Registrant, nor shall any Trustee be responsible for
the act or omission of any other Trustee; (ii) the Trustees may take advice of
counsel or other experts with respect to the meaning and operation of the
Declaration and their duties as Trustees, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow such
advice; and (iii) in discharging their duties, the Trustees, when acting in good
faith, shall be entitled to rely upon the books of account of Registrant and
upon written reports made to the Trustees by any officer appointed by them, any
independent public accountant, and (with respect to the subject matter of the
contract involved) any officer, partner or responsible employee of a contracting
party appointed by the Trustees pursuant to the Declaration. The Trustees are
not required to give any bond or surety or any other security for the
performance of their duties.
Under Section 4 of Article XII of the Declaration any past or present
Trustee, officer, employee or agent of Registrant (including persons who serve
at Registrant's request as directors, officers, trustees, employees or agents of
another organization in which Registrant has any interest as a shareholder,
creditor or otherwise (hereinafter referred to as a "Covered Person")) is
indemnified against liability and all expenses reasonably incurred by any
Covered Person in connection with the defense or disposition of any claim,
action, suit or other proceeding to which he may be a party or otherwise
involved by reason of his being or having been a Covered Person, or with which
he may be or have been threatened, while in office or thereafter, be reason or
having been a Covered Person. This provision does not authorize indemnification
when it is determined, in the manner specified in the Declaration
C-3
<PAGE>
that such Covered Person has not acted in good faith in the reasonable belief
that his actions were in or not opposed to the best interests of Registrant.
Moreover, this provision does not authorize indemnification when it is
determined, in the manner specified in the Declaration, that such Covered Person
would otherwise be liable to Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
Expenses may be paid by Registrant in advance of the final disposition of any
claim, action, suit or proceeding upon receipt of an undertaking by such Covered
Person to repay such expenses to Registrant in the event that it is ultimately
determined that indemnification of such expenses is not authorized under the
Declaration and either (i) the Covered Person provides security for such
undertaking or (ii) the disinterested Trustees or independent legal counsel
determines, in the manner specified in the Declaration, that there is reason to
believe the Covered Person will be found to be entitled to indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to Trustees, officers and
controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission ("SEC") such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
or indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of
Investment Adviser
---------------------------------
GTF, a subsidiary of Nuri Holdings, Inc., acts as investment adviser
to Registrant. GTF renders investment advice to a wide variety of individual and
institutional clients. The list required by this Item 28 of officers and
directors of GTF, together with information as to their other business,
profession, vocation or employment of a substantial nature during the past two
years, is incorporated by reference to Schedules A and D of Form ADV filed by
GTF (SEC File No. 801-53872).
Item 29. Principal Underwriter
---------------------
(a) ______________________________ (the "Distributor") will act as
distributor for Registrant.
(b) For information relating to each director and officer of the
Distributor, reference is made to Form BD (SEC File No. _________) filed by the
Distributor under the Securities Exchange Act of 1934.
C-4
<PAGE>
(c) None.
Item 30. Location of Accounts and Records
--------------------------------
(1) GTF Advantage Funds
350 Park Avenue, 19th Floor
New York, New York 10022
(Registrant's Declaration of Trust, By-laws and minute books)
(2) GTF Asset Management (USA) Inc.
350 Park Avenue, 19th Floor
New York, New York 10022
(records relating to its functions as investment adviser)
(3) _____________________________________
_____________________________________
_____________________________________
(records relating to its functions as administrator,
distributor, transfer agent and custodian)
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees of Registrant when requested in writing to do so by the holders of
at least 10% of Registrant's outstanding shares. Registrant undertakes further,
in connection with the meeting, to comply with the provisions of Section 16(c)
of the 1940 Act relating to communications with the shareholders of certain
common-law trusts.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
(c) Registrant hereby undertakes to file a post-effective amendment,
with financial statements of the GTF Asia Growth Fund, GTF Greater China Fund
and GTF Eurogrowth Fund, which need not be certified with four to six months
from the effective date of Registrant's Registration Statement under the Act.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State of
New York, on the 31st day of August, 1997.
GTF ADVANTAGE FUNDS
By: /s/ Amy N. Kong
Amy N. Kong
President
ATTEST:
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated:
Signature Title Date
/s/ Amy N. Kong President, Trustee August 31, 1997
Amy N. Kong and Secretary
/s/ Carol Chuang Vice President and August 31, 1997
Carol Chuang Treasurer
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 Agreement and Declaration of Trust
2 By-Laws
<PAGE>
DECLARATION OF TRUST
OF
GTF ADVANTAGE FUNDS
DECLARATION OF TRUST made as of this 31st day of August, 1997 by the sole
Trustee hereunder.
WHEREAS, the Trustee desires to establish a trust fund for the purposes of
carrying on the business of a management investment company; and
WHEREAS, in furtherance of such purpose, the Trustee and any additional or
successor Trustees elected in accordance with Article V hereof are acquiring and
may hereafter acquire assets and properties which they will hold and manage as
trustees of a Massachusetts business trust with transferable shares in
accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustee and any additional or successor Trustees
elected or appointed in accordance with Article V hereof hereby declare that
they will hold all cash, securities and other assets and properties, which they
may from time to time acquire in any manner as Trustees hereunder, IN TRUST, and
that they will manage and dispose of the same upon the following terms and
conditions for the benefit of the holders from time to time of shares of
beneficial interest in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1. Name. This Trust shall be known as "GTF Advantage Funds" and
the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required by
the context or specifically provided:
(a) The "Trust" refers to the Massachusetts voluntary association
established by this Declaration of Trust, as amended from time to time;
(b) "Trustee" or "Trustees" refers to each signatory to this
Declaration of Trust so long as such signatory shall continue in office in
accordance with the terms hereof, and all other individuals who at the time
in question have been duly elected or appointed and qualified in accordance
with Article V hereof and are then in office;
<PAGE>
(c) "Shares" mean the shares of beneficial interest described in
Article IV hereof and include fractions of Shares as well as whole Shares;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 (and
any successor statute) and the Rules and Regulations thereunder, all as
amended from time to time;
(f) The terms "Commission," "Interested Person," "Principal
Underwriter" and "vote of a majority of the outstanding voting securities"
shall have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" or "Declaration" shall mean this
Declaration of Trust as amended or restated from time to time; and
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time.
ARTICLE II
NATURE AND PURPOSE OF TRUST
The Trust is a voluntary association with transferable shares (commonly
known as a business trust) of the type referred to in Chapter 182 of the General
Laws of the Commonwealth of Massachusetts. The Trust is not intended to be,
shall not be deemed to be, and shall not be treated as, a general or a limited
partnership, joint venture, corporation or joint stock company, nor shall the
Trustees or Shareholders or any of them for any purpose be deemed to be, or be
treated in any way whatsoever as though they were, liable or responsible
hereunder as partners or joint venturers. The purpose of the Trust is to engage
in, operate and carry on the business of an open-end management investment
company and to do any and all acts or things as are necessary, convenient,
appropriate, incidental or customary in connection therewith.
The Trust set forth in this instrument shall be deemed made in the
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a business trust, and without
limiting the provisions hereof, the Trust may exercise all powers which are
ordinarily exercised by such a trust. No provision of this Declaration shall be
effective to require a waiver of compliance with any provision of the Securities
Act of 1933, as amended, or the 1940 Act, or of any valid rule, regulation or
order of the Commission thereunder.
2
<PAGE>
ARTICLE III
REGISTERED AGENT; PRINCIPAL PLACE OF BUSINESS
The name of the registered agent of the Trust is CT Corporation System at
2 Oliver Street, Boston, Massachusetts. The principal place of business of the
Trust is 350 Park Avenue, New York, New York 10022. The Trustees may, without
the approval of Shareholders, change the registered agent of the Trust and the
principal place of business of the Trust.
ARTICLE IV
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The beneficial interest in the
Trust shall be divided into such transferable Shares of beneficial interest, of
such series or classes, and of such designations and par values (if any) and
with such rights, preferences, privileges and restrictions as shall be
determined by the Trustees in their sole discretion, without Shareholder
approval, from time to time and shall initially consist of one class of
transferable shares, par value $.001 per share. The number of Shares is
unlimited and each Share shall be fully paid and nonassessable. The Trustees
shall have full power and authority, in their sole discretion and without
obtaining any prior authorization or vote of the Shareholders of the Trust or of
the Shareholders of any series or class of Shares, to create and establish (and
to change in any manner) Shares or any series or classes thereof with such
preferences, voting powers, rights and privileges as the Trustees may from time
to time determine; to divide or combine the Shares or the Shares of any series
or classes thereof into a greater or lesser number without thereby changing
their proportionate beneficial interest in the Trust; to classify or reclassify
any issued Shares into one or more series or classes of Shares; to abolish any
one or more series or classes of Shares; and to take such other action with
respect to the Shares as the Trustees may deem desirable. Except as may be
specifically set forth in Section 2 of this Article IV or in an instrument
establishing and designating classes or series of Shares, the Shares shall have
the powers, preferences, rights, qualifications, limitations and restrictions
described below:
(i) In the event of the termination of the Trust the holders of the
Shares shall be entitled to receive pro rata the net distributable assets
of the Trust.
3
<PAGE>
(ii) Each holder of Shares shall be entitled to one vote for each
Share held on each matter submitted to a vote of Shareholders, and the
holders of outstanding Shares shall vote together as a single class.
(iii) Dividends or other distributions to Shareholders, when, as and
if declared or made by the Trustees, shall be shared equally by the holders
of Shares on a share for share basis, such dividends or other distributions
or any portion thereof to be paid in cash or to be reinvested in full and
fractional Shares of the Trust as the Trustees shall direct.
(iv) Any Shares purchased, redeemed or otherwise reacquired by the
Trust shall be retired automatically and such retired Shares shall have the
status of authorized but unissued Shares.
(v) Shares may be issued from time to time, without the vote of the
Shareholders (or, if the Trustees in their sole discretion deem advisable,
with a vote of Shareholders), either for cash or for such other
consideration (which may be in any one or more instances a certain
specified consideration or certain specified considerations) and on such
terms as the Trustees, from time to time, may deem advisable, and the Trust
may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities).
(vi) The Trust may issue Shares in fractional denominations to the
same extent as its whole Shares, and Shares in fractional denominations
shall be Shares having proportionately to the respective fractions
represented thereby all the rights of whole Shares, including, without
limitation, the right to vote, the right to receive dividends and
distributions and the right to participate upon termination of the Trust.
Section 2. Establishment of Series and Classes of Shares.
(a) Series. The Trustees, in their sole discretion, without obtaining any
prior authorization or vote of the Shareholders of the Trust or of the
Shareholders of any series or class of Shares, from time to time may authorize
the division of Shares into two or more series, the number and relative rights,
privileges and preferences of which shall be established and designated by the
Trustees, in their discretion, upon and subject to the following provisions:
(i) All Shares shall be identical except that there may be such
variations as shall be fixed and determined by the Trustees between
different series as to purchase price, right of redemption, and the price,
terms and manner or redemption, and special and relative rights as to
dividends and on liquidation.
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(ii) The number of authorized Shares and the number of Shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and
reacquired of any series into one or more series that may be established
and designated from time to time. The Trustees may hold as treasury shares
(of the same or some other series), reissue for such consideration and on
such terms as they may determine, or cancel any Shares of any series
reacquired by the Trust at their discretion from time to time.
(iii) The power of the Trustees to invest and reinvest the assets of
the Trust allocated or belonging to any particular series shall be governed
by Section 1, Article VI hereof unless otherwise provided in the instrument
of the Trustees establishing such series which is hereinafter described.
(iv) Each Share of a series shall represent a beneficial interest in
the net assets allocated or belonging to such series only, and such
interest shall not extend to the assets of the Trust generally. Dividends
and distributions on Shares of a particular series may be paid with such
frequency as the Trustees may determine, which may be monthly or otherwise,
pursuant to a standing vote or votes adopted only once or with such
frequency as the Trustees may determine, to the Shareholders of that series
only, from such of the income and capital gains, accrued or realized, from
the assets belonging to that series. All dividends and distributions on
Shares of a particular series shall be distributed pro rata to the
Shareholders of that series in proportion to the number of Shares of that
series held by such Shareholders at the date and time of record established
for the payment of such dividends or distributions. Shares of any
particular series of the Trust may be redeemed solely out of the assets of
the Trust allocated or belonging to that series. Upon liquidation or
termination of a series of the Trust, Shareholders of such series shall be
entitled to receive a pro rata share of the net assets of such series only.
(v) Notwithstanding any provision hereof to the contrary, on any
matter submitted to a vote of the Shareholders of the Trust, all Shares
then entitled to vote shall be voted by individual series, except that (i)
when required by the 1940 Act to be voted in the aggregate, Shares shall
not be voted by individual series, (ii) when the Trustees have determined
that the matter affects only the interests of Shareholders of one or more
series, only Shareholders of such series shall be entitled to vote thereon,
and (iii) all series shall vote together on the election of Trustees.
(vi) The establishment and designation of any series of Shares shall
be effective (i) upon the execution by a majority of the Trustees of an
instrument setting forth such establishment and designation and the
relative rights and preferences of such series, (ii) upon the execution of
such an instrument in writing by an officer of the Trust pursuant to a vote
of a majority of the Trustees, or (iii) as otherwise provided in such
instrument.
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(b) Classes. Notwithstanding anything in this Declaration to the contrary,
the Trustees may, in their discretion, without obtaining any prior authorization
or vote of the Shareholders of the Trust or of the Shareholders of any series or
class of Shares, from time to time authorize the division of Shares of the Trust
or any series thereof into Shares of one or more classes upon the execution by a
majority of the Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of such class or classes or
upon the execution of such an instrument in writing by an officer of the Trust
pursuant to a vote of a majority of the Trustees. All Shares of a class shall be
identical with each other and with the Shares of each other class of the same
series except for such variations between classes as may be approved by the
Board of Trustees and set forth in such instrument of establishment and
designation and be permitted under the 1940 Act or pursuant to any exemptive
order issued by the Commission.
Section 3. Ownership of Shares. The ownership and transfer of Shares shall
be recorded on the books of the Trust or its transfer or similar agent. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of Share certificates,
transfer of Shares and similar matters. The record books of the Trust, as kept
by the Trust or any transfer or similar agent of the Trust, shall be conclusive
as to who are the record holders of Shares and as to the number of Shares held
from time to time by each Shareholder.
Section 4. No Preemptive Rights, Etc. The holders of Shares shall not, as
such holders, have any right to acquire, purchase or subscribe for any Shares or
securities of the Trust which it may hereafter issue or sell, other than such
right, if any, as the Trustees in their discretion may determine. The holders of
Shares shall have no appraisal rights with respect to their Shares and, except
as otherwise determined by resolution of the Trustees in their sole discretion,
shall have no exchange or conversion rights with respect to their Shares.
Section 5. Assets and Liabilities of Series. In the event that the Trust,
pursuant to Section 2(a) of this Article IV, shall authorize the division of
Shares into two or more series, the following provisions shall apply:
(a) All consideration received by the Trust for the issue or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of the Trust. Such
consideration, assets, income, earnings, profits and proceeds, including any
proceeds derived from the sale, exchange or liquidation of such assets and any
funds or payments derived from any reinvestment of such proceeds, in whatever
form the same may be, together with any General Items (as hereinafter defined)
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allocated to that series as provided in the following sentence, are herein
referred to as "assets belonging to" that series. In the event that there are
any assets, income, earnings, profits or proceeds thereof, funds or payments
which are not readily identifiable as belonging to any particular series
(collectively "General Items"), the Trustees shall allocate such General Items
to and among any one or more of the series created from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable; and any General Items allocated to a particular series shall belong
to that series. Each such allocation by the Trustees shall be conclusive and
binding upon the Shareholders of all series for all purposes.
(b) The assets belonging to a particular series shall be charged with the
liabilities of the Trust in respect of that series and with all expenses, costs,
charges and reserves attributable to that series and shall be so recorded upon
the books of the Trust. Liabilities, expenses, costs, charges and reserves
charged to a particular series, together with any General Items (as hereinafter
defined) allocated to that series as provided in the following sentence, are
herein referred to as "liabilities belonging to" that series. In the event there
are any general liabilities, expenses, costs, charges or reserves of the Trust
which are not readily identifiable as belonging to any particular series
(collectively "General Items"), the Trustees shall allocate and charge such
General Items to and among any one or more of the series created from time to
time in such manner and on such basis as the Trustees in their sole discretion
deem fair and equitable; and any General Items so allocated and charges to a
particular series shall belong to that series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all series for
all purposes.
Section 6. Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms of this Declaration of
Trust and to have become a party thereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not entitle
the Shareholder to any title in or to the whole or any part of the Trust
property or right to call for a partition or division of the same or for an
accounting. Neither the Trustees, nor any officer, employee or agent of the
Trust shall have any power to bind any Shareholder personally or to call upon
any Shareholder for the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time personally agree to pay by
way of subscription for any Shares or otherwise.
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ARTICLE V
THE TRUSTEES
Section 1. Management of the Trust. The business and affairs of the Trust
shall be managed by the Trustees, and they shall have all powers necessary and
desirable to carry out that responsibility.
Section 2. Qualification and Number. Each Trustee shall be a natural
person. A Trustee need not be a Shareholder, a citizen of the United States, or
a resident of the Commonwealth of Massachusetts. By the vote or consent of a
majority of the Trustees then in office, the Trustees may fix the number of
Trustees at a number not less than one (1) nor more than twelve (12) and may
fill the vacancies created by any such increase in the number of Trustees.
Except as determined from time to time by resolution of the Trustees, no
decrease in the number of Trustees shall have the effect of removing any Trustee
from office prior to the expiration of his term, but the number of Trustees may
be decreased in conjunction with the resignation or removal of a Trustee
pursuant to Section 4 of Article V.
Section 3. Term and Election. Each Trustee shall hold office until the
next meeting of Shareholders called for the purpose of considering the election
or re-election of such Trustee or of a successor to such Trustee, and until his
successor is elected and qualified, and any Trustee who is appointed by the
Trustees in the interim to fill a vacancy as provided hereunder shall have the
same remaining term as that of his predecessor, if any, or such term as the
Trustees may determine. Any vacancy resulting from a newly created Trusteeship
or the death, resignation, retirement, removal, or incapacity of a Trustee may
be filled by the affirmative vote or consent of a majority of the Trustees then
in office.
Section 4. Resignation and Removal. Any Trustee may resign his trust or
retire as a Trustee (without need for prior or subsequent accounting except in
the event of removal) by an instrument in writing signed by him and delivered or
mailed to the Chairman, if any, the President or the Secretary, and such
resignation or retirement shall be effective upon such delivery, or at a later
date according to the terms of the instrument. Any Trustee who has become
incapacitated by illness or injury as determined by a majority of the other
Trustees, may be retired by written instrument signed by a majority of the other
Trustees. In addition, the Trustees may, from time to time, adopt rules of
conduct relating to internal governance of the Trustees, including, at their
discretion, rules relating to mandatory retirement. Except as aforesaid, any
Trustee may be removed from office only for "Cause" (as hereinafter defined) and
only (i) by action of at least sixty-six and two-thirds percent (66-2/3%) of the
outstanding Shares, or (ii) by written instrument, signed by at least sixty-six
and two-thirds percent (66-2/3%) of the remaining Trustees, specifying the date
when such removal shall become effective. "Cause" shall require a breach of
fiduciary duty, willful misconduct, dishonesty, fraud or a felony conviction.
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Section 5. Vacancies. The death, declination, resignation, retirement,
removal, or incapacity, of the Trustees, or any one of them, shall not operate
to annul the Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust. Whenever a vacancy in the number of Trustees
shall occur, until such vacancy is filled as provided herein, or the number of
Trustees as fixed is reduced, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees, and during the period
during which any such vacancy shall occur, only the Trustees then in office
shall be counted for the purposes of the existence of a quorum or any action to
be taken by such Trustees.
Section 6. Ownership of Assets of the Trust. The assets of the Trust shall
be held separate and apart from any assets now or hereafter held in any capacity
other than as Trustee hereunder by the Trustees or any successor Trustees. All
of the assets of the Trust shall at all times be considered as automatically
vested in the Trustees as shall be from time to time in office. Upon the
resignation, retirement, removal, incapacity or death of a Trustee, such Trustee
shall automatically cease to have any right, title or interest in any of the
Trust property, and the right, title and interest of such Trustee in the Trust
property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective without the execution or delivery of any
conveyancing or other instruments. No Shareholder shall be deemed to have a
severable ownership in any individual asset of the Trust or any right of
partition or possession thereof.
ARTICLE VI
POWERS OF TRUSTEES
Section 1. Powers. The Trustees in all instances shall have full, absolute
and exclusive power, control and authority over the Trust assets and the
business and affairs of the Trust to the same extent as if the Trustees were the
sole and absolute owners thereof in their own right. The Trustees shall have
full power and authority to do any and all acts and to make and execute any and
all contracts and instruments that they may consider necessary or appropriate in
connection with the management of the Trust. The enumeration of any specific
power herein shall not be construed as limiting the aforesaid powers. In
construing the provisions of this Declaration of Trust, there shall be a
presumption in favor of the grant of power and authority to the Trustees.
Subject to any applicable limitation in this Declaration, the Trustees shall
have power and authority:
(a) To invest and reinvest in, to buy or otherwise acquire, to hold,
for investment or otherwise, to sell or otherwise dispose of, to lend or to
pledge, to trade in or deal in securities or interests of all kinds,
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however evidenced, or obligations of all kinds, however evidenced, or
rights, warrants, or contracts to acquire such securities, interests, or
obligations, of any private or public company, corporation, association,
general or limited partnership, trust or other enterprise or organization
foreign or domestic, or issued or guaranteed by any national or state
government, foreign or domestic, or their agencies, instrumentalities or
subdivisions (including but not limited to, bonds, debentures, bills, time
notes and all other evidences or indebtedness); negotiable or
non-negotiable instruments; any and all options and futures contracts,
derivatives or structured securities; government securities and money
market instruments (including but not limited to bank certificates of
deposit, finance paper, commercial paper, bankers acceptances, and all
kinds of repurchase agreements) and, without limitation, all other kinds
and types of financial instruments;
(b) To adopt By-Laws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and to amend and
repeal them to the extent that they do not reserve that right to the
Shareholders;
(c) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
(d) To set record dates for any purpose;
(e) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment adviser, investment subadviser,
transfer agent, custodian, underwriter or other independent contractor or
agent;
(f) Subject to Article IX, Section 1 hereof, to merge, or consolidate
the Trust with any other corporation, association, trust or other
organization; or to sell, convey, transfer, or lease all or substantially
all of the assets of the Trust;
(g) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the Trustees
shall deem proper;
(h) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities;
(i) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or either
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in their or the Trust's name or in the name of a custodian or a nominee or
nominees;
(j) To issue, sell, repurchase, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer and otherwise deal in Shares and in
any options, warrants or other rights to purchase Shares or any other
interests in the Trust other than Shares;
(k) To set apart, from time to time, out of any funds of the Trust a
reserve or reserves for any proper purpose, and to abolish any such
reserve;
(l) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security or
property of which is held in the Trust; to consent to any contract, lease,
mortgage, purchase, or sale of property by such corporation or issuer, and
to pay calls or subscriptions with respect to any security held in the
Trust;
(m) To compromise, arbitrate, or otherwise adjust claims in favor of
or against the Trust or any matter in controversy including, but not
limited to, claims for taxes;
(n) To make distributions to Shareholders;
(o) To borrow money and to pledge, mortgage, or hypothecate the
assets of the Trust;
(p) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any
Shareholders whose investment is less than such minimum upon such terms as
shall be established by the Trustees;
(q) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection
to deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such power and
authority with relation to any security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to
pay, such portion of the expenses and compensation of such committee,
depositary or trustee as the Trustees shall deem proper;
(r) To purchase and pay for out of Trust property such insurance as
they may deem necessary or appropriate for the conduct of the business of
the Trust, including, without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
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Trustees, officers, employees, agents, investment advisers, investment
subadvisers or managers, principal underwriters, or independent contractors
of the Trust individually against all claims and liabilities of every
nature arising by reason of holding, being or having held any such office
or position, or by reason of any action alleged to have been taken or
omitted by any such person as Shareholder, Trustee, officer, employee,
agent, investment adviser, subadviser or manager, principal underwriter, or
independent contractor, whether or not any such action may be determined to
constitute negligence, and whether or not the Trust would have the power to
indemnify such person against such liability; and
(s) To pay pensions for faithful service, as deemed appropriate by
the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including
the purchasing of life insurance and annuity contracts as a means of
providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
Any determination made by or pursuant to the direction of the Trustees in
good faith and consistent with the provisions of this Declaration of Trust shall
be final and conclusive and shall be binding upon the Trust and every holder at
any time of Shares, including, but not limited to the following matters: the
amount of the assets, obligations, liabilities and expenses of the Trust; the
amount of the net income of the Trust from dividends, capital gains, interest or
other sources for any period and the amount of assets at any time legally
available for the payment of dividends or distributions; the amount, purpose,
time of creation, increase or decrease, alteration or cancellation of any
reserves or charges and the propriety thereof (whether or not any obligation or
liability for which such reserves or charges were created shall have been paid
or discharged); the market value, or any quoted price to be applied in
determining the market value, of any security or other asset owned or held by
the Trust; the fair value of any security for which quoted prices are not
readily available, or of any other asset owned or held by the Trust; the number
of Shares of the Trust issued or issuable; the net asset value per Share; any
matter relating to the acquisition, holding and depositing of securities and
other assets by the Trust; any question as to whether any transaction
constitutes a purchase of securities on margin, a short sale of securities, a
borrowing, or an underwriting of the sale of, or participation in any
underwriting or selling group in connection with the public distribution of, any
securities, and any matter relating to the issue, sale, redemption, repurchase,
and/or other acquisition or disposition of Shares of the Trust. No provision of
this Declaration of Trust shall be effective to protect or purport to protect
any Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
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Section 2. Manner of Acting, By-Laws. The By-Laws shall make provision
from time to time for the manner in which the Trustees may take action,
including, without limitation, at meetings within or without Massachusetts,
including meetings held by means of a conference telephone or other
communications equipment, or by written consents, the quorum and notice, if any,
that shall be required for any meeting or other action, and the delegation of
some or all of the power and authority of the Trustees to any one or more
committees which they may appoint from their own number, and terminate, from
time to time.
ARTICLE VII
EXPENSES OF THE TRUST
The Trustees shall have the power to reimburse themselves from the Trust
property for their expenses and disbursements, to pay reasonable compensation to
themselves from the Trust property, and to incur and pay out of the Trust
property any other expenses which in the opinion of the Trustees are necessary
or incidental to carry out any of the purposes of this Declaration of Trust, or
to exercise any of the powers of the Trustees hereunder.
ARTICLE VIII
INVESTMENT ADVISER, UNDERWRITER
AND TRANSFER AGENT
Section 1. Investment Adviser. The Trust may enter into written contracts
with one or more persons (which term shall include any firm, corporation, trust
or association), to act as investment adviser or investment subadviser to the
Trust, and as such to perform such functions as the Trustees may deem reasonable
and proper, including, without limitation, investment advisory, management,
research, valuation of assets, clerical and administrative functions, under such
terms and conditions, and for such compensation, as the Trustees may in their
discretion deem advisable.
Upon the termination of any contract with GTF Asset Management (USA),
Inc., ("GTF"), or any entity affiliated with GTF Asset Management (USA), Inc.,
acting as investment adviser or manager of the Trust or any series thereof, the
Trustees are hereby required to promptly change the name of the Trust or such
series to a name which does not include "GTF" or any approximation or
abbreviation thereof unless the continued use of such name is approved in
writing by GTF.
Section 2. Underwriter; Transfer Agent. The Trust may enter into a written
contract or contracts with an underwriter or underwriters or distributor or
distributors whereby the Trust may either agree to sell Shares to the other
party or parties to the contract or appoint such other party or parties its
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sales agent or agents for such Shares and with such other provisions as the
Trustees may deem reasonable and proper, and the Trustees may in their
discretion from time to time enter into transfer agency and/or shareholder
service contract(s), in each case with such terms and conditions, and providing
for such compensation, as the Trustees may in their discretion deem advisable.
Section 3. Parties to Contract. Any contract of the character described in
Sections 1 and 2 of this Article VIII or in Article X hereof may be entered into
with any corporation, firm, partnership, trust or association, including,
without limitation, the investment adviser, any investment subadviser or an
affiliate of the investment adviser or investment subadviser, although one or
more of the Trustees or officers of the Trust may be an officer, director,
trustee, shareholder, or member of such other party to the contract, or
otherwise interested in such contract and no such contract shall be invalidated
or rendered voidable by reason of the existence of any such relationship, nor
shall any person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by reason of said
contract or accountable for any profit realized directly or indirectly
therefrom, provided that the contract when entered into was not inconsistent
with the provisions of this Article VIII, Article X, or the By-Laws. The same
person (including a firm, corporation, partnership, trust or association) may be
the other party to contracts entered into pursuant to Sections 1 and 2 above or
Article X, and any individual may be financially interested or otherwise
affiliated with persons who are parties to any or all of the contracts mentioned
in this Section 3.
ARTICLE IX
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. The Shareholders shall have power to vote only:
(a) for the election or removal of Trustees as provided in Article V, (b) with
respect to any investment advisory or management contract to the extent required
by the 1940 Act, (c) with respect to any termination of the Trust or a series
thereof to the extent and as provided in this Article IX, Section 1, (d) with
respect to any amendment of this Declaration of Trust to the extent and as
provided in Article XIII, Section 4, (e) with respect to a merger or
consolidation of the Trust or any series thereof with any corporation,
association, trust or other organization or a reorganization or recapitalization
of the Trust or series thereof, or a sale, lease or transfer of all or
substantially all of the assets of the Trust or any series thereof (other than
in the regular course of the Trust's investment activities) to the extent and as
provided in this Article IX, Section 1, (f) to the same extent as the
shareholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, and (g) with
respect to such additional matters relating to the Trust as may be required by
law, the 1940 Act, this Declaration of Trust, the By-Laws of the Trust, or any
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registration of the Trust with the Commission or any State, or as the Trustees
may consider necessary or desirable.
An affirmative vote of the holders of a majority of the outstanding voting
securities of the Trust (or, in the event of any action set forth below
affecting only one or more series of the Trust, an affirmative vote of the
holders of a majority of the outstanding voting securities of such affected
series) shall be required to approve, adopt or authorize (i) a merger or
consolidation of the Trust or a series of the Trust with any corporation,
association, trust or other organization or a reorganization or recapitalization
of the Trust or a series of the Trust, (ii) a sale, lease or transfer of all or
substantially all of the assets of the Trust or series of the Trust (other than
in the regular course of the Trust's investment activities), or (iii) a
termination of the Trust or a series of the Trust (other than a termination by
the Trustees as provided for in Section 1 of Article XIII hereof). Nothing
contained herein shall be construed as requiring approval of Shareholders for
any transaction, whether deemed a merger, consolidation, reorganization or
otherwise, whereby the Trust issues Shares in connection with the acquisition of
assets (including those subject to liabilities) from any other investment
company or similar entity).
Section 2. Meetings. Meetings of the Shareholders of the Trust or any one
or more series thereof may be called and held from time to time for the purpose
of taking action upon any matter requiring the vote or authority of the
Shareholders as herein provided or upon any other matter deemed by the Trustees
to be necessary or desirable. Meetings of the Shareholders shall be held at such
place within the United States as shall be fixed by the Trustees, and stated in
the notice of the meeting. Meetings of the Shareholders may be called by the
Trustees and shall be called by the Trustees upon the written request of
Shareholders owning at least one-tenth of the outstanding Shares entitled to
vote. Shareholders shall be entitled to at least ten days' written notice of any
meeting, except where the meeting is an adjourned meeting and the date, time and
place of the meeting were announced at the time of the adjournment.
Section 3. Quorum and Action. (a) The Trustees shall set in the By-Laws
the quorum required for the transaction of business by the Shareholders at a
meeting, which quorum shall in no event be less than thirty percent (30%) of the
Shares entitled to vote at such meeting. If a quorum is present when a duly
called or held meeting is convened, the Shareholders present may continue to
transact business until adjournment, even though the withdrawal of a number of
Shareholders originally present leaves less than the proportion or number
otherwise required for a quorum.
(b) The Shareholders shall take action by the affirmative vote of the
holders of a majority, except in the case of the election of Trustees which
shall only require a plurality, of the Shares present in person or by proxy and
entitled to vote at a meeting of Shareholders at which a quorum is present,
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except as may be otherwise required by any provision of this Declaration of
Trust or the By-Laws.
Section 4. Voting. Each whole Share shall be entitled to one vote as to
any matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote, except that Shares held in the
treasury of the Trust shall not be voted. In the event that there is more than
one series of the Shares, Shares shall be voted by individual series on any
matter submitted to a vote of the Shareholders of the Trust except as provided
in Sections 2(a)(v) and 2(b) of Article IV. There shall be no cumulative voting
in the election of Trustees or on any other matter submitted to a vote of the
Shareholders. Shares may be voted in person or by proxy. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required or permitted by law, this Declaration of Trust or the By-Laws of
the Trust to be taken by Shareholders.
Section 5. Action by Written Consent in Lieu of Meeting of Shareholders.
Any action required or permitted to be taken at a meeting of the Shareholders
may be taken without a meeting by written action signed by all of the
Shareholders entitled to vote on that action. The written action is effective
when it has been signed by all of those Shareholders, unless a different
effective time is provided in the written action.
ARTICLE X
CUSTODIAN
All securities and cash of the Trust shall be held by one or more
custodians and subcustodians, each meeting the requirements for a custodian
contained in the 1940 Act, or shall otherwise be held in accordance with the
1940 Act.
ARTICLE XI
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions. The Trustees may in their sole discretion from
time to time declare and pay, or may prescribe and set forth in a duly adopted
vote or votes of the Trustees, the bases and time for the declaration and
payment of, such dividends and distributions to Shareholders as they may deem
necessary or desirable, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with good accounting practices.
Section 2. Redemption of Shares. All shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. The Trust shall redeem the Shares of the Trust or any series or
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class thereof at the price determined as hereinafter set forth, upon the
appropriately verified application of the record holder thereof (or upon such
other form of request as the Trustees may determine) at such office or agency as
may be designated from time to time for that purpose by the Trustees. The
Trustees may from time to time specify additional conditions, not inconsistent
with the 1940 Act, regarding the redemption of Shares in the Trust's then
effective prospectus under the Securities Act of 1933.
Section 3. Redemption Price. Shares shall be redeemed at their net asset
value (less any applicable redemption fee or sales charge) determined as set
forth in Section 7 of this Article XI as of such time as the Trustees shall have
theretofore prescribed by resolution. In the absence of such resolution, the
redemption price of Shares deposited shall be the net asset value of such Shares
next determined as set forth in such Section hereof after receipt of such
application.
Section 4. Payment. Payment of the redemption price of Shares of the Trust
or any series or class thereof shall be made in cash or in property or partly in
cash and partly in property to the Shareholder at such time and in the manner,
not inconsistent with the 1940 Act or other applicable laws, as may be specified
from time to time in the Trust's then effective prospectus under the Securities
Act of 1933.
Section 5. Redemption of Shareholder's Interest. The Trustees, in their
sole discretion, may cause the Trust to redeem all of the Shares of the Trust or
one or more series of the Trust held by any Shareholder if the value of such
Shares held by such Shareholder is less than the minimum amount established from
time to time by the Trustees.
Section 6. Suspension of Right of Redemption. Notwithstanding the
foregoing, the Trust may postpone payment of the redemption price and may
suspend the right of the holders of Shares to require the Trust to redeem Shares
(a) during any period when the New York Stock Exchange (the "Exchange") is
closed (other than customary weekend and holiday closings), (b) when trading in
the markets the Trust normally utilizes is restricted, or an emergency exists as
determined by the Commission so that disposal of the Trust's investments or
determination of its net asset value is not reasonably practicable, or (c) for
such other periods as the Commission may by order, rule or otherwise permit.
Section 7. Determination of Net Asset Value and Valuation of Portfolio
Assets. The Trustees may in their sole discretion from time to time prescribe
and shall set forth in the By-Laws or in a duly adopted vote or votes of the
Trustees such bases and times for determining the per Share net asset value of
the Shares and the valuation of portfolio assets as they may deem necessary or
desirable.
The Trust may suspend the determination of net asset value during any
period when it may suspend the right of the holders of Shares to require the
Trust to redeem Shares.
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ARTICLE XII
LIMlTATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Liability. No personal liability for any debt or
obligation of the Trust shall attach to any Trustee of the Trust. Without
limiting the foregoing, a Trustee shall not be responsible for or liable in any
event for any neglect or wrongdoing of any officer, agent, employee, investment
adviser, subadviser, principal underwriter or custodian of the Trust, nor shall
any Trustee be responsible or liable for the act or omission of any other
Trustee. Nothing contained herein shall protect any Trustee against any
liability to which such Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Every note, bond, contract, instrument, certificate, Share or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his capacity as Trustees or Trustee and neither such Trustees or
Trustee nor the Shareholders shall be personally liable thereon.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of State of the Commonwealth
of Massachusetts, shall recite that the same was executed or made by or on
behalf of the Trust by them as Trustees or Trustee or as officers or officer and
not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recitals as they
or he may deem appropriate, but the omission thereof shall not operate to bind
any Trustees or Trustee or officers or officer or Shareholders or Shareholder
individually.
All persons extending credit to, contracting with or having any claim
against the Trust shall look only to the assets of the Trust for payment under
such credit, contract or claim; and neither the Shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor.
Section 2. Trustees' Good Faith Action, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers and discretions thereunder shall be
binding upon everyone interested. A Trustee shall be liable only for his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
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and shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust and their duties as Trustees
hereunder, and shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. In discharging their
duties, the Trustees, when acting in good faith, shall be entitled to rely upon
the books of account of the Trust and upon written reports made to the Trustees
by any officer appointed by them, any independent public accountant and (with
respect to the subject matter of the contract involved) any officer, partner or
responsible employee of any other party to any contract entered into hereunder.
The Trustees shall not be required to give any bond as such, nor any surety if a
bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 4. Indemnification. Subject to the exceptions and limitations
contained in this Section 4, every person who is, or has been, a Trustee,
officer, employee or agent of the Trust, including persons who serve at the
request of the Trust as directors, trustees, officers, employees or agents of
another organization in which the Trust has an interest as a shareholder,
creditor or otherwise (hereinafter referred to as a "Covered Person"), shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been such a
Trustee, director, officer, employee or agent and against amounts paid or
incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason
of a final adjudication by the court or other body before which the
proceeding was brought that he engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a
final adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination
that such Covered Person did not engage in willful misfeasance, bad faith,
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gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement
or other disposition, or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he
did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested Trustees
then in office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding subject to a claim for indemnification under this
Section 4 shall be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising
out of any such advances; or
(b) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act
on the matter) or independent legal counsel in a written opinion shall
determine, based upon a review of the readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not
an Interested Person of the Trust (including anyone, as such Disinterested
Trustee, who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
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As used in this Section 4, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits, proceedings (civil,
criminal, administrative or other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
Section 5. Shareholders. No personal liability for any debt or obligation
of the Trust shall attach to any Shareholder or former Shareholder of the Trust.
In case any Shareholder or former Shareholder of the Trust shall be held to be
personally liable solely by reason of his being or having been a Shareholder and
not because of his acts or omissions or for some other reason, the Shareholder
or former Shareholder (or his heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets of the Trust to
be held harmless from and indemnified against all loss and expense arising from
such liability; provided, however, there shall be no liability or obligation of
the Trust arising hereunder to reimburse any Shareholder for taxes paid by
reason of such Shareholder's ownership of any Share or for losses suffered by
reason of any changes in value of any Trust assets. The Trust shall, upon
request by the Shareholder or former Shareholder, assume the defense of any
claim made against the Shareholder for any act or obligation of the Trust and
satisfy any judgment thereon.
ARTICLE XIII
MISCELLANEOUS
Section 1. Termination of Trust. Unless terminated as provided herein, the
Trust shall continue without limitation of time. The Trust or any series of the
Trust may be terminated at any time by the Trustees by written notice to the
Shareholders of the Trust, or such Series as the case may be, without a vote of
the Shareholders of the Trust, or of such series, or the Trust or any series of
the Trust may be terminated by the affirmative vote of the Shareholders in
accordance with Section 1 of Article IX hereof.
Upon termination of the Trust or any series thereof, after paying or
otherwise providing for all charges, taxes, expenses and liabilities, whether
due or accrued or anticipated, as may be determined by the Trustees, the Trust
shall, in accordance with such procedures as the Trustees consider appropriate,
reduce the remaining assets of the Trust or of the particular series thereof to
distributable form in cash or other securities, or any combination thereof, and
distribute the proceeds to the holders of the Shares of the Trust or such series
in the manner set forth by resolution of the Trustees.
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Section 2. Filing of Copies, References, Headings. The original or a copy
of this instrument and of each amendment hereto shall be kept in the office of
the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment shall be filed by the Trustees with the
Secretary of State of the Commonwealth of Massachusetts, as well as any other
governmental office where such filing may from time to time be required,
provided, however, that the failure to so file will not invalidate this
instrument or any properly authorized amendment hereto. Anyone dealing with the
Trust may rely on a certificate by an officer or Trustee of the Trust as to
whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder, and with the same effect as if it were the
original, may rely on a copy certified by an officer or Trustee of the Trust to
be a copy of this instrument or of any such amendments. In this instrument or in
any such amendment, references to this instrument, and all expressions like
"herein," "hereof" and "hereunder," shall be deemed to refer to this instrument
as a whole and as amended or affected by any such amendment, and masculine
pronouns shall be deemed to include the feminine and the neuter, as the context
shall require. Headings are placed herein for convenience of reference only, and
in case of any conflict, the text of this instrument, rather than the headings,
shall control. This instrument may be executed in any number of counterparts,
each of which shall be deemed an original.
Section 3. Trustees May Resolve Ambiguities. The Trustees may construe any
of the provisions of this Declaration insofar as the same may appear to be
ambiguous or inconsistent with any other provisions hereof, and any such
construction hereof by the Trustees in good faith shall be conclusive as to the
meaning to be given to such provisions.
Section 4. Amendments. Except as otherwise specifically provided in this
Declaration of Trust, this Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees with the consent
of Shareholders holding more than fifty percent (50%) of Shares entitled to vote
except that an amendment which in the determination of the Trustees shall affect
the holders of one or more series or classes of Shares but not the holders of
all outstanding series or classes shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of each series
and class affected and no vote of Shareholders of a series or class not affected
shall be required. In addition, notwithstanding any other provision to the
contrary contained in this Declaration of Trust, the Trustees may amend this
Declaration of Trust without the vote or consent of Shareholders (i) at any time
if the Trustees deem it necessary in order for the Trust or any series or class
thereby to meet the requirements of applicable Federal or State laws or
regulations, or the requirements of the regulated investment company provisions
of the Internal Revenue Code, (ii) to make any changes in this Declaration of
Trust which do not materially adversely affect the rights of Shareholders
hereunder, (iii) to change the name of the Trust, (iv) to remove the requirement
for a Shareholder vote in connection with the sale of substantially all the
assets of the Trust or one or more series thereof to another investment company,
or a merger or reorganization of the Trust or one or more series thereof with
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another investment company where the Trust or such one or more series is not the
surviving investment company, if, at such time, such vote is not required under
the 1940 Act and the rules promulgated thereunder, or any other laws applicable
to the Trust, (v) to supply any omission, cure any ambiguity or cure, correct or
supplement any defective or inconsistent provision contained herein, or (vi) for
any reason at any time before a registration statement under the Securities Act
of 1933, as amended, covering the initial public offering of Shares has become
effective.
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IN WITNESS WHEREOF, the undersigned, being the sole Trustee of the Trust,
has executed this instrument as of the date first written above.
/s/ Amy N. Kong
- ------------------------------,
Amy N. Kong, as Trustee
350 Park Avenue, 19th Floor
New York, New York 10022
Republic of Indonesia )
City of Jakarta )
) SS.
Embassy of the United States )
of America )
Then personally appeared the above-named person who is known to me to be
Trustee of the Trust whose name and signature are affixed to the foregoing
Declaration of Trust and who acknowledged the same to be her free act and deed,
before me this 3rd day of September, 1997.
/s/ Laurie J. Trost
-------------------------------
Counsul of the United States
of America
My Commission Expires: Indefinitely
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BY-LAWS
OF
GTF ADVANTAGE FUNDS
ARTICLE I
DECLARATION OF TRUST
AND
OFFICES
Section 1.1. Declaration of Trust. These By-Laws shall be subject to the
Declaration of Trust, as from time to time in effect (the "Declaration of
Trust") of GTF Advantage Funds, a Massachusetts business trust established by
the Declaration of Trust (the "Trust").
Section 1.2. Other Offices. The Trust may have such other offices and
places of business within or without the Commonwealth of Massachusetts as the
Board of Trustees shall determine.
ARTICLE II
SHAREHOLDERS
Section 2.1. Meetings. Meetings of the Shareholders for any purpose or
purposes may be called by the Chairman of the Board, the President or two or
more Trustees, and must be called at the written request stating the purpose or
purposes of the meeting, of Shareholders entitled to cast at least l0 percent of
all the votes entitled to be cast at the meeting.
Section 2.2. Place of Meetings. Meetings of the Shareholders may be held
at such place or places within or without the Commonwealth of Massachusetts as
shall be fixed by the Board of Trustees and stated in the notice of the meeting.
Section 2.3. Notice of Meetings. Notice stating the time and place of the
meeting and in the case of a special meeting the purpose or purposes thereof and
by whom called, shall be delivered to each Shareholder not less than ten nor
more than sixty days prior to the meeting, except where the meeting is an
adjourned meeting and the date, time and place of the meeting were announced at
the time of the adjournment.
<PAGE>
Section 2.4. Quorum and Action. (a) The holders of thirty percent (30%) of
the shares of beneficial interest of the Trust (the "Shares") entitled to vote
at a meeting are a quorum for the transaction of business. If a quorum is
present when a duly called or held meeting is convened, the Shareholders present
may continue to transact business until adjournment, even though the withdrawal
of a number of Shareholders originally present leaves less than the proportion
or number otherwise required for a quorum.
(b) The Shareholders shall take action by the affirmative vote of the
holders of a majority, except in the case of the election of Trustees which
shall only require a plurality, of the Shares present and entitled to vote at a
meeting of Shareholders at which a quorum is present, except as may be otherwise
required by the Investment Company Act of 1940, as amended (the "1940 Act"), or
the Declaration of Trust.
Section 2.5. Voting. At each meeting of the Shareholders, every holder of
Shares then entitled to vote may vote in person or by proxy and shall have one
vote for each Share registered in his name.
Section 2.6. Proxy Representation. A Shareholder may cast or authorize the
casting of a vote by filing a written appointment of a proxy with an officer of
the Trust at or before the meeting at which the appointment is to be effective.
The placing of a Shareholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions obtained pursuant to procedures which
are reasonably designed to verify that such instructions have been authorized by
such Shareholder, shall constitute execution of such proxy by or on behalf of
such Shareholder. The appointment of a proxy is valid for eleven months, unless
a longer period is expressly provided in the appointment. The appointment of a
proxy is valid for eleven months, unless a longer period is expressly provided
in the appointment. No appointment is irrevocable unless the appointment is
coupled with an interest in the Shares or in the Trust. Any copy, facsimile
telecommunication or other reliable reproduction of a proxy may be substituted
for or used in lieu of the original proxy for any and all purposes for which the
original proxy could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original proxy.
Section 2.7. Adjourned Meetings. Any meeting of Shareholders may be
adjourned to a designated time and place by the vote of the holders of a
majority of the Shares present and entitled to vote thereat even though less
than a quorum is so present without any further notice except by announcement at
the meeting. An adjourned meeting may reconvene as designated, and when a quorum
is present any business may be transacted which might have been transacted at
the meeting as originally called.
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ARTICLE III
TRUSTEES
Section 3.1. Qualifications and Number: Vacancies. Each Trustee shall be a
natural person. A Trustee need not be a Shareholder, a citizen of the United
States, or a resident of the Commonwealth of Massachusetts. The number of
Trustees of the Trust, their term and election and the filling of vacancies,
shall be as provided in the Declaration of Trust.
Section 3.2. Powers. The business and affairs of the Trust shall be
managed under the direction of the Board of Trustees. All powers of the Trust
may be exercised by or under the authority of the Board of Trustees, except
those conferred on or reserved to the Shareholders by statute, the Declaration
of Trust or these By-Laws.
Section 3.3. Investment Policies. It shall be the duty of the Board of
Trustees to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Trust are at all times
consistent with the investment objectives, policies and restrictions with
respect to securities investments and otherwise of the Trust filed from time to
time with the Securities and Exchange Commission and as required by the 1940
Act, unless such duty is delegated to an investment adviser, administrator or
other agent pursuant to a written contract, as provided in the Declaration of
Trust. The Trustees, however, may delegate the duty of management of the assets
of the Trust to an individual or corporate investment adviser or subadviser to
act as investment adviser or subadviser pursuant to a written contract.
Section 3.4. Meetings. Regular meetings of the Trustees may be held
without notice at such times as the Trustees shall fix. Special meetings of the
Trustees may be called by the Chairman of the Board or the President, and shall
be called at the written request of two or more Trustees. Unless waived by each
Trustee, three days' notice of special meetings shall be given to each Trustee
in person, by mail, by telephone, or by telecopy, or by any other means that
reasonably may be expected to provide similar notice. Notice of special meetings
need not state the purpose or purposes thereof. Meetings of the Trustees may be
held at any place within or outside the Commonwealth of Massachusetts. A
conference among Trustees by any means of communication through which the
Trustees may simultaneously hear each other during the conference constitutes a
meeting of the Trustees or of a committee of the Trustees, if the notice
requirements have been met (or waived) and if the number of Trustees
participating in the conference would be sufficient to constitute a quorum at
such meeting. Participation in such meeting by that means constitutes presence
in person at the meeting.
Section 3.5. Quorum and Action. A majority of the Trustees currently
holding office, or in the case of a meeting of a committee of the Trustees, a
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majority of the members of such committee, shall constitute a quorum for the
trancaction of business at any meeting. If a quorum is present when a duly
called or held meeting is convened, the Trustees present may continue to
transact business until adjournment, even though the withdrawal of a number of
Trustees originally present leaves less than the proportion or number otherwise
required for a quorum. At any duly held meeting at which a quorum is present,
the affirmative vote of the majority of the Trustees present shall be the act of
the Trustees or the committee, as the case may be, on any question, except where
the act of a greater number is required by these By-Laws or by the Declaration
of Trust.
Section 3.6. Action by Written Consent in Lieu of Meetings of Trustees. An
action which is required or permitted to be taken at a meeting of the Trustees
or a committee of the Trustees may be taken by written action signed by the
number of Trustees that would be required to take the same action at a meeting
of the Trustees or committee, as the case may be, at which all Trustees were
present. The written action is effective when signed by the required number of
Trustees, unless a different effective time is provided in the written action.
When written action is taken by less than all Trustees, all Trustees shall be
notified immediately of its text and effective date.
Section 3.7. Committees. The Trustees, by resolution adopted by the
affirmative vote of a majority of the Trustees, may designate from their members
an Executive Committee, an Audit Committee and any other committee or
committees, each such committee to consist of two or more Trustees and to have
such powers and authority (to the extent permitted by law) as may be provided in
such resolution. Any such committee may be terminated at any time by the
affirmative vote of a majority of the Trustees.
ARTICLE IV
OFFICERS
Section 4.1. Number and Qualifications. The officers of the Trust shall
include a Chairman of the Board, a President, one or more Vice Presidents (one
of whom may be designated an Executive Vice President), a Treasurer, and a
Secretary. Any two or more offices may be held by the same person. Unless
otherwise determined by the Trustees, each officer shall be appointed by the
Trustees for a term which shall continue until his successor shall have been
duly elected and qualified, or until his death, or until he shall have resigned
or have been removed, as hereinafter provided in these By-Laws. The Trustees may
from time to time elect, or delegate to the Chairman of the Board or the
President, or both, the power to appoint such officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents as may be necessary or desirable for the
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business of the Trust. Such other officers shall hold office for such terms as
may be prescribed by the Trustees or by the appointing authority.
Section 4.2. Resignations. Any officer of the Trust may resign at any time
by giving written notice of his resignation to the Trustees, the Chairman of the
Board, the President or the Secretary. Any such resignation shall take effect at
the time specified therein or, if the time when it shall become effective shall
not be specified therein, immediately upon its receipt, and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 4.3. Removal. An officer may be removed at any time, with or
without cause, by a resolution approved by the affirmative vote of a majority of
the Trustees present at a duly convened meeting of the Trustees.
Section 4.4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause, may be filled for the
unexpired portion of the term by the Trustees, or in the manner determined by
the Trustees.
Section 4.5. The Chairman of the Board. The Chairman of the Board shall be
elected from among the Trustees. He shall be the chief executive officer of the
Trust and shall:
(a) have general active management of the business of the Trust;
(b) when present, preside at all meetings of the Trustees and of the
Shareholders;
(c) see that all orders and resolutions of the Trustees are carried
into effect;
(d) sign and deliver in the name of the Trust any deeds, mortgages,
bonds, contracts or other instruments pertaining to the business of the
Trust, except in cases in which the authority to sign and deliver is
required by law to be exercised by another person or is expressly delegated
by the Declaration of Trust or By-Laws or by the Trustees to some other
officer or agent of the Trust; and
(e) maintain records of and, whenever necessary, certify all
proceedings of the Trustees and the Shareholders.
The Chairman of the Board shall be authorized to do or cause to be done
all things necessary or appropriate, including preparation, execution and filing
of any documents, to effectuate the registration from time to time of the Shares
of the Trust with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended. He shall perform all duties incident to the
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office of Chairman of the Board and such other duties as from time to time may
be assigned to him by the Trustees or by these By-Laws.
Section 4.6. The President. The President shall be the chief operating
officer of the Trust and, subject to the Chairman of the Board, he shall have
general authority over and general management and control of the business and
affairs of the Trust. In general, he shall discharge all duties incident to the
office of the chief operating officer of the Trust and such other duties as may
be prescribed by the Trustees and the Chairman of the Board from time to time.
In the absence of the Chairman of the Board or in the event of his disability,
or inability to act or to continue to act, the President shall perform the
duties of the Chairman of the Board and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the Chairman of the Board.
Section 4.7. Executive Vice-President. In the case of the absence or
inability to act of the President and the Chairman of the Board, any Executive
Vice-President shall perform the duties of the President and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. Any Executive Vice-President shall perform all duties incident to the
office of Executive Vice-President and such other duties as from time to time
may be assigned to him by the Trustees, the President or these By-Laws,
Section 4.8. Vice Presidents. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Trustees, the Chairman
of the Board or the President.
Section 4.9. Treasurer. The Treasurer shall:
(a) keep accurate financial records for the Trust;
(b) have charge and custody of, and be responsible for, all the funds
and securities of the Trust, except those which the Trust has placed in the
custody of a bank or trust company pursuant to a written agreement
designating such bank: or trust company as custodian of the property of the
Trust, as required by Section 6.5 of these By-Laws;
(c) deposit all money, drafts, and checks in the name of and to the
credit of the Trust in the banks and depositories designated by the
Trustees;
(d) endorse for deposit all notes, checks, and drafts received by the
Trust making proper vouchers therefor:
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(e) disburse corporate funds and issue checks and drafts in the name
of the Trust, as ordered by the Trustees; and
(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
by the Trustees, the Chairman of the Board or the President.
Section 4.10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Trustees, the committees of the
Trustees and the Shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by statute;
(c) be custodian of the records of the Trust;
(d) see that the books, reports, statements, certificates and other
documents and records required by statute to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
by the Trustees, the Chairman of the Board or the President.
Section 4.11. Salaries. The salaries of all officers shall be fixed by the
Trustees.
ARTICLE V
SHARES
Section 5.1. Ownership of Shares. The ownership and transfer of Shares
shall be recorded on the books of the Trust or its transfer or similar agent. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The record books of the
Trust, as kept by the Trust or any transfer or similar agent of the Trust, shall
be conclusive as to who are the record holders of Shares and as to the number of
Shares held from time to time by each Shareholder.
Section 5.2. Books and Records. The Trust shall keep at its principal
executive office, or at another place or places within the United States
determined by the Trustees, a share register containing the names and addresses
of the shareholders and the number of Shares held by each Shareholder.
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Section 5.3. Share Transfers. Upon compliance with any provisions
restricting the transferability of Shares that may be set forth in the
Declaration of Trust, these By-Laws, or any resolution or written agreement in
respect thereof, transfers of Shares of the Trust shall be made only on the
books of the Trust by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed with an
officer of the Trust, or with a transfer agent or a registrar and on furnishing
of such other documentation as may be deemed necessary and proper. Except as may
be otherwise provided by law or these By-Laws, the person in whose name Shares
stand on the books of the Trust shall be deemed the owner thereof for all
purposes as regards the Trust; provided that whenever any transfer of Shares
shall be made for collateral security, and not absolutely, such fact, if known
to an officer of the Trust, shall be so expressed in the entry of transfer.
Section 5.4. Regulations. The Trustees may make such additional rules and
regulations, not inconsistent with these By-Laws, as they may deem expedient
concerning the issue, transfer and registration of Shares of the Trust. They may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents or one or more transfer clerks and one or more registrars.
Section 5.5. Record Date: Certification of Beneficial Owner. (a) The
Trustees may fix a date not more than sixty days before the date of a meeting of
Shareholders as the date for the determination of the holders of Shares entitled
to notice of and entitled to vote at the meeting or any adjournment thereof.
(b) The Trustees may fix a date for determining Shareholders entitled to
receive payment of any dividend or distribution or allotment of any rights or
entitled to exercise any rights in respect of any change, conversion or exchange
of Shares.
(c) In the absence of such fixed record date, (i) the date for
determination of Shareholders entitled to notice of and entitled to vote at a
meeting of Shareholders shall be the later of the close of business on the day
on which notice of the meeting is mailed or the thirtieth day before the
meeting, and (ii) the date for determining Shareholders entitled to receive
payment of any dividend or distribution or an allotment of any rights or
entitled to exercise any rights in respect of any change, conversion or exchange
of Shares shall be the close of business on the day on which the resolution of
the Trustees is adopted.
(c) A resolution approved by the affirmative vote of a majority of the
Trustees present may establish a procedure whereby a Shareholder may certify in
writing to the Trust that all or a portion of the Shares registered in the name
of the Shareholder are held for the account of one or more beneficial owners.
Upon receipt by the Trust of the writing, the persons specified as beneficial
owners, rather than the actual Shareholders, are deemed the Shareholders for the
purposes specified in the writing.
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ARTICLE VI
MISCELLANEOUS
Section 6.1. Fiscal Year. The fiscal year of the Trust shall be as fixed
by the Trustees of the Trust.
Section 6.2. Notice and Waiver of Notice. (a) Any notice of a meeting
required to be given under these By-Laws to Shareholders or Trustees, or both,
may be waived by any such person (i) orally or in writing signed by such person
before, at or after the meeting or (ii) by attendance at the meeting in person
or, in the case of a Shareholder, by proxy.
(b) Except as otherwise specifically provided herein, all notices required
by these By-Laws shall be printed or written, and shall be delivered either
personally, by telecopy, telegraph or cable, or by mail or courier or delivery
service, and, if mailed, shall be deemed to be delivered when deposited in the
United States mail, postage prepaid, addressed to the Shareholder or Trustee at
his address as it appears on the records of the Trust.
ARTICLE VII
AMENDMENTS
Section 7.1. These By-Laws may be amended or repealed, or new By-Laws may
be adopted, by the Trustees at any meeting thereof or by action of the Trustees
by written consent in lieu of a meeting.
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