<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
FILE NO.
FILE NO.
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT ACT OF 1940
WORLDWIDE INDEX FUNDS
(Exact Name of Registrant as Specified in Charter)
C/O 790 EAST COLORADO BOULEVARD, 9TH FLOOR
PASADENA, CALIFORNIA 91101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
Registrant's Telephone Number, including Area Code (626) 793-8078
F. BRIAN CERINI
WATERMARK INVESTMENT ADVISORS, LTD.
790 EAST COLORADO BOULEVARD, 9TH FLOOR
PASADENA, CALIFORNIA 91101
(Name and Address of Agent for Service)
Copies to:
W. JOHN McGUIRE, ESQUIRE
Morgan, Lewis & Bockius LLP
1800 M STREET, N.W.
WASHINGTON, D.C. 20036
- ------------------------------------------------------------------------------
/X/ Approximate date of Proposed Public Offering:
As soon as practicable after the
effective date of this Registration Statement
- ------------------------------------------------------------------------------
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 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
<PAGE> 2
WORLDWIDE INDEX FUNDS (SM)
THE INDEX ALTERNATIVE
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WORLDWIDE INDEX FUNDS(SM)
AUSTRALIA INDEX FUND
FRANCE INDEX FUND
GERMANY INDEX FUND
HONG KONG INDEX FUND
ITALY INDEX FUND
JAPAN INDEX FUND
NETHERLANDS INDEX FUND
SPAIN INDEX FUND
SWEDEN INDEX FUND
SWITZERLAND INDEX FUND
UNITED KINGDOM INDEX FUND
EUROPE INDEX FUND
INTERNATIONAL INDEX FUND
790 East Colorado Blvd., 9th Floor
Pasadena, California 91101
626-793-8078
Toll-Free: 1-877-463-9363
Worldwide Index Funds (the "Trust") is a no-load mutual fund complex with
thirteen separate investment portfolios (the "Funds"), all of which are
described in this Prospectus. The Funds sell shares directly, and through
broker-dealers and registered investment advisers, to retail investors and
institutions. This Prospectus offers R Class shares to retail investors and I
Class shares to institutional investors.
This Prospectus contains important information about the Funds. Please read it
before investing and keep it on file for future reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
TRUST'S SHARES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________, 1998
PROSPECTUS
<PAGE> 3
TABLE OF CONTENTS
INVESTMENT SUMMARY: INVESTMENTS, STRATEGIES AND RISKS........................3
FEES AND EXPENSES OF THE FUNDS...............................................5
COUNTRY INDEX FUNDS..........................................................7
FUNDS OF INDEX FUNDS.........................................................8
ADDITIONAL RISK CONSIDERATIONS...............................................9
HOW TO INVEST IN THE FUNDS..................................................10
REDEMPTIONS.................................................................12
DIVIDENDS AND DISTRIBUTIONS.................................................13
TAX INFORMATION.............................................................13
MANAGEMENT OF THE FUNDS.....................................................14
ADDITIONAL FUND INFORMATION.........................................Back Cover
2
<PAGE> 4
INVESTMENT SUMMARY: INVESTMENTS, STRATEGIES AND RISKS
INVESTMENT OBJECTIVES
- - The Australia, France, Germany, Hong Kong, Italy, Japan, Netherlands,
Spain, Sweden, Switzerland, and United Kingdom Index Funds (the "COUNTRY
INDEX FUNDS") seek long-term capital appreciation in line with local
market equity returns. Each Fund seeks to track as closely as possible the
performance of a widely used index of local market equity securities (the
"LOCAL MARKET INDEX"(SM) or "LMI"(SM) for each respective country. The
COUNTRY INDEX FUNDS seek to reduce or eliminate the impact of currency
fluctuation through hedging local currencies against the U.S. Dollar.
- - The Europe Index Fund and International Index Fund are "funds of funds"
(the "FUNDS OF INDEX FUNDS") which will invest in I Class shares of a
particular group of COUNTRY INDEX FUNDS. The FUNDS OF INDEX FUNDS seek
long-term capital appreciation in line with local market equity returns of
the group of countries in which the underlying COUNTRY INDEX FUNDS invest.
The Europe Index Fund will invest in the following COUNTRY INDEX FUNDS:
France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, and
United Kingdom (collectively, the "European COUNTRY INDEX FUNDS"). The
International Index Fund will invest in the eight European COUNTRY INDEX
FUNDS and the Australia, Hong Kong and Japan COUNTRY INDEX FUNDS. Each
FUND OF INDEX FUNDS invests in its underlying COUNTRY INDEX FUNDS in
proportion to the relative equity market capitalization of the countries
represented by the underlying COUNTRY INDEX FUNDS. The FUNDS OF INDEX
FUNDS seek to reduce or eliminate the impact of currency fluctuation by
investing in the COUNTRY INDEX FUNDS which are hedged against such risk.
PRINCIPAL INVESTMENT STRATEGIES
- - The COUNTRY INDEX FUNDS intend to achieve their investment objective by
normally investing at least 95% of their total assets in a combination of:
- some or all of the stocks included in each country's LMI;
- LMI futures and Related Securities;
- stock swap agreements;
- currency forward contracts and Related Securities;
- currency futures contracts and Related Securities; and/or
- cash and short-term debt instruments.
The Funds expect to eventually invest approximately 80% in the stocks
included in each country's respective LMI, with the balance of the assets
invested in futures, stock swap agreements, currency forward and futures
contracts, and Related Securities.
"Related Securities" may be options or other securities based upon an
underlying futures contract or forward contract.
- - The FUNDS OF INDEX FUNDS will invest in I Class shares of underlying
COUNTRY INDEX FUNDS and will allocate their investments in proportion to
the relative equity market capitalization of the countries represented
(the "Allocation Method"). For example, in the case of the Europe Index
Fund, if the total capitalization of Spain's equity market were to equal
5% of the combined capitalization of the underlying countries in the Fund,
the Fund will seek to invest 5% of if its assets in I Class shares of the
Spain Index Fund. The FUNDS OF INDEX FUNDS will reallocate their
investments periodically, at least on an annual basis. The Funds use
country capitalization figures published by the Financial Times when
calculating allocation percentages under the Allocation Method.
GENERAL RISKS OF INVESTING IN THE FUNDS
The Funds are designed as long-term investments and not as trading vehicles. The
Funds do not represent a complete investment program and may not be suitable for
all investors. The Funds are designed for investors that may wish to add an
international component to a domestic portfolio to assist them in achieving
additional diversification and to participate in growth opportunities in
international markets. The following principal risk factors may affect each of
the Funds:
3
<PAGE> 5
- - Because the Funds will invest in foreign markets, either directly or
indirectly, each of these Funds will be subject to the market, economic
and political risks prevalent in each specific country or countries. These
country specific risks are described in "THE FUNDS AND COUNTRY SPECIFIC
ECONOMIC CONSIDERATIONS" section in the Statement of Additional
Information ("SAI").
- - A Country Index Fund will invest primarily in the equity securities, and
instruments tied to those securities, in each Fund's respective LMI. Over
time, equity securities have generally shown superior gains, but they
have tended to be more volatile in the short-term.
- - The COUNTRY INDEX FUNDS are "non-diversified" mutual funds. This means
that each Fund may invest a significant portion of its assets in
securities issued by a single company which may make the Fund susceptible
to the risks associated with the particular company, or a single economic,
political or regulatory occurrence. In addition, as a result of each
Fund's policy to invest in the securities included in its respective LMI,
a Fund may necessarily "concentrate" its investments in companies
engaged in the same or similar industries if the underlying LMI represents
a concentration in those industries, making the Funds susceptible to the
risks and market fluctuations of that industry. These strategies may cause
a Fund's net asset value or share price to be more volatile than that of a
"diversified" mutual fund.
- - Because the Funds will invest in futures and other futures related
securities, the extent of a Fund's losses from these types of investments
may exceed the losses which could result if a Fund were holding the
underlying stocks represented by the LMI. (See "ADDITIONAL RISK
CONSIDERATIONS").
- - The Funds' investments will be in foreign currencies which might change in
value compared to the U.S. Dollar. The Funds will seek to hedge fully
against this risk at all times but cannot guarantee that such a strategy
will be successful.
- - BECAUSE INVESTING IN THESE FUNDS INVOLVES CERTAIN RISKS, YOU COULD LOSE
MONEY.
4
<PAGE> 6
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds. The Funds will impose a purchase fee of 0.50% as a
percentage of net asset value, which is not reflected in the table, payable to
the respective Fund on any purchase into a Fund. THESE PURCHASE FEES ARE PAID
TO THE RESPECTIVE FUND AND ARE INTENDED TO COVER BROKERAGE FEES AND OTHER COSTS
INCURRED BY THE FUND WHICH ARE ASSOCIATED WITH A FUND'S PURCHASING OR SELLING
ITS PORTFOLIO SECURITIES. All purchase fees paid to a FUND OF INDEX FUNDS will
be passed on to its underlying COUNTRY INDEX FUNDS. The Annual Fund Operating
Expenses in the table below do not reflect voluntary fee waivers and/or expense
reimbursements from the Advisor.
<TABLE>
<CAPTION>
R CLASS I CLASS
------- -------
SHAREHOLDER FEES
COUNTRY FUNDS COUNTRY FUNDS
INDEX OF INDEX INDEX OF INDEX
FUNDS FUNDS FUNDS FUNDS
----- ----- ----- -----
<S> <C> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD) IMPOSED NONE NONE NONE NONE
ON PURCHASE (AS A PERCENTAGE OF
OFFERING PRICE)
MAXIMUM SALES CHARGE (LOAD) IMPOSED NONE NONE NONE NONE
ON REINVESTED DIVIDENDS (AS A
PERCENTAGE OF NET ASSET VALUE)
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
R CLASS I CLASS
------- -------
COUNTRY FUNDS COUNTRY FUNDS
INDEX OF INDEX INDEX OF INDEX
FUNDS FUNDS** FUNDS FUNDS**
----- ----- ----- -----
<S> <C> <C> <C> <C>
MANAGEMENT FEES .% .% .% .%
OTHER EXPENSES* .% .% .% .%
TOTAL ANNUAL FUND OPERATING
EXPENSES .% .% .% .%
</TABLE>
- ----------------------------------
* Other Expenses are based on estimated amounts for the current fiscal year.
For R CLASS shares only, 0.25% of Other Expenses is a shareholder
servicing fee.
** Note that the Funds of Index Funds will be subject to expenses greater
than those incurred by a Country Index Fund. The Funds of Index Funds not
only bear the expenses associated with their operations and management,
but will also bear a pro-rata share of the expenses of the underlying
Country Index Funds.
The Advisor commits, by waiving its fees and reimbursing expenses as
necessary, to limit each Fund's total expense ratio to no greater than
0.99% for R Class shares and 0.74% for I Class shares over a calendar year
until December 31, 2001. Fee waivers and/or expense reimbursements are
voluntary. The Advisor reserves the right to terminate any waiver and/or
reimbursement at any time after December 31, 2001 and without notice.
5
<PAGE> 7
EXAMPLE
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This example is intended to help you compare the cost of investing in each
Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in each Fund for the time periods
indicated, that your investment has a 5% return each year and that each Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
You would pay the following expenses if you redeem all of your shares at the
end of the time periods indicated:
<TABLE>
<CAPTION>
R CLASS I CLASS
------- -------
1 YEAR 3 YEARS 1 YEAR 3 YEARS
<S> <C> <C> <C> <C>
COUNTRY INDEX $ $ $ $
FUNDS
FUNDS OF INDEX $ $ $ $
FUNDS
</TABLE>
6
<PAGE> 8
COUNTRY INDEX FUNDS
THE COUNTRY INDEX FUNDS AND CORRESPONDING LMIs
- --------------------------------------- ---------------------------------------
COUNTRY INDEX FUND LOCAL MARKET INDEX ("LMI")SM
- --------------------------------------- ---------------------------------------
AUSTRALIA INDEX FUND All Ordinaries Index ("ASX")
- --------------------------------------- ---------------------------------------
FRANCE INDEX FUND CAC-40 ("CAC")
- --------------------------------------- ---------------------------------------
GERMANY INDEX FUND Deutsche Aktienindex ("DAX")
- --------------------------------------- ---------------------------------------
HONG KONG INDEX FUND Hang Seng ("HSI")
- --------------------------------------- ---------------------------------------
ITALY INDEX FUND MIB-30 ("MIB")
- --------------------------------------- ---------------------------------------
JAPAN INDEX FUND Nikkei-225 ("NKI")
- --------------------------------------- ---------------------------------------
NETHERLANDS INDEX FUND Amsterdam Exchanges Index ("AEX")
- --------------------------------------- ---------------------------------------
SPAIN INDEX FUND IBEX-35 ("IBEX")
- --------------------------------------- ---------------------------------------
SWEDEN INDEX FUND Stockholm Options Market Index ("OMX")
- --------------------------------------- ---------------------------------------
SWITZERLAND INDEX FUND Swiss Market Index ("SMI")
- --------------------------------------- ---------------------------------------
UNITED KINGDOM INDEX FUND FTSE-100 ("UKX")
- --------------------------------------- ---------------------------------------
COUNTRY INDEX FUND LMI DESCRIPTIONS
The AUSTRALIA INDEX FUND seeks to track the All Ordinaries Index ("ASX") which
is a capitalization-weighted index of 310 common stocks listed on the Australian
Stock Exchange. As of April 7, 1998, the three stocks representing the highest
approximate percentage of capitalization in the index are The National Australia
Bank, Ltd. (7.1%), The Broken Hill Proprietary Company, Ltd. (7%), and The News
Corporation, Ltd. (4.7%).
The FRANCE INDEX FUND seeks to track the CAC-40 ("CAC") which is a narrow-based,
capitalization-weighted index of 40 companies listed on the Paris Stock Exchange
(the Bourse). The index serves as a basis for futures and options traded on
France's financial futures and options market (the MATIF and MONEP). As of April
7, 1998, the three stocks representing the highest approximate percentage of
capitalization in the index are France Telecom (9.3%), AXA (6.2%), and Elf
Aquitaine (5.6%).
The GERMANY INDEX FUND seeks to track the Deutsche Aktienindex ("DAX") which is
a total rate of return index of 30 selected German blue-chip stocks traded on
the Frankfurt Stock Exchange. As of April 7, 1998, the three stocks representing
the highest approximate percentage of capitalization in the index are Allianz,
AG (10.9%), Daimler-Benz (7.4%), and SAP, AG (6.2%).
The HONG KONG INDEX FUND seeks to track the Hang Seng ("HSI") which is a
capitalization-weighted index of 33 companies that represent approximately 70%
of the total market capitalization of the Stock Exchange of Hong Kong. As of
April 7, 1998, the three stocks representing the highest approximate percentage
of capitalization in the index are HSBC Holdings, PLC (27.1%), Hutchison Whampoa
(8.7%), and Hong Kong Telecommunications (8.1%).
The ITALY INDEX FUND seeks to track the MIB-30 ("MIB") which is a
capitalization-weighted index of the 30 top companies listed on the Milan Stock
Exchange. As of April 7, 1998, the three stocks representing the highest
approximate percentage of capitalization in the index are ENI, SPA (15.6%),
Telecom Italia (11.8%), and Telecom Italia Mobile, SPA (11.1%).
7
<PAGE> 9
The JAPAN INDEX FUND seeks to track the Nikkei-225 ("NKI") which is a
price-weighted index of the 225 top-rated Japanese companies listed in the First
Section of the Tokyo Stock Exchange. As of April 7, 1998, the three stocks
representing the highest approximate percentage of capitalization in the index
are Sony Corporation (6.9%), Fuji Photo Film (3%), and Honda Motor Co. (2.9%).
The NETHERLANDS INDEX FUND seeks to track the Amsterdam Exchanges Index ("AEX")
which is a weighted index of the 25 leading Dutch stocks traded on the Amsterdam
Stock Exchange. The index is rebalanced every February by setting the company
with the greatest capitalization in the basket of stocks to 10% and calculating
the weights of the remaining stocks accordingly. As of April 7, 1998, the three
stocks representing the highest approximate percentage of capitalization in the
index are ING Groep, NV (11.8%), Unilever, NV (10.8%), and Royal Dutch Petroleum
(9.8%).
The SPAIN INDEX FUND seeks to track the IBEX-35 ("IBEX") which is a
capitalization-weighted index of the 35 most liquid Spanish stocks traded on the
Continuous Markets. As of April 7, 1998, the three stocks representing the
highest approximate percentage of capitalization in the index are Telefonica de
Espana (18.1%), Banco Bilbao (12.7%), and Endesa, SA (10.5%).
The SWEDEN INDEX FUND seeks to track the Stockholm Options Market Index ("OMX")
which is a capitalization- weighted index of 30 stocks that have the largest
volume of trading on the Stockholm Stock Exchange. As of April 7, 1998, the
three stocks representing the highest approximate percentage of capitalization
in the index are Ericsson, LM (22.2%), Astra, AB (13.5%), and Foreningssparban
(5.5%).
The SWITZERLAND INDEX FUND seeks to track the Swiss Market Index ("SMI") which
is a capitalization-weighted index of 21 of the largest and most liquid stocks
traded on the Electronic Bourse System. As of April 7, 1998, the three stocks
representing the highest approximate percentage of capitalization in the index
are Novartis (21%), Nestle, SA (14.9%), and Roche Hldg. - Genus (14.5%).
The UNITED KINGDOM INDEX FUND seeks to track the FTSE-100 ("UKX") which is a
capitalization-weighted index of the 100 most highly capitalized companies
traded on the London Stock Exchange. As of April 7, 1998, the three stocks
representing the highest approximate percentage of capitalization in the index
are Glaxo Wellcome (5.9%), Lloyds TSB Group (5%), and British Petroleum (4.8%).
THE COUNTRY INDEX FUNDS ARE NOT SPONSORED, ENDORSED, SOLD, OR PROMOTED BY THEIR
RESPECTIVE LMIs.
FUNDS OF INDEX FUNDS
FUNDS OF INDEX FUNDS AND UNDERLYING COUNTRY INDEX FUNDS
- --------------------------------------- ---------------------------------------
FUND OF INDEX FUNDS UNDERLYING COUNTRY INDEX FUNDS (AND
APPROXIMATE ALLOCATION PERCENTAGE AS OF
_______ 1998)
- --------------------------------------- ---------------------------------------
EUROPE INDEX FUND France Index Fund (__%)
Germany Index Fund (__%)
Italy Index Fund (__%)
Netherlands Index Fund (__%)
Spain Index Fund (__%)
Sweden Index Fund (__%)
Switzerland Index Fund (__%)
United Kingdom Index Fund (__%)
- --------------------------------------- ---------------------------------------
8
<PAGE> 10
- --------------------------------------- ---------------------------------------
INTERNATIONAL INDEX FUND Australia Index Fund (__%)
France Index Fund (__%)
Germany Index Fund (__%)
Hong Kong Index Fund (__%)
Italy Index Fund (__%)
Japan Index Fund (__%)
Netherlands Index Fund (__%)
Spain Index Fund (__%)
Sweden Index Fund (__%)
Switzerland Index Fund (__%)
United Kingdom Index Fund (__%)
- --------------------------------------- ---------------------------------------
ADDITIONAL RISK CONSIDERATIONS
NON-DIVERSIFICATION - The COUNTRY INDEX FUNDS are classified as
"non-diversified" for purposes of the 1940 Act, which means each of those Funds
is not limited by the 1940 Act with regard to the portion of its assets that
may be invested in the securities of a single issuer. However, each Fund,
regardless of whether classified as non-diversified, intends to maintain the
required level of diversification and otherwise conduct its operations so as to
qualify as a "regulated investment company" for purposes of the Internal
Revenue Code, in order to relieve the Trust of any liability for Federal income
tax to the extent that its earnings are distributed to shareholders. Compliance
with the diversification requirements of the Internal Revenue Code may limit
the investment flexibility of certain Funds and could, as a result, decrease
the likelihood that such Funds will meet their investment objectives. In
addition, as a result of each Fund's policy to invest in the securities
included in its respective LMI, a Fund may necessarily "concentrate" its
investments in companies engaged in the same or similar industries if the
underlying LMI represents a concentration in those industries.
The stocks of a small number of issuers, or of issuers in a small number of
industries, may dominate the LMIs of certain Funds and, consequently, the
investment portfolios of such Funds. This may adversely affect the performance
of such Funds or subject such Funds to greater price volatility than that
experienced by more diversified investment companies. The Funds may be more
susceptible to any single economic, political or regulatory occurrence than the
portfolio securities of an investment company that is more broadly invested
than the Funds in the equity securities of the relevant market.
CORRELATION ACCURACY - A perfect correlation of 100% is achieved if the net
asset value of a Fund increases or decreases in exact proportion to changes in
its respective LMI. Over time, the accuracy of the correlation between a Fund's
performance in tracking its respective LMI and the actual performance of that
LMI (without regard to currency hedging costs or income), is expected to be
greater than 95%, although there can be no assurances that such correlation will
be achieved. While the Funds expect to track their respective LMIs, factors such
as Fund expenses, imperfect correlation between the Funds' investments and those
of their LMIs, rounding of share prices, changes to the LMI, regulatory
policies, and the requirements of the Internal Revenue Code may affect their
ability to achieve more accurate correlation.
Because an LMI is just a composite of the prices of the securities it represents
rather than an actual portfolio of those securities, an LMI will have no
expenses. As a result, a Fund, which will have expenses such as taxes, custody,
management fees and other operational costs, and brokerage, may not achieve its
investment objective of accurately correlating to an LMI because of these
additional costs it must bear. In addition, because the Funds will attempt to
fully hedge currency risks at all times, a Fund's performance may not be the
same as the performance of its respective LMI.
9
<PAGE> 11
FUTURES CONTRACTS/OPTIONS/SWAPS - The Funds may use options, futures contracts,
options on futures contracts, forward contracts, options on forward contracts,
and swaps because these instruments provide the Funds with higher liquidity,
lower brokerage costs, and the ability to track the performance of the
securities in an LMI without purchasing the underlying securities. Using these
instruments and investing in indexed securities involves special risks,
including: (1) imperfect or no correlation between the price of options, futures
contracts and forward contracts and the movements in the price of the underlying
securities or LMIs; (2) possible lack of a liquid secondary market for any
particular instrument at a particular time; (3) the fact that the skills needed
to use these strategies are different from those needed to select portfolio
securities; (4) losses due to unanticipated market price movements; (5) loss of
premiums paid by a Fund on options it purchases; and (6) the possible inability
of a Fund to purchase or sell a portfolio security at a time when it would
otherwise be favorable for it to do so, or the possible need for a Fund to sell
a portfolio security at a disadvantageous time, due to the need for the Fund to
maintain "cover" or to segregate assets in connection with such transactions and
the possible inability of a Fund to close out or liquidate its position.
These instruments may increase the volatility of a Fund and typically involve a
small investment of cash relative to the magnitude of the risk assumed. In
addition, these instruments could result in a loss if the counterparty to the
transaction does not perform as promised or if there is not a liquid secondary
market to close out a position that a Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to the
differences in the nature of those markets, are subject to distortion. Investors
should also be aware that while index futures and options contracts closely
correlate with the applicable Indexes over long periods, shorter-term deviation,
such as on a daily basis, does occur with these instruments. As a result, a
Fund's short-term performance will reflect such deviation from its relevant
LMI.
The Funds may only invest in futures in countries that have futures markets
recognized by the Commodities Futures Trading Commission (The "CFTC").
Because the futures markets of Switzerland and the Netherlands are not
recognized by the CFTC, the Switzerland and Netherlands Index Funds are unable
to invest in futures contracts in their respective countries. As an alternate,
these Funds will invest in options and swaps to a greater degree than the other
Funds which is intended to have similar economic results as investing in a
futures contract.
FOREIGN SECURITIES - Investing in foreign companies may involve risks not
typically associated with investing in U.S. companies. The value of securities
denominated in foreign currencies, and of dividends from such securities, can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. Dollar. Foreign securities markets generally have less trading volume
and less liquidity than U.S. markets, and prices in some foreign markets can be
extremely volatile. Many foreign countries lack uniform accounting and
disclosure standards comparable to those that apply to U.S. companies, and it
may be more difficult to obtain reliable information regarding a foreign
issuer's financial condition and operations. In addition, the costs of foreign
investing, including withholding taxes, brokerage commissions and custodial
fees, generally are higher than for U.S. investments.
CURRENCY HEDGING - The COUNTRY INDEX FUNDS will use forward contracts on the
foreign currency within each respective country in which that Fund is investing
("Country Currency"), options on forward contracts and Related Securities,
futures contracts on Country Currency, options on such futures contracts, and
options on Country Currency to attempt to eliminate the effect that fluctuations
in the U.S. Dollar/Country Currency exchange rate may have on the Fund's net
asset value per share. The Funds will seek to hedge fully against such
fluctuations at all times but cannot guarantee that a strategy will be
successful.
HOW TO INVEST IN THE FUNDS
CLASSES
The Funds offer two classes of shares: R Class shares and I Class shares.
R Class shares are primarily intended for retail investors, require a
minimum initial investment of $5,000 for any Fund ($2,000 for individual
retirement accounts ("IRAs") and Roth IRAs) and are subject to a shareholder
service fee of 0.25% of the net asset value of the respective shares. I Class
shares are primarily intended for institutional investors, require a minimum
initial investment of $100,000, in the aggregate, and are not subject to a
shareholder service fee.
10
<PAGE> 12
ABOUT NET ASSET VALUE
The net asset value for one Fund share is the value of that share's portion of
all of the assets of that class of shares of the Fund. In making this
calculation, the Fund generally values securities at market price. If market
prices are unavailable or become unreliable because of events occurring during
or after the close of trading in any of the relevant foreign markets, fair
value prices may be determined in good faith using methods approved by the
Board of Trustees. Occasionally events that affect the values of foreign
securities and foreign exchange rates may occur between the times at which they
are determined and the close of the exchange and will, therefore, not be
reflected in the computation of a Fund's net asset value. If events materially
affecting the values of these foreign securities occur during this period, the
securities will be valued in accordance with procedures established by the
Trustees. As such, values ascribed to certain securities maintained by a fund
may not be the quoted or published prices of those securities on their primary
markets or exchanges.
PRICING OF PORTFOLIO SHARES
The price of R Class and I Class shares of each Fund is the net asset value next
determined for the respective class. The Fund determines net asset value as of
the close of regular trading on the New York Stock Exchange (the "NYSE")
(normally 4:00 p.m. Eastern Time) on each day that the NYSE is open for business
(the "Pricing Time"). Because the Funds have portfolio securities that are
listed on foreign exchanges which may trade on weekends or other days when the
Funds do not price their shares, the net asset value of the Funds' shares may
change on days when shareholders will not be able to purchase or redeem the
Funds' shares.
PURCHASE OF SHARES
You may purchase R Class and I Class shares of each Fund directly from the
Fund, from the Distributor or through certain third parties, such as brokers or
other agents ("Financial Intermediaries"). The minimum initial investment is
$5,000 for R Class shares of any Fund ($2,000 for IRAs and Roth IRAs), and
$100,000, in the aggregate, for I Class shares. The minimum amount for an
additional investment is $250 for R Class shares, and $1000 for I Class shares,
for each account that you have. If the value of your account falls below the
minimum initial investment amount for R Class Shares or I Class Shares as a
result of share redemptions, and remains below that minimum for 60 consecutive
days, you may be subject to involuntary conversion from I Class Shares to R
Class Shares or involuntary redemption. The Fund will notify you that your
account is below the required minimum before taking further action. The Advisor
may waive the minimum initial investment requirement and involuntary conversion
or redemption for certain investors, including individuals purchasing through a
Financial Intermediary. Investors effecting a transaction through a Financial
Intermediary may be charged a fee by that Financial Intermediary. The minimum
initial investment for R Class and I Class shares will be waived for 401(k)
plans and 403(b) plans, and other qualified employee benefit plans as the Trust
shall determine.
Shares of the Funds are sold at an offering price which is equal to the net
asset value of the shares plus a purchase fee. This fee represents management's
estimate of the costs reasonably anticipated to be associated with a Fund's
purchase or sale of portfolio securities and related operational costs. Fees are
paid directly to that Fund and are used to defray these costs.
- - Each Fund charges a purchase fee for the purchase of R Class and I Class
shares equal to 0.50% of that Fund's shares net asset value.
You may arrange to purchase R Class and I Class shares directly from the Trust
by calling toll-free, 1-877-463- 9363, or by returning a completed Account
Registration Form with payment for your purchase. The price you pay will be the
net asset value calculated at the next Pricing Time, plus a purchase fee,
following receipt of your purchase order in good order.
To purchase shares through a Financial Intermediary, you should contact your
Financial Intermediary for details about how to purchase shares. Generally, the
price of shares purchased through a Financial Intermediary is the price
calculated at the next Pricing Time, plus a purchase fee, after the Fund
receives your order from your Financial Intermediary in good order. Certain
Financial Intermediaries may have made arrangements with the Fund so that you
may purchase shares at the price calculated at the next Pricing Time after your
Financial Intermediary receives your purchase order. Your Financial
Intermediary may charge an additional service or transaction fee.
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<PAGE> 13
- - Because of the risks associated with common stock investments, the
Portfolios are intended to be long-term investment vehicles and are not
designed to provide investors with a means of speculating on short-term
market movements. Consequently, the Funds reserve the right to reject any
specific purchase request. The Funds also reserve the right to suspend the
offering of shares for a period of time.
BY MAIL. Initial applications and investments, as well as subsequent
investments, in the Worldwide Index Funds made by mail must be received in good
form by the Trust, on any Business Day, at or prior to 2:00 p.m., Eastern Time
(11:00 a.m. Pacific Time), in order to be processed for that Business Day's net
asset value. Fill out an application and make a check payable to "Worldwide
Index Funds." Mail the check, along with the completed application to:
First Data Investor Services Group
P.O. Box ______
Westboro, MA 01581
IN ADDITION TO CHARGES DESCRIBED ELSEWHERE IN THIS PROSPECTUS, THE TRUST ALSO
MAY CHARGE $25.00 FOR CHECKS RETURNED FOR INSUFFICIENT OR UNCOLLECTIBLE FUNDS.
BY BANK WIRE TRANSFER. First, fill out an application and fax the completed
application, along with a request for a shareholder account number, to the Trust
at 508-xxx-xxxx. Then, request that your bank wire transfer the purchase amount
to the custodian, ______________, using the following instructions:
____________ Bank, N.A.
Routing Number: xxxx-xxxxx
For Account of Worldwide Index Funds
Trust Account Number: xxxxx-xxxxx
[Your Name]
[Your Shareholder Account Number]
After instructing your bank to transfer money by wire (your bank may charge a
fee for such services) for both initial and subsequent purchases, you must call
the Trust toll-free at 1-877-463-9363 and inform the Trust as to the amount that
you have transferred and the name of the bank sending the transfer in order to
obtain same-day pricing or credit. For initial purchases, you must also supply
the time the wire was sent and the Fed Wire reference number. If the purchase is
canceled because your wire transfer is not received, you may be liable for any
loss that the Trust incurs.
Wire transfers for both initial investments (which must be preceded by an
application, faxed to 508-xxx-xxxx) and subsequent investments in the Funds must
be received in good form at the Trust, on any Business Day, at or prior to 3:30
p.m., Eastern Time in order to be processed at that Business Day's net asset
value. An initial application that is faxed to the Trust does not constitute a
purchase order until the application has been processed and correct payment by
check or wire transfer has been received by the Trust. Financial Intermediaries
may have earlier cut-off times for purchases. For more information about how to
purchase through an intermediary, you should contact that intermediary directly.
REDEMPTIONS
REDEMPTION OF SHARES
You may redeem Fund shares directly from the Funds, through the Distributor or
through a Financial Intermediary as described above under Purchase of Shares.
The redemption price will be the net asset value per share calculated at the
next Pricing Time, which may be more or less than the purchase price of your
shares. The Funds will ordinarily distribute redemption proceeds in cash within
one business day of your redemption request. However, if you purchased shares by
check, a Fund will not distribute redemption proceeds until it has collected
your purchase payment, which may take up to ten business days. The Trust
reserves the right to pay all or part of your proceeds in securities that have a
market value equal to the redemption price (a "redemption in kind"). See
"PURCHASE AND REDEMPTION OF SHARES" in the SAI for information relating to
redemptions in kind.
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<PAGE> 14
- - Although the Funds do not have an exchange feature, you may redeem shares
from one Fund and purchase shares from any other Fund in the Worldwide
Index Funds. On these transactions, you will be charged a purchase fee
equal to 0.50% of the net asset value of the shares purchased.
PROCEDURES FOR REDEMPTIONS
Written requests for redemptions should be sent to First Data Investor Services
Group, P.O. Box ______, Westboro, MA 01581, and should be signed by the record
owner or owners. With proper prior authorization, telephone and electronic
redemption and transfer requests are also permitted. Telephone redemption
requests may be made by calling 1-877-463-9363 (toll-free) or 508-xxx-xxxx by
3:30 p.m., Eastern Time (12:30 p.m., Pacific Time), on any Business Day. The
Trust reserves the right to suspend the right of redemption in accordance with
the SAI. The Trust's offices are open between 8:30 a.m. and 5:30 p.m., Pacific
Time (11:30 a.m. and 8:30 p.m. Eastern Time) on each Business Day.
If you own shares that are registered in your Financial Intermediary's name, and
you want to transfer the registration to another intermediary or want the shares
registered in your name, then you should contact your Financial Intermediary for
instructions to make this change.
TRANSACTIONS OVER THE TELEPHONE. Telephone redemption transactions are extremely
convenient, but are not risk- free. To ensure that your telephone transactions
are safe, secure, and as risk-free as possible, the Trust has instituted certain
safeguards and procedures for determining the identity of callers and
authenticity of instructions, including recording telephone inquiries. As a
result, neither the Trust nor its transfer agent will be responsible for any
loss, liability, cost, or expense for following telephone or wire instructions
they reasonably believe to be genuine. If you or your intermediary make
redemption requests by telephone, you will generally bear the risk of any loss.
If you are unable to reach the Trust by telephone, you may want to try to reach
the Trust by other means.
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes its income at least annually. If you own Fund shares on a
Fund's record date, you will be entitled to receive the dividend. The Funds make
distributions of capital gains at least annually. The Trust, however, may
declare a special capital gain distribution if the Trustees believe that such a
distribution would be in the best interest of the shareholders of a Fund.
You will receive dividends and distributions in the form of additional Fund
shares unless you have elected to receive payment in cash. If you have not
already elected to receive cash payments on your application, you must notify
the Trust in writing prior to the date of distribution. Your election will
become effective for dividends paid after the Trust receives your written
notice. To cancel your election, simply send written notice to the Trust.
Dividends and distributions from a Fund are taxable to you whether they are
reinvested in additional shares of the Fund or are received in cash. You will
receive an account statement at least quarterly.
TAX INFORMATION
The following is a summary of some important tax issues that affect the Funds
and their Shareholders. The summary is based on current tax laws, which may be
changed by legislative, judicial or administrative action. This prospectus does
not present a detailed explanation of the tax treatment of the Funds or of the
tax consequences of an investment in the Funds.
YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING SPECIFIC QUESTIONS AS TO FEDERAL,
STATE AND LOCAL INCOME TAXES.
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<PAGE> 15
TAX STATUS OF DISTRIBUTIONS
Each Fund will distribute substantially all of its income. The income dividends
you receive from the Funds may be taxed as ordinary income and capital gains
(which may be taxable at different rates depending on the length of time the
Fund holds its assets), whether you receive the dividends in cash or in
additional shares. Distributions paid in January but declared by a Fund in
October, November or December of the previous year, may be taxable to you in the
previous year.
TAX STATUS OF SHARE TRANSACTIONS
EACH SALE OR REDEMPTION OF FUND SHARES IS A TAXABLE EVENT TO YOU. YOU SHOULD
CONSIDER THE TAX CONSEQUENCES OF ANY REDEMPTION BEFORE MAKING SUCH A REQUEST.
FOREIGN TAX CONSIDERATIONS
The COUNTRY INDEX FUNDS may elect to "pass through" to shareholders of those
Funds the foreign income taxes paid by the Funds. If this election is made
because it was deemed to be in the best interest of shareholders, shareholders
would be required to include in their gross income their proportional share of
the foreign taxes paid by their respective Fund. Shareholders will, however, be
able to treat this income as either an itemized deduction or a foreign tax
credit (but not both) against U.S. income taxes.
If the COUNTRY INDEX FUNDS elect to "pass through" foreign taxes to
shareholders, the tax credit would not pass through to FUNDS OF INDEX FUNDS
shareholders. Because the FUNDS OF INDEX FUNDS hold shares of the COUNTRY INDEX
FUNDS which are U.S. business entities, and do not hold shares of foreign
securities, the FUNDS OF INDEX FUNDS cannot pass through the tax credit to
shareholders. The FUNDS OF INDEX FUNDS may, however, claim a deduction for any
foreign taxes paid by the underlying COUNTRY INDEX FUNDS.
STATE TAX CONSIDERATIONS
Distributions by the Funds may be subject to state and local taxation. You
should verify your tax liability with your tax advisor.
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR
Watermark Investment Advisors, Ltd. (the "Advisor"), a California corporation
with offices at 790 E. Colorado Boulevard, 9th Floor, Pasadena California
91101, serves as the investment adviser for each Fund. The Advisor is
controlled by F. Brian Cerini, who formed the Advisor in 1998. Prior to that
time, Mr. Cerini was President of Sierra Capital Management Corporation. The
Advisor is responsible for formulating and continuing to assess investment
policies and recommending changes to the Board of Trustees where appropriate;
supervising compliance by State Street Global Advisors (the "Sub-Advisor") with
the Funds' investment objectives, policies and limits, as well as with laws and
regulations applicable to the Funds; evaluation of the performance of the
Sub-Advisor in light of selected benchmarks and the needs of the Funds; and
reporting to the Board of Trustees and shareholders on the foregoing. The
Advisor is a newly organized and registered investment adviser with no previous
business experience. For its services, the Advisor will receive from each Fund
the management fee set forth in the table below:
COUNTRY INDEX FUNDS FUNDS OF INDEX FUNDS
MANAGEMENT FEE:
THE INVESTMENT SUB-ADVISOR
State Street Global Advisors (the "Sub-Advisor"), the investment advisory
division of State Street Bank and Trust Company, is a Massachusetts trust
company with offices at 225 Franklin Street, Boston, Massachusetts 02110 and
serves as the investment sub-advisor for each Fund. The Sub-Advisor is
responsible for continuously managing the particular Fund's investment program
in accordance with the Fund's investment objectives. The Sub-Advisor has been
in the investment management business for ___ years. As of
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<PAGE> 16
________, 1998, the Adviser managed assets of approximately $__ billion,
including $__ billion of assets in internationally indexed investments.
The Sub-Advisor makes investment decisions for the assets of the Funds and the
Advisor continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish policies
that the Advisor and Sub-Advisor must follow in their day-to-day management
activities. The Advisor bears all of its own costs associated with providing
these advisory services, the fee paid to the Sub- Advisor and the expenses of
the Trustees who are affiliated with the Advisor. The Advisor may make payments
from its own resources to broker-dealers and other financial institutions in
connection with the sale of Fund shares. For its services, the Sub-Advisor will
receive from the Advisor the sub-advisory fee set forth in the table below:
COUNTRY INDEX FUNDS FUNDS OF INDEX FUNDS
SUB-ADVISORY FEE:
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<PAGE> 17
ADDITIONAL FUND INFORMATION
Additional information about the WORLDWIDE INDEX FUNDS is included in a
Statement of Additional Information dated _______, 1998 (the "SAI").
The SAI is incorporated by reference into this Prospectus and, therefore
is legally a part of this Prospectus.
You may obtain a copy of the SAI, or of the annual or semi-annual reports,
without charge by calling toll-free 1-877-463-9363, or by writing to WORLDWIDE
INDEX FUNDS at 790 E. Colorado Blvd., 9th Floor, Pasadena, CA 91101. The SAI has
been filed with the Securities and Exchange Commission (the "SEC"). The SEC
maintains a Web site ("http://www.sec.gov") that contains the SAI, other
material incorporated by reference, and other information regarding registrants
that file electronically with the SEC. You may also review and copy documents at
the SEC Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment of
a duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-6009. To aid you in obtaining this
information, the Fund's Investment Company Act registration number is 811-xxxxx.
- ------------------------------------------------------------------------------
WORLDWIDE INDEX FUNDS (SM)
THE INDEX ALTERNATIVE
- --------------------------------------------------------------------------------
<PAGE> 18
STATEMENT OF ADDITIONAL INFORMATION
WORLDWIDE INDEX FUNDSSM
790 E. Colorado Boulevard, 9th Floor
Pasadena, California 91101
Toll Free: 1-877-463-9363
(626) 468-8520
The Worldwide Index Funds (the "Trust") is a no-load mutual fund with thirteen
separate investment portfolios (individually a "Fund" and collectively, the
"Funds"). This Statement of Additional Information ("SAI") relates to all
thirteen Funds: Australia Index Fund, France Index Fund, Germany Index Fund,
Hong Kong Index Fund, Italy Index Fund, Japan Index Fund, Netherlands Index
Fund, Spain Index Fund, Sweden Index Fund, Switzerland Index Fund, and United
Kingdom Index Fund (collectively the "Country Index Funds"); and Europe Index
Fund and International Index Fund (collectively the "Funds of Index Funds").
This SAI is not a prospectus but should be read in conjunction with, and is
incorporated by reference into, the Prospectus for the Worldwide Index Funds,
dated ________, 1998. Copies of the Prospectus are available, without charge,
upon request to the Trust at 790 E. Colorado Blvd., 9th Floor, Pasadena, CA
91101 or by calling toll-free, 1-877-463-9363 or 626-793-8078.
The date of this SAI is ________, 1998.
<PAGE> 19
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
THE FUNDS AND COUNTRY SPECIFIC ECONOMIC CONSIDERATIONS ......................3
ADDITIONAL RISK CONSIDERATIONS..............................................15
INVESTMENT POLICIES AND OBJECTIVES..........................................16
INVESTMENT TECHNIQUES.......................................................19
INVESTMENT RESTRICTIONS.....................................................24
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................25
ORGANIZATION OF THE TRUST AND THE FUNDS.....................................27
MANAGEMENT OF THE TRUST.....................................................27
DETERMINATION OF NET ASSET VALUE............................................29
PERFORMANCE INFORMATION.....................................................30
CALCULATION OF RETURN QUOTATIONS............................................31
INFORMATION ON COMPUTATION OF YIELD.........................................32
PURCHASE AND REDEMPTION OF SHARES...........................................33
DIVIDENDS, DISTRIBUTIONS, AND TAXES.........................................34
EXPERTS.....................................................................38
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<PAGE> 20
THE FUNDS AND COUNTRY SPECIFIC ECONOMIC CONSIDERATIONS
THE COUNTRY INDEX FUNDS
The AUSTRALIA INDEX FUND seeks long-term capital appreciation in line with local
market equity returns. The Fund seeks to track as closely as possible the
performance of the Australia All Ordinaries Index (the "ASX"). The Fund will
normally invest at least 95% of its total assets in a combination of: (i) some
or all of the stocks included in the ASX; (ii) ASX futures and Related
Securities; (iii) currency forward contracts and/or currency futures contracts
and Related Securities; and/or (iv) short-term debt instruments. The Fund seeks
to reduce or eliminate the impact of currency fluctuation through hedging local
currency against the U.S. Dollar.
The ASX is a capitalization-weighted index of common stocks listed on the
Australian Stock Exchange. As of April 7, 1998, the top five stocks represented
in the ASX and their approximate proportional percentages are The National
Australia Bank, Ltd . (7.1%), The Broken Hill Proprietary Company, Ltd.(7%), The
News Corporation, Ltd. (4.7%), Westpac Banking Corporation (4.5%), and
Commonwealth Bank of Australia (3.8%).
Trading shares has taken place in Australia since 1828, but did not become
significant until the latter half of the nineteenth century when there was
strong demand for equity capital to support the growth of mining activities. A
stock market was first formed in Melbourne in 1865. In 1885, the Melbourne
market became the stock exchange of Melbourne, in which form it has remained
until recently. Other stock exchanges were also established in Sydney (1871),
Brisbane (1884), Adelaide (1887), Hobart (1891) and Perth (1891). In 1937, the
six capital city stock exchanges established the Australian Associated Stock
Exchanges (AASE) to represent them at a national level. In 1987, the regional
exchanges merged to create a single entity -- The Australian Stock Exchange
(ASX). Trading is done via a computer link-up called "SEATS." SEATS enables all
exchanges to quote uniform prices. All the exchanges are members of the ASX and
are subject to the Securities Industry Act, which regulates the major aspects of
stock exchange operations. Although there are stock exchanges in all six states,
the Melbourne and Sydney Stock Exchanges are the major centers, covering 90% of
all trades.
Australian reporting, accounting and auditing standards differ substantially
from U.S. standards. In general Australian corporations do not provide all of
the disclosure required by U.S. law and accounting practice, and such disclosure
may be less timely and less frequent than that required of U.S. corporations. As
of August 31, 1997, the total market capitalization of the Australian equity
markets was approximately AUD 419.4 billion or US$307.9 billion.
The FRANCE INDEX FUND seeks long-term capital appreciation in line with local
market equity returns. The Fund seeks to track as closely as possible the
performance of France's CAC-40 Index (the "CAC"). The Fund will normally invest
at least 95% of its total assets in a combination of: (i) some or all of the
stocks included in the CAC; (ii) CAC futures and Related Securities; (iii)
currency forward contracts and/or currency futures contracts and Related
Securities; and/or (iv) short-term debt instruments. The Fund seeks to reduce or
eliminate the impact of currency fluctuation through hedging local currency
against the U.S. Dollar.
The CAC is a narrow-based, capitalization-weighted index of 40 companies listed
on the Paris Stock Exchange (the Bourse). The index serves as a basis for
futures and options traded on France's financial futures and options market (the
MATIF and MONEP). As of April 7, 1998, the top five stocks represented in the
CAC and their approximate proportional percentages are France Telecom (9.3%),
AXA (6.2%), Elf Aquitaine (5.6%), L'Oreal (5.5%), and Alcatel Alsthom (5%).
Trading of securities in France is subject to the monopoly of the Societe de
Bourse, which replaced the individual agents de change in 1991 in order to
increase the cohesion of the French equity market. All purchases or sales of
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<PAGE> 21
equity securities in listed companies on any one of the French exchanges must be
executed through the Societe de Bourse. There are three different markets on
which French securities may be listed: (1) the official list (La Cote
Officielle), comprised of equity securities of large French and foreign
companies and most bond issues; (2) the second market (Le Second Marche),
designed for the trading of equity securities of smaller companies; and (3) the
"Hors-Cote" Market. Securities may only be traded on the official list and the
second market after they have been admitted for the listing by the Conseil des
Bourses de Valeurs (the "CBV"). By contrast, the Hors-Cote Market has no
prerequisites to listing, and shares of otherwise unlisted companies may be
freely traded there once they have been introduced on the market by the Societe
de Bourse. Although the Hors-Cote Market is frequently referred to as an
over-the-counter market, this term is inaccurate in that, like the official list
and the second market, it is supervised by Societes des Bourses Francaises and
regulated by the CBV.
Although there are seven stock exchanges in France (located in Paris, Bordeaux,
Lille, Lyon, Marseille, Nancy and Nantes), the Paris Stock Exchange handles more
than 95% of transactions in the country. All bonds and shares, whether listed or
unlisted, must be traded on one of the seven exchanges. Trading in most of the
Paris exchange-listed stocks takes place through the computer order-driven
trading system CAC, launched in 1988. French market capitalization constitutes
approximately 30% of the French Gross Domestic Product. Securities are
denominated in the official unit of currency, the French Franc. Unless otherwise
provided by a double tax treaty, dividends on French shares are subject to a
withholding tax of 25%.
Although French reporting, accounting and auditing standards are considered
rather rigorous by European standards, they differ from U.S. standards in
certain material respects. In general, French corporations are not required to
provide all of the disclosure required by U.S. law and accounting practice, and
such disclosure may be less timely and less frequent than that required of U.S.
corporations. As of August 31, 1997, the total market capitalization of the
French equity markets was approximately FRF 3,507.6 billion or US$578.3 billion.
France is a leading industrial country. Its large service sector, accounting for
approximately two-thirds of GDP, includes tourism, transportation and computer
consultancy. The once dominant iron and steel and textile industries have given
way to the fast growing aerospace, chemicals and pharmaceuticals, plastics and
telecommunications industries. The automobile industry, the most important
industry in the early eighties, has been largely overtaken by capital goods
industries. The capital goods industries account for one-fifth of the country's
exports and supply as many jobs as the agricultural sector.
High unemployment rates (currently 12.5%) and a soaring budget deficit are some
of the main economic concerns that have plagued France for the past decade.
Since 1993, the government has been trying to solve these problems through a mix
of higher taxes, which reached a record level in 1995, and a reduction of
non-wage costs. In 1996, the largest attempt to cut the budget deficit was
implemented, leading to a disparity of interest rate differentials vis-a-vis
Germany.
The government's 1996 implementation of an unpopular far-reaching reform of the
social security system, which aimed to curb health care spending through tighter
control from the Parliament and supervisory bodies, resulted in a protracted
strike. In 1997, the unexpected Socialist victory in the early general election
raised fresh doubts about the French authorities' commitment to cut the budget
deficit in line with the EMU requirements. However, the new government finally
decided to implement a temporary 10% corporate tax increase, the second one
since 1995, and cut spending, which should allow France to qualify for the EMU.
The government also envisions reducing current employees' weekly working time
and hiring 350,000 youths in the public sector to cut unemployment rates.
4
<PAGE> 22
The future economic challenges facing the French government include reducing the
budget deficit to a level acceptable to the EMU requirements, downsizing and
restructuring the public sector and improving the business environment,
particularly by increasing labor market flexibility.
The GERMANY INDEX FUND seeks long-term capital appreciation in line with local
market equity returns. The Fund seeks to track as closely as possible the
performance of Germany's Deutsche Aktienindex (the "DAX"). The Fund will
normally invest at least 95% of its total assets in a combination of: (i) some
or all of the stocks included in the DAX; (ii) DAX futures and Related
Securities; (iii) currency forward contracts and/or currency futures contracts
and Related Securities; and/or (iv) short-term debt instruments. The Fund seeks
to reduce or eliminate the impact of currency fluctuation through hedging local
currency against the U.S. Dollar.
The DAX is a total rate of return index of 30 selected German blue-chip stocks
traded on the Frankfurt Stock Exchange. As of April 7, 1998, the top five stocks
represented in the DAX and their approximate proportional percentages are
Allianz, AG (10.9%), Daimler-Benz (7.4%), SAP, AG (6.2%), Deutsche Bank (6.1%),
and Muenchener Rue (5.4%).
The history of Frankfurt as a financial center can be traced back to the early
Middle Ages. Frankfurt had the right to issue coins as early as 1180; the first
exchange office was opened in 1402. Germany has been without a central stock
exchange, the position formerly held by the Berlin exchange, since 1945. Today
there are eight independent stock exchanges, of which Dusseldorf and Frankfurt
account for over three-quarters of the total volume. Frankfurt is the main
exchange in Germany. Exchange securities are denominated in German Marks, the
official currency of Germany. Equities may be traded in Germany in one of three
markets: (i) the official market, comprised of trading in shares which have been
formally admitted to official listing by the admissions committee of the
relevant stock exchange, based on disclosure in the listing application; (ii)
the "semi-official" unlisted market, comprised of trading in shares not in the
official listing; and (iii) the unofficial, over-the-counter market, which is
governed by the provisions of the Civil Code and the Merchant Code and not by
the provisions of any stock exchange. There is no stamp duty in Germany, but a
nonresident capital gains tax may apply in certain circumstances.
German reporting, accounting and auditing standards differ substantially from
U.S. standards. In general, German corporations do not provide all of the
disclosure required by U.S. law and accounting practice, and such disclosure may
be less timely and less frequent than that required of U.S. corporations. As of
August 31, 1997, the total market capitalization of the Germany equity markets
was approximately DM 1,261.1 billion or US $700.5 billion.
Germany, the third largest economy in the world, has faced substantial economic
challenges resulting from the reunification of East and West Germany. The former
East Germany, which had been insulated from any real competition, was under
invested in housing and infrastructure and was not geared to handle full
economic and political union with West Germany. In addition, the cost of
reunification, which West Germany intended to finance with increased taxes,
proved to be much greater than anticipated due to the high cost of social
security transfers, extensive environmental damage and a worse than expected
economic condition. As a result, the public sector deficit rose from 0% to 7.5%
in 1993 and the Bundesbank (central bank) sharply raised interest rates, causing
the economy to recess.
Germany began to recover from recession in 1994, but the rise in interest rates
and the appreciation of the German Mark restricted market advances. The
depreciation of the German Mark and other monetary policies implemented by the
Bundesbank through 1997 have created very favorable monetary conditions to which
the economy is responding. Germany's fiscal health and prosperity over the next
few years will largely depend on the continued growth of capitalism in eastern
Germany.
5
<PAGE> 23
The HONG KONG INDEX FUND seeks long-term capital appreciation in line with local
market equity returns. The Fund seeks to track as closely as possible the
performance of Hong Kong's Hang Seng Index (the "HSI"). The Fund will normally
invest at least 95% of its total assets in a combination of: (i) some or all of
the stocks included in the HSI; (ii) HSI futures and Related Securities; (iii)
currency forward contracts and/or currency futures contracts and Related
Securities; and/or (iv) short-term debt instruments. The Fund seeks to reduce or
eliminate the impact of currency fluctuation through hedging local currency
against the U.S. Dollar.
The HSI is a capitalization-weighted index of 33 companies that represent
approximately 70% of the total market capitalization of the Stock Exchange of
Hong Kong. As of April 7, 1998, the top five stocks represented in the HSI and
their approximate proportional percentages are HSBC Holdings, PLC (27.1%),
Hutchison Whampoa (8.7%), Hong Kong Telecommunications (8.1%), China Telecom
(7.9%), and Hang Seng BK (5.9%).
Trading in equity securities in Hong Kong began in 1891 with the formation of
the Association of Stockbrokers, which was changed in 1914 to the Hong Kong
Stock Exchange. In 1921, a second stock exchange, The Hong Kong Stockbrokers'
Association, was established. In 1947, these two exchanges were merged under the
name The Hong Kong Stock Exchange Limited. Three additional exchanges, the Far
East Exchange Limited (1969), The Kam Ngan Stock Exchange Limited (1971) and The
Kowloon Stock Exchange (1972) also commenced trading activities. These four
exchanges were unified in 1986 to form The Stock Exchange of Hong Kong Limited
(the "SEHK"). Trading on the SEHK is conducted in the post trading method,
matching buyers and sellers through public outcry. Securities are denominated in
the official unit of currency, the Hong Kong Dollar. Foreign investment in Hong
Kong is generally unrestricted. All investors are subject to a small stamp duty
and a stock exchange levy, but capital gains are tax-exempt.
Hong Kong has significantly upgraded the required presentation of financial
information in the past decade. Nevertheless, reporting, accounting and auditing
practices remain significantly less rigorous than U.S. standards. In general,
Hong Kong corporations are not required to provide all of the disclosure
required by U.S. law and accounting practice, and such disclosure may be less
timely and less frequent than that required of U.S. corporations. As of August
31, 1997, the total market capitalization of the Hong Kong equity markets was
approximately HKD 3,278.1 billion or US$423 billion.
The transfer of sovereignty from Britain to China, which has created a sense of
uncertainty in Hong Kong's economy, has largely been a smooth transition. Under
the principal of "one country, two systems," Hong Kong is now a special
administrative region (SAR) of the People's Republic of China and is empowered
with a high degree of autonomy. It has retained its administrative, legislative
and judicial systems. The SAR government has full control over its monetary and
fiscal policies and it maintains its own customs and immigration control,
separate from the mainland. Except for issues relating to national security and
foreign policy, the SAR is largely run as an independent territory.
The first chief executive of the SAR, Mr. C.H. Tung, a former shipping tycoon,
has vowed to make a difference in the lives of the people of Hong Kong, by
focusing his attention on the areas of housing, education and infrastructure. In
the past, the chronic shortage of housing has been a strong influence on the
property market. Hong Kong property prices today are among the highest in the
world. The Tung administration announced a major housing package in October
1997, detailing its plan to double the supply of apartments in the territory.
Worth noting is that there is heavy exposure to the property market in Hong
Kong's banking sector as well as the stock market as a whole.
The integration of Hong Kong's economy with that of the mainland continues
apace. While the integration process in the 1980's was driven by the relocation
of Hong Kong's labor-intensive manufacturing sector to Southern China, the
integration theme for the 1990's is that of Hong Kong becoming a service center
for China's fast growing
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<PAGE> 24
economy. A large number of mainland companies have established offices in Hong
Kong as a window for interaction with the global economy. The Hong Kong
financial sector is increasing its role in the intermediation of foreign funds
for investment in China. Close to half of the FDI into China goes through Hong
Kong. Furthermore, Hong Kong is increasingly playing a role in intermediating
China's savings for investment in China. Hong Kong is well on its way to become
a bona fide financial center for China.
The Hong Kong dollar, which is pegged to the U.S. dollar, has come under recent
selling pressure as have most Asian currencies. Both the Hong Kong government
and the Central Bank of China have significant U.S. dollar reserves, which are
expected to be used to defend the peg. There can be no assurance that a
substantial devaluation will not occur. Hong Kong's property, bond, equity and
currency markets have all recently experienced downside pressure, partly as a
result of devaluation fears.
The ITALY INDEX FUND seeks long-term capital appreciation in line with local
market equity returns. The Fund seeks to track as closely as possible the
performance of Italy's MIB-30 Index (the "MIB"). The Fund will normally invest
at least 95% of its total assets in a combination of: (i) some or all of the
stocks included in the MIB; (ii) MIB futures and Related Securities; (iii)
currency forward contracts and/or currency futures contracts and Related
Securities; and/or (iv) short-term debt instruments. The Fund seeks to reduce or
eliminate the impact of currency fluctuation through hedging local currency
against the U.S. Dollar.
The MIB is a capitalization-weighted index of the 30 top companies listed on the
Milan Stock Exchange. As of April 7, 1998, the top five stocks represented in
the MIB and their approximate proportional percentages are ENI, SPA (15.6%),
Telecom Italia (11.8%), Telecom Italia Mobile, SPA (11.1%), Generali
Assicurazioni (9.2%), and Fiat, SPA (4.6%).
The first formal exchange was created in Italy in 1808 with the establishment of
the Milan Stock Exchange. Since then, nine other exchanges have been founded.
Milan is the most important exchange, accounting for 90% of total equity volume
and about 80% of turnover in fixed income securities. After the Milan Stock
Exchange the other exchanges, in order of importance, are: Rome, Turin, Genoa,
Bologna, Florence, Naples, Palermo, Trieste and Venice. By law the only persons
allowed to trade in the official posts of the stock exchange are the
stockbrokers, who must act as brokers and not trade for their own account. Banks
and intermediaries are allowed to enter the trading post as observers. In 1991,
the Parliament passed legislation creating Societa di Intermediazone Mobiliare
(SIMs). SIMs were created to regulate brokerage activities in the securities
market and are allowed to trade on their own and for customers' accounts. In
1986, the Centro Elaboraizione Dati (C.E.D. Borsa), a subsidiary of the Milan
Stock Exchange, developed a supporting service called Borsamat. The Borsamat
records all trading floor orders, links all Italian exchanges, checks
transaction details and issues confirmations. Italy has the world's largest
government securities market after the United States and Japan. At the end of
1993, issues of treasury bills, notes and bonds outstanding totaled US$1,133
billion.
Italian reporting, accounting and auditing practices are regulated by Italy's
National Control Commission. These practices bear some similarities to United
States standards, but differ significantly in many important respects. In
general, Italian corporations do not provide all of the disclosure required by
U.S. law and accounting practice, and such disclosure may be less timely, less
frequent and less consistent than that required of U.S. corporations. As of
August 31, 1997, the total market capitalization of the Italian equity markets
was approximately ITL 500,698.7 billion or US$284.4 billion.
Italy is a net importer of agricultural products and also imports most of its
energy products. Aside from tourism and design, Italy's service sector is not
very competitive. Through networks of small and medium-sized companies Italy's
strengths lie in its manufacturing sector, particularly in machine tools and
consumer goods. In the early 1990s, industry began to struggle to compete as a
result of wage increases and an exchange rate policy designed
7
<PAGE> 25
to limit the effect of government borrowing on the inflation rate. In September
1992, the lira collapsed and was forced to leave the Exchange Rate Mechanism
(ERM). The lira recovered in 1996 and returned to the ERM by the end of that
year.
The Bank of Italy, operating autonomously, has historically followed a tough
monetary policy in an effort to prevent government borrowing from causing
inflation. Beginning in 1991, the government implemented a fiscal policy that
reduced government borrowing through tax measures and spending cuts. Since then,
successive governments have delivered to parliament ambitious budget laws that
included revenue raising measures and cuts to the pension system, health
service, local government and defense. Despite the slow pace of reform to avoid
social unrest, impressive improvements have been made to realize 1997's
3%-of-GDP deficit target as required by the Maastricht Treaty.
In 1992, Italy also began a privatization program by transferring major state
holdings to joint stock companies as an intermediate step to total or, at least
partial, floatation on the stock exchange. Although the privatization program
was somewhat curbed in 1994, it resumed in 1995 and is still proceeding.
THE JAPAN INDEX FUND seeks long-term capital appreciation in line with local
market equity returns. The Fund seeks to track as closely as possible the
performance of Japan's Nikkei-225 Index (the "NKI"). The Fund will normally
invest at least 95% of its total assets in a combination of: (i) some or all of
the stocks included in the NKI; (ii) NKI futures and Related Securities; (iii)
currency forward contracts and/or currency futures contracts and Related
Securities; and/or (iv) short-term debt instruments. The Fund seeks to reduce or
eliminate the impact of currency fluctuation through hedging local currency
against the U.S. Dollar.
The NKI is a price-weighted index of the 225 top-rated Japanese companies listed
in the First Section of the Tokyo Stock Exchange. As of April 7, 1998, the top
five stocks represented in the NKI and their approximate proportional
percentages are Sony Corporation (6.9%), Fuji Photo Film (3%), Honda Motor Co.
(2.9%), Takeda Chemical (2.15%), and Sankyo, Co., Ltd. (2.1%).
The Japanese stock market has a history of over 100 years beginning with the
establishment of the Tokyo Stock Exchange Company Ltd. in 1878. Stock exchanges
are located in eight cities in Japan (Tokyo, Osaka, Nagoya, Kyoto, Hiroshima,
Fukuoka, Niigata and Sapporo). There is also an over-the-counter market. There
are three distinct sections on the main Japanese stock exchanges. The First
Section trades in over 1,100 of the largest and most active stocks, which
account for over 95% of total market capitalization. The Second Section consists
of over 400 issues with lower turnover than the First Section, which are newly
quoted on the exchange or which are not listed and would otherwise be traded
over-the-counter. The Third Section consists of foreign stocks which are traded
over-the-counter. The main activity of the regular exchange members is the
buying and selling of securities on the floor of an exchange, both for their
customers and for their own account. Japan is second only to the United States
in aggregate stock market capitalization. Securities are denominated in the
official unit of currency, the Japanese Yen. Takeover activity is negligible in
Tokyo, and although foreign investors play a significant role, the trend of the
market is set by the domestic investor. The withholding tax is 20% on dividends.
There also is a transaction tax on share trades and a small stamp duty.
Although some Japanese reporting, accounting and auditing practices are based
substantially on U.S. principles, they are not identical to U.S. standards in
some important respects, particularly with regard to unconsolidated subsidiaries
and related structures. In general, Japanese corporations are not required to
provide all of the disclosure required by U.S. law and accounting practice, and
such disclosure may be less timely and less frequent than that required of U.S.
corporations. As of August 31, 1997, the total market capitalization of the
Japanese equity markets was approximately JPY 349,605.2 billion or US$2,906.4
billion.
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<PAGE> 26
Japan's economy, the second-largest in the world, has grown substantially over
the last three decades. However in 1995, the Japanese economy expanded by just
0.9% and its budget showed a deficit of 5.9% of GDP. The boom in Japan's equity
and property markets during the expansion of the late 1980's supported high
rates of investment and consumer spending on durable goods, but both of these
components of demand have now retreated sharply following the decline in asset
prices. Profits have fallen sharply, unemployment has reached a historical high
and consumer confidence is low. The banking sector continues to suffer from
nonperforming loans. Numerous cuts of the discount-rate since its 6% peak in
1991, a succession of fiscal stimulus packages, support plans for the debt-
burdened financial system and spending for reconstruction following the Kobe
earthquake may help to contain the recessionary forces, but substantial
uncertainties remain.
In addition to a cyclical downturn, Japan is suffering through structural
adjustments. Like the Europeans, the Japanese have seen a deterioration of
their competitiveness due to high wages, a strong currency and structural
rigidities. Finally, Japan is reforming its political process and deregulating
its economy. This has resulted in turmoil, uncertainty and a crisis of
confidence.
While the Japanese governmental system itself seems stable, the dynamics of the
country's politics have been unpredictable in recent years. The economic crisis
of 1990-92 brought the downfall of the conservative Liberal Democratic Party,
which had ruled since 1955. Since then, the country has seen a series of
unstable multi-party coalitions and several prime ministers come and go, because
of politics as well as personal scandals. While there appears to be no reason to
anticipate civic unrest, it is impossible to know when the political instability
will end and what trade and fiscal policies might be pursued by the government
that emerges.
Japan's heavy dependence on international trade has been adversely affected by
trade tariffs and other protectionist measures, as well as the economic
condition of its trading partners. Japan subsidizes its agricultural industry
since only 19% of its land is suitable for cultivation. It is only 50%
self-sufficient in food production. Accordingly, it is highly dependent on large
imports of wheat, sorghum and soybeans. In addition, industry, its most
important economic sector, depends on imported raw materials and fuels,
including iron ore, copper, oil and many forest products. Japan's high volume of
exports, such as automobiles, machine tools and semiconductors, has caused trade
tensions, particularly with the United States. Some trade agreements have been
implemented to reduce these tensions. The relaxing of official and de facto
barriers to imports, or hardships created by any pressures brought by trading
partners, could adversely affect Japan's economy. A substantial rise in world
oil or commodity prices could also have a negative affect. Additionally, the
strength of the yen itself may prove an impediment to strong continued exports
and economic recovery, because it makes Japanese goods sold in other countries
more expensive and reduces the value of foreign earnings repatriated to Japan.
Since the Japanese economy is so dependent on exports, any fall off in exports
may be seen as a sign of economic weakness, which may adversely affect the
market.
Geologically, Japan is located in a volatile area of the world and has
historically been vulnerable to earthquakes, volcanoes and other natural
disasters. As demonstrated by the Kobe earthquake in January of 1995, which
resulted in the death of 5,000 people and billions of dollars of damage, natural
disasters can be significant enough to affect the country's economy.
The NETHERLANDS INDEX FUND seeks long-term capital appreciation in line with
local market equity returns. The Fund seeks to track as closely as possible the
performance of the Netherlands' Amsterdam Exchanges Index (the "AEX"). The Fund
will normally invest at least 95% of its total assets in a combination of: (i)
some or all of the stocks included in the AEX; (ii) AEX futures and Related
Securities; (iii) currency forward contracts and/or currency futures contracts
and Related Securities; and/or (iv) short-term debt instruments. The Fund seeks
to reduce or eliminate the impact of currency fluctuation through hedging local
currency against the U.S. Dollar.
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<PAGE> 27
The AEX is a weighted index of the 25 leading Dutch stocks traded on the
Amsterdam Stock Exchange. The index is rebalanced every February by setting the
company with the greatest capitalization in the basket of stocks to 10% and
calculating the weights of the remaining stocks accordingly. As of April 7,
1998, the top five stocks represented in the AEX and their approximate
proportional percentages are ING Groep, NV (11.8%), Unilever, NV (10.8%), Royal
Dutch Petroleum (9.8%), Aegon, NV (9.8%), and ABN Amro Hldg (9.7%).
Trading securities on the AEX Stock Exchange (AEX) (formerly the Amsterdam Stock
Exchange) started at the beginning of the seventeenth century. The United East
India Company was the first company in the world financed by an issue of shares,
and such issue was effected through the exchange. The Netherlands claims the
honor of having the oldest established stock exchange in existence. In 1611 a
stock market began trading in the coffee houses along the Dam Square. A more
formal establishment, the Amsterdam Stock Exchange Association, began trading
industrial stocks in 1876 and until World War II, Amsterdam ranked after New
York and London as the third most important stock market in the world. After the
war, the AEX Stock Exchange only gradually began to resume its activities, as
members felt threatened by what they saw as an impending socialist order which
would leave little of the stock market intact. Since the end of the war, the
Dutch market has remained relatively neglected, as local companies have found it
more favorable to use bank financing to meet their capital requirements. Trading
in shares on the AEX may take place on the official market or on the parallel
market, which is available to medium-sized and smaller companies that cannot yet
meet the requirements demanded for the official market.
Dutch reporting, accounting and auditing standards differ substantially from
U.S. standards. In general, Dutch corporations do not provide all of the
disclosure required by U.S. law and accounting practice, and such disclosure may
be less timely and less frequent than that required of U.S. corporations. As of
August 31, 1997, the total market capitalization of the Dutch equity markets was
approximately NLG 911.5 billion or US$449.8 billion.
The Netherlands boasts one of the highest levels of GDP per capita in the world.
While industry is its most important sector, the Netherlands also benefits from
agricultural and natural gas resources. Foreign trade is vital to the
Netherlands, accounting for approximately 50% of GDP. The recovery of exports by
the end of the 1980s was fueled by government policies on wage moderation,
although such policies resulted in an increased unemployment rate. Additionally,
the reunification of Germany resulted in a surge in demand for exports.
Public spending has exceeded 50% of GDP, including transfer payments. The
public-sector deficit is a political and economic problem and has received
heightened government attention. While the deficit has been reduced recently,
further reduction remains a key government objective. The Netherlands has
efficiently increased the flexibility of its labor market and cut indirect wage
costs. As a consequence, the Netherlands should outperform the European average
in terms of economic performance over the years to come.
The SPAIN INDEX FUND seeks long-term capital appreciation in line with local
market equity returns. The Fund seeks to track as closely as possible the
performance of Spain's IBEX-35 (the "IBEX"). The Fund will normally invest at
least 95% of its total assets in a combination of: (i) some or all of the stocks
included in the IBEX; (ii) IBEX futures and Related Securities; (iii) currency
forward contracts and/or currency futures contracts and Related Securities;
and/or (iv) short-term debt instruments. The Fund seeks to reduce or eliminate
the impact of currency fluctuation through hedging local currency against the
U.S. Dollar.
The IBEX is a capitalization-weighted index of the 35 most liquid Spanish stocks
traded on the Continuous Markets. As of April 7, 1998, the top five stocks
represented in the IBEX and their approximate proportional percentages are
Telefonica de Espana (18.1%), Banco Bilbao (12.7%), Endesa, SA (10.5%), Banco
Santander (9.4%), and Repsol, SA (6.2%).
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<PAGE> 28
The trading of shares in Spain dates back to 1831 when the Madrid Stock Exchange
was founded. Since that time, other exchanges have been established in
Barcelona, Bilbao and Valencia, although the latter remains purely a local
market. Madrid is by far the most active and the most international market
exchange, accounting for nearly 50% of total market capitalization of both bonds
and stocks. The next largest exchange is Barcelona, founded in 1915. Membership
at each stock exchange in Spain is restricted to stockbrokers nominated by the
Ministry of Finance. In order to practice their profession, a broker must belong
to the Association of Brokers. In November 1986, the Madrid Stock Exchange
opened the new second market, or unlisted securities market, as part of an
effort to expand the range of Spanish companies whose shares are publicly
quoted. The second market provides small and medium-sized companies with access
to the trading market of the Madrid Stock Exchange.
Spanish reporting, accounting and auditing standards differ substantially from
U.S. standards. In general, Spanish corporations do not provide all of the
disclosure required by U.S. law and accounting practice, and such disclosure may
be less timely and less frequent than that required of U.S. corporations. As of
August 31, 1997, the total market capitalization of the Spanish equity markets
was approximately ESP 30,769.4 billion or US$202.4 billion.
Spain's entry into the European Community in 1986 was followed by a period of
rapid economic growth. Economic growth did not continue; however, and the
government's restrictive monetary policy and the overvalued peseta contributed
to a downturn in investment along with a rise in unemployment in the early
1990s. Currently, the government faces the challenges of addressing the domestic
concerns of controlling inflation, reducing the deficit and effecting labor
reform against the competing interests of maintaining a monetary policy suitable
for Spain's participation in the EMU.
In June 1989, Spain joined the Exchange Rate Mechanism of the European Monetary
System with the goal of maintaining a stable currency. The resulting huge inflow
of foreign capital caused the Spanish economy to lose some of its
competitiveness. Despite the devaluation of the peseta and the easing of
monetary policy in 1993, Spain slipped into its worst recession in 30 years.
Economic growth has recovered since then, averaging 2.4% from 1994-96. The
center-right government elected in 1996 has displayed a strong ability to
control public spending through structural reforms. By the end of 1997, Spain
should be able to fulfill all the Maastricht criteria and its participation in
the EMU should not be questioned.
In June of 1994, Spain experienced a general strike by the trade unions. The
strike, while unsuccessful, led to reforms in the labor market to ease the rigid
regulations that govern permanent job contracts. Spain's unemployment is
currently the highest in the European Union; however, 1997's strong economic
growth and new reforms to improve the flexibility of the labor market have
decreased the rate of unemployment from 24.6% in 1994 to 20.5% as of July 1997.
The SWEDEN INDEX FUND seeks long-term capital appreciation in line with local
market equity returns. The Fund seeks to track as closely as possible the
performance of Sweden's Stockholm Options Market Index (the "OMX"). The Fund
will normally invest at least 95% of its total assets in a combination of: (i)
some or all of the stocks included in the OMX; (ii) OMX futures and Related
Securities; (iii) currency forward contracts and/or currency futures contracts
and Related Securities; and/or (iv) short-term debt instruments. The Fund seeks
to reduce or eliminate the impact of currency fluctuation through hedging local
currency against the U.S. Dollar.
The OMX is a capitalization-weighted index of 30 stocks that have the largest
volume of trading on the Stockholm Stock Exchange. As of April 7, 1998, the top
five stocks represented in the OMX and their approximate proportional
percentages are Ericsson, LM (22.2%), Astra, AB (13.5%), Foreningssparban
(5.5%), Svenska, Handelsbanken (4.8%), and ABB, AB (4.7%).
11
<PAGE> 29
Organized trading of securities in Sweden can be traced back to 1776. Although
the Stockholm Stock Exchange was founded in 1864, the real formation of a stock
exchange in an international sense took place in 1901. The statutes of the stock
exchange were modified in 1906 and, from the beginning of 1907, commercial banks
were admitted as members. During the 1970's the Stockholm market was
characterized by limited turnover and dull trading conditions. In 1980 the
market started to climb and for several years Stockholm was one of the best
performing stock markets in both price and volume growth. This regeneration of a
market for risk capital was reflected in the large number of companies
introduced in the early 1980's. The Stockholm Stock Exchange is structured on a
membership basis, with the Bank Inspection Board being the supervising
authority. The board consists of 11 directors and one chief executive. The
directors of the board are elected by the Swedish government, and the
Association of the Swedish Chamber of Commerce, the Federation of Swedish
Industries and the member companies of the Stock Exchange. There are three
different markets for trading shares in Sweden. The dominant market is the A1
list, for the largest and most heavily traded companies. The second distinct
market is the Over-the-Counter Market, which is more loosely regulated than the
official market and caters to small and medium sized companies. The other market
is the unofficial parallel market which deals in unlisted shares, both on and
off the exchange floor. The shares most frequently traded on this market are
those which have been delisted from the other markets and those which are only
occasionally available for trading. There are also two independent markets for
options -- the Swedish Options Market (SOM) and the Swedish Options and Futures
Exchange (SOFE). They offer calls, puts and forwards on Swedish stocks and stock
market index.
Swedish reporting, accounting and auditing standards differ substantially from
U.S. standards. In general, Swedish corporations do not provide all of the
disclosure required by U.S. law and accounting practice, and such disclosure may
be less timely and less frequent than that required of U.S. corporations. As of
August 31, 1997, the total market capitalization of the Swedish equity markets
was approximately SEK 2,036.8 billion or US$259.4 billion.
Sweden has a highly developed and successful industrial sector. The chief
industries, most of which are privately owned, include textiles, furniture,
electronics, dairy, metals, ship building, clothing, engineering, chemicals,
food processing, fishing, paper, oil and gas, automobiles and shipping.
Productivity, as measured by GDP per capita, is well above the European average,
although two-thirds of GDP passes through the public sector.
Successive governments have traditionally afforded Swedes generous benefits for
unemployment, sick leave, child care, elderly care and general public welfare,
along with state medical care. This extensive social welfare system has proved
unsustainable in recent years and has resulted in large government deficits.
Furthermore, a wide tax wedge, caused by the generous social benefits, is a key
impediment to job creation and is the reason for the high unemployment rate.
Almost half of the personal disposable income received by Swedes resulted from
transfer payments, a system for redistributing income.
Sweden suffered a severe recession in the early 1990s causing GDP to fall 5%
between 1990 and 1993. The economic recovery gathered pace in 1994 and is now in
its fourth year. Nonetheless, the recession led to a drop in the standard of
living and has left Sweden with a large gap in its public finances. The budget
deficit peaked in 1993 at 12.3% of GDP.
Sweden, which joined the European Community on January 1, 1995, received strong
pressure to bring its public finances under control. A fiscal consolidation
plan, entailing a tightening of policy over a period of four years, was approved
by Parliament in 1995. The implementation of the plan is currently on track and
Sweden is most likely to achieve a balanced budget in 1998. The resulting
improvement in investor and business confidence has boosted Sweden's economic
prospects and, despite the continuing fiscal consolidation, such economic
prospects are some of the best in Europe for the remainder of the decade.
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<PAGE> 30
The SWITZERLAND INDEX FUND seeks long-term capital appreciation in line with
local market equity returns. The Fund seeks to track as closely as possible the
performance of Switzerland's Swiss Market Index (the "SMI"). The Fund will
normally invest at least 95% of its total assets in a combination of: (i) some
or all of the stocks included in the SMI; (ii) SMI futures and Related
Securities; (iii) currency forward contracts and/or currency futures contracts
and Related Securities; and/or (iv) short-term debt instruments. The Fund seeks
to reduce or eliminate the impact of currency fluctuation through hedging local
currency against the U.S. Dollar.
The SMI is a capitalization-weighted index of the largest and most liquid stocks
traded on the Electronic Bourse System. As of April 7, 1998, the top five stocks
represented in the UKX and their approximate proportional percentages are
Novartis (21%), Nestle, SA (14.9%), Roche Hldg - Genus (14.5%), Credit Suisse
(10.8%), and Union Bank of Switzerland -Bearer (7.2%).
There are three principal stock exchanges in Switzerland, the largest of which
is Zurich, followed by Geneva and Basel. The Geneva exchange is the oldest and
was formally organized in 1850. The Basel and the Zurich exchanges were founded
in 1876 and 1877, respectively. The Geneva Exchange is a corporation under
public law and in Zurich and Basel the exchanges are institutions under public
law. There are three different market segments for the trading of equities in
Switzerland. The first is the official market, the second is the semi-official
market, and the third is the unofficial market. On the official market, trading
takes place among members of the exchange on the official trading floors.
Trading in the semi-official market also takes place on the floors of the
exchanges, but this market has traditionally been reserved for smaller companies
not yet officially accepted on the exchange. Unofficial market trading is
conducted by members and non-members alike. Typical trading on this market
involves shares with small turnover. Both listed and unlisted securities can,
however, be traded on this market.
Swiss reporting, accounting and auditing standards differ substantially from
U.S. standards. In general, Swiss corporations do not provide all of the
disclosure required by U.S. law and accounting practice, and such disclosure may
be less timely and less frequent than that required of U.S. corporations. As of
August 31, 1997, the total market capitalization of the Swiss equity markets was
approximately CHF 719.7 billion or US$484.9 billion.
Due to its lack of raw materials, Switzerland has based its economic growth on
its highly skilled labor market and technological manufacturing expertise.
Switzerland's strengths lie in chemicals and pharmaceuticals, watches, precision
instruments (machinery equipments), engineering, food, financial services and
tourism. Additionally, its small domestic market's reliance on exports accounted
for 36% of the GDP in 1994.
Historically, Switzerland has experienced low unemployment levels due to its
heavy dependence on foreign labor to supplement its labor force. However, from
1990 through the first half of 1997, the unemployment rate rose substantially,
peaking at 5.7% in mid 1997, resulting from seven years of recession and
stagnation. Some signs of economic revival have appeared in 1997, since the
economy traditionally operates in tandem with the rest of Europe. Moreover,
because of its safe haven status, the currency has been under increased
pressures due to the prospect of the EMU currency, the Euro, which in turn has
aggravated the economic situation. For the remainder of 1997 and forward, the
monetary policy is likely to remain targeted at the exchange rate.
The UNITED KINGDOM INDEX FUND seeks long-term capital appreciation in line with
local market equity returns. The Fund seeks to track as closely as possible the
performance of United Kingdom's ("UK") FTSE 100 Index (the "UKX"). The Fund will
normally invest at least 95% of its total assets in a combination of: (i) some
or all of the stocks included in the UKX; (ii) UKX futures and Related
Securities; (iii) currency forward contracts and/or currency futures contracts
and Related Securities; and/or (iv) short-term debt instruments. The Fund seeks
to reduce or eliminate the impact of currency fluctuation through hedging local
currency against the U.S. Dollar.
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<PAGE> 31
The UKX is a capitalization-weighted index of the 100 most highly capitalized
companies traded on the London Stock Exchange. As of April 7, 1998, the top five
stocks represented in the UKX and their approximate proportional percentages are
Glaxo Wellcome (5.9%), Lloyds TSB Group (5%), British Petroleum (4.8%),
SmithKline Beecham (4.1%), and Shell Transp-Reg (4.1%).
The UK is Europe's largest equity market in terms of aggregate market
capitalization. Trading is fully computerized under the Stock Exchange Automated
Quotation System. There are 14 stock exchanges in the UK and Ireland which
comprise the Associated Stock Exchange. The most important exchange and the one
that has the major share of the business is the London Stock Exchange. The
London Stock Exchange has the largest volume of trading in international
equities in the world.
Although UK reporting, accounting and auditing standards are among the most
stringent outside the United States, such standards are not identical to U.S.
standards in important respects. Some UK corporations are not required to
provide all of the disclosure required by U.S. law and accounting practice, and
such disclosure may, in certain cases, be less timely and less frequent than
that required of U.S. corporations. As of August 31, 1997, the total market
capitalization of the UK equity markets was approximately GBP 1,191.2 billion or
US$1,931.9 billion.
The 1997 general election resulted in a landslide victory for the Labor Party,
which had been out of office since May 1979. In its first few months, the Labor
Party administration has shown signs of pursuing policies which are very similar
to the market-oriented policies of the outgoing government. It has granted
operational independence to the Bank of England, a step which the Conservative
government had been reluctant to take.
The new government is more open to EMU than the outgoing administration, but
early participation nonetheless remains unlikely. The Labor leadership is in
favor of the EMU in principal, but has stated that any eventual practical
decision to join must be preceded by a greater economic convergence than that
specified by the Maastricht Treaty and a formal referendum.
The UK economy has grown since 1993, and has continued to grow strongly during
early 1997. Measured unemployment has fallen sharply, toward levels more typical
of the United States than of Continental Europe, and corporate profitability has
been approaching levels not seen since the 1960s. Unfortunately, inflation
performance remains disappointing, and it is still uncertain whether the
independent central bank will be successful at fine-tuning the business cycle.
THE FUNDS OF INDEX FUNDS
The EUROPE INDEX FUND is a "fund of funds" which invests in shares of the
France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, and United
Kingdom Country Index Funds (collectively, the "European Country Index Funds").
The Europe Index Fund seeks long-term capital appreciation in line with local
market equity returns of those European countries in which the underlying
Country Index Funds invest. The Europe Index Fund invests in its underlying
Country Index Funds in proportion to the relative equity market capitalization
of the countries represented by the underlying Country Index Funds. The Europe
Index Fund seeks to reduce or eliminate the impact of currency fluctuation by
investing in the Country Index Funds which are hedged against such risk.
In 1986, the member states of the European Community (the "Member States")
signed the "Single European Act," an agreement to establish a free market. The
development of a unified common European market has promoted the free flow of
goods and services; however, since September 1992, Europe's monetary policy has
been affected by fluctuating currencies. Additionally, 1993's tight monetary
policies and high inflation caused Europe's economies to ebb into recession.
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The Maastricht Treaty creating the EMU, is intended to provide its members with
a stable monetary framework. The prospect of EMU has triggered a sharp
convergence of interest rates across Europe, with risk premium over the German
interest rates levels having decreased. Adding to the favorable monetary
conditions, the monetary easing experienced by core countries has triggered a
strong depreciation of their currencies. Consequently, European activity has
accelerated again in 1997.
The prospect of the EMU has reduced the roles of exchange rate depreciation,
fiscal profligacy and political control over central banks on the business
cycle. As a result, the European cycle is becoming less volatile. We believe
that future core European business cycles will resemble those in the US, where
swings in activity are determined mainly by exogenous shocks to the system,
policy mistakes and inventory corrections.
The EMU is set to take place in 1999 with Austria, Belgium, Finland, France,
Germany, Ireland, Luxembourg, Spain, Portugal, and the Netherlands (there is a
chance Italy may still join). The costs associated with a delay and possible
abandonment appear to be too great to allow the political leaders to walk away
from their commitment. The EMU should be a net plus for European investment
spending and for economic growth. In addition, a less volatile business cycle
should be beneficial for future business planning. This should be a net plus for
shareholder value and for the markets in general. The community's future
challenge will be to allow more countries into the EMU while maintaining its
stability. See "ADDITIONAL RISK CONSIDERATIONS" below.
The INTERNATIONAL INDEX FUND a "fund of funds" which invests in shares of the
eight European Country Index Funds and the Australia, Hong Kong and Japan
Country Index Funds.. The International Index Fund seeks long-term capital
appreciation in line with local market equity returns of those countries in
which the underlying Country Index Funds invest. The International Index Fund
invests in its underlying Country Index Funds in proportion to the relative
equity market capitalization of the countries represented by the underlying
Country Index Funds. The International Index Fund seeks to reduce or eliminate
the impact of currency fluctuation by investing in the Country Index Funds
which are hedged against such risk. The Fund will be subject to the
country-specific economic considerations and risks associated which each of the
underlying Country Index Funds in its portfolio.
ADDITIONAL RISK CONSIDERATIONS
THE EURO
On January 1, 1999, the European Monetary Union (EMU) plans to implement a new
currency unit, the Euro, which is expected to reshape financial markets, banking
systems and monetary policies in Europe and other parts of the world. The
countries initially expected to convert or tie their currencies to the Euro
include Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal and Spain. Implementation of this plan will mean that
financial transactions and market information, including share quotations and
company accounts, in participating countries will be denominated in Euros.
Approximately 46% of the stock exchange capitalization of the total European
market may be reflected in Euros, and participating governments will issue their
bonds in Euros. Monetary policy for participating countries will be uniformly
managed by a new central bank, the European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro implementation
plan on the Funds, the transition to the Euro may change the economic
environment and behavior of investors, particularly in European markets. For
example, investors may begin to view those countries participating in the EMU as
a single entity, and the Advisor may need to adapt its investment strategy
accordingly. The process of implementing the Euro also may adversely affect
financial markets world-wide and may result in changes in the relative strength
and value of the U.S. dollar or other major currencies, as well as possible
adverse tax consequences. The transition from current currencies to the Euro,
may be considered a taxable event. The transition to the Euro is likely to have
a significant impact
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on fiscal and monetary policy in the participating countries and may produce
unpredictable effects on trade and commerce generally. These resulting
uncertainties could create increased volatility in financial markets world-wide.
YEAR 2000
The Funds depend on the smooth functioning of computer systems in almost every
aspect of their business. Like other mutual funds, businesses and individuals
around the world, the Funds could be adversely affected if the computer systems
used by its service providers do not properly process dates on and after January
1, 2000 and distinguish between the year 2000 and the year 1900. The Funds have
asked their service providers whether they expect to have their computer systems
adjusted for the year 2000 transition, and received assurances from each that
they are devoting significant resources to prevent material adverse consequences
to the Funds. The Funds and their respective shareholders may experience losses
if these assurances prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or third parties,
such as custodians, banks, broker-dealers or others with which the Funds do
business. Furthermore, many foreign countries are not as prepared as the U.S.
for the year 2000 transition. As a result, computer difficulties in foreign
markets and with foreign institutions as a result of the year 2000 may add to
the possibility of losses to the Funds and their respective shareholders.
GLOBAL CUSTODIANS
In making investment decisions for each Fund, the Advisor evaluates the risks
associated with investing Fund assets in a particular country, including risks
stemming from a country's financial infrastructure and settlement practices; the
likelihood of expropriation, nationalization or confiscation of invested assets;
prevailing or developing custodial practices in the country; the country's laws
and regulations regarding the safekeeping, maintenance and recovery of invested
assets, the likelihood of government-imposed exchange control restrictions which
could impair the liquidity of Fund assets maintained with custodians in that
country, as well as risks from political acts of foreign governments ("country
risks"). Of course, the Advisor cannot assure that a Fund will not suffer losses
resulting from investing in foreign countries.
Holding Fund assets in foreign countries through specific foreign custodians
presents additional risks, including but not limited to the risks that a
particular foreign custodian or depository will not exercise proper care with
respect to Fund assets or will not have the financial strength or adequate
practices and procedures to properly safeguard Fund assets.
INVESTMENT POLICIES AND OBJECTIVES
GENERAL
Each Fund's investment objective and permitted investments are described in the
Funds' Prospectus. The following information supplements, and should be read in
conjunction with, the Prospectus.
INVESTMENT POLICIES
The Funds are not managed by traditional methods of "active" investment
management which depend on fundamental financial and market analysis and on
relative valuation investment judgments. Instead, each Fund uses a "passive" or
indexed investment approach and attempts to track as closely as possible the
investment
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performance of its LOCAL MARKET INDEX ("LMI")(SM1) by normally investing at
least 95% of its total assets primarily in either some or all stocks of the LMI
in general proportion to the LMI or a statistical sampling of common stocks
designed to track the LMI, LMI futures and Related Securities, stock swap
agreements, currency forward contracts and currency futures contracts and
Related Securities, and/or cash and short-term debt instruments. Each Fund has
a policy of remaining as fully invested as practical in a pool of the foregoing
investment instruments.
Except for the investment flexibility necessary to comply with the requirements
of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
and other regulatory requirements and to manage future corporate actions and LMI
changes currently pertaining to the LMIs of Italy and Hong Kong, each Fund will
normally invest at least 95% of its total assets in some or all of these
investment instruments.
A Fund may invest its remaining assets in Short-Term Debt Instruments (defined
below), in stocks that are in the relevant Country market but are not in the LMI
and/or in combinations of LMI futures contracts, LMI options, LMI swaps, cash,
local currency and forward currency exchange contracts and Related Securities.
"Short-Term Debt Instruments" are short-term high quality debt securities that
include obligations of the U.S. Government and its agencies and
instrumentalities, commercial paper (rated Prime-I by Moody's Investors
Services, Inc. or A-1 by Standard & Poor's Ratings Group), bank certificates of
deposit, bankers acceptances, repurchase agreements collateralized by the
foregoing securities, participations of interest in these securities and shares
of money market funds.
A Fund may not use long futures contracts to leverage the portfolio at the time
of investment in the futures contracts. Rather, long futures positions will be
used to hedge a Fund's Short-Term Debt Instruments and cash reserves. A Fund
will not invest in Short-Term Debt Instruments, futures contracts, options, swap
agreements or cash reserves as part of a defensive strategy to defend against
possible adverse stock market trends. A Fund may enter into forward currency
exchange contracts to facilitate settlements in local markets, and in connection
with LMI futures positions and to protect against currency exposure with regard
to shareholder distributions.
Each Fund may necessarily concentrate its investments in an industry or
industries if its underlying LMI concentrates in such industry or industries.
In particular, a Fund will maintain 25% or more of its net asset value in
securities of issuers in each industry in which its LMI has a concentration of
25% or more. Changes in LMI industry concentrations will be made passively, as
such changes are made only based upon changes in the constituent common stocks
of the LMI.
A Fund in many cases may not hold all issues that comprise its LMI because of
the costs involved for the Fund and because of relative illiquidity of certain
common stocks in its LMI. As an alternative to holding all securities that are
included in its LMI, the Fund may hold a representative sampling, based upon an
analytical technique known as "portfolio sampling." Portfolio sampling considers
each stock for inclusion into a Fund's portfolio based primarily upon its
capitalization, industry and fundamental investment characteristics. The Fund's
portfolio manager will attempt to construct a portfolio such that in aggregate
the Fund's capitalization, industry and fundamental investment characteristics
perform similarly to its LMI. Periodically, the Fund's composition will be
rebalanced to conform to changes in its LMI. Such rebalancing will involve
transaction costs to the Fund. Finally, each Fund reserves the right to invest
in all securities in its LMI, and a Fund with a LMI comprised of relatively few
common stocks may regularly do so.
In addition to common stock LMI futures contracts, a Fund may invest in options
on such futures contracts and stock index options and may enter into stock index
swaps to obtain its investment objective of full investment in
- --------
(1) The singular "LMI" should be read as "LMIs" in the context of the Regional
Funds.
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its LMI. If LMI futures contracts are not available or not as favorable an
investment as stock index swaps, then stock index swaps may be used by a Fund as
a replacement to the extent that LMI futures contracts may be invested into by
the Fund. The Advisor may not use these instruments to leverage the net assets
of the Fund.
A Fund may lend securities from its portfolio to brokers, dealers and other
financial institutions. Since the government securities or other assets that are
pledged as collateral to the Fund in connection with these securities loans
generate income, securities lending earns income that may partially offset
expenses and improve the Fund's ability to more closely track the price and
yield performance of its LMI. These securities loans may not exceed 33 1/3% of a
Fund's total assets. Loan documentation will provide that the Fund will receive
collateral at least equal to 100% of the current market value of the loaned
securities, as marked-to-market each day that the Fund determines its net asset
value.
Since each Fund seeks to passively invest in common stocks that primarily
comprise its LMI, a Fund's annual turnover rate for common stocks is expected to
be under fifty percent which is generally a lower turnover rate than that of
many actively managed international equity mutual funds. With regard to LMI
futures contracts and LMI swap agreements both of which seek to closely track a
LMI, such contracts and agreements mature in a relatively short term (usually
under one year). The Funds are managed without specific regard to the tax
effects of investment decisions, but rather seek to closely track the investment
returns of their respective LMIs.
INVESTMENT OBJECTIVE
COUNTRY INDEX FUNDS. Each Country Index Fund seek long-term capital appreciation
in line with local market equity returns. Each Fund seeks to track as closely as
possible the performance of its respective LMI. The Country Index Funds seek to
reduce or eliminate the impact of currency fluctuation through hedging local
currencies against the U.S. Dollar. The above stated investment objective of
each Country Index Fund is a fundamental policy and cannot be changed without
the approval of the holders of a majority of the respective Country Index Fund's
voting securities.
Although the Country Index Funds seek to track the investment return of their
designated LMI, there can be no assurance that this investment objective can be
achieved. Benchmark indexes are unmanaged and as such bear no management,
transaction, distribution, administration or other expenses or taxes; each
Country Index Fund bears these expenses. Additionally, there may be limits on
investment flexibility, particularly with regard to holding certain minimum
levels of cash to meet normal Fund redemptions and with regard to using
portfolio sampling techniques by which a Fund would not purchase all of the
securities in its LMI. Also, certain Country Index Funds may be subject to
foreign tax withholding at rates different than those assumed in its benchmark
LMI. Finally, all Country Index Funds seek to fully hedge currency risk at all
times, thereby further impeding the Funds from closely tracking the returns of
their respective LMIs.
FUNDS OF INDEX FUNDS. The Europe Index Fund and International Index Fund are
"funds of funds" (the "Funds of Index Funds") which will invest in I Class
shares of a particular group of Country Index Funds. The Funds of Index Funds
seek long-term capital appreciation in line with local market equity returns of
the group of countries in which the underlying Country Index Funds invest. The
Europe Index Fund will invest in the following Country Index Funds: France,
Germany, Italy, Netherlands, Spain, Sweden, Switzerland, and United Kingdom
(collectively, the "European Country Index Funds"). The International Index Fund
will invest in the eight European Country Index Funds and the Australia, Hong
Kong and Japan Country Index Funds. Each Fund of Index Funds invests in its
underlying Country Index Funds in proportion to the relative equity market
capitalization of the countries represented by the underlying Country Index
Funds. The Funds of Index Funds seek to reduce or eliminate the impact of
currency fluctuation by investing in the Country Index Funds which are hedged
against such risk. The above stated investment objective of each Fund of Index
Funds is a fundamental policy and cannot
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be changed without the approval of the holders of a majority of the respective
Fund of Index Fund's voting securities.
INVESTMENT TECHNIQUES
Unless specified to the contrary, each Fund may engage in the investment
techniques and make the types of investments described and discussed in this
section.
BORROWING
The Funds may borrow money, including borrowing for investment purposes.
Borrowing for investment is known as leveraging. Leveraging investments by
purchasing securities with borrowed money is a speculative technique which
increases investment risk, but also increases investment opportunity. Since
substantially all of a Fund's assets may fluctuate in value, whereas the
interest obligations on borrowing may be fixed, the net asset value per share of
the Fund will increase more when the Fund's portfolio assets increase in value
and decrease more when the Fund's portfolio assets decrease in value than would
otherwise be the case. Moreover, interest costs on borrowing may fluctuate with
changing market rates of interest and may partially offset or exceed the returns
on the borrowed funds. Under adverse conditions, the Funds might have to sell
portfolio securities to meet interest or principal payments at a time investment
considerations would not favor such sales. The Funds intend to use leverage
during periods when the Advisor believes that the respective Fund's investment
objective would be furthered.
Each Fund may borrow money to facilitate management of the Fund's portfolio by
enabling the Fund to meet redemption requests when the liquidation of portfolio
instruments would be inconvenient or disadvantageous. Such borrowing is not for
investment purposes and will be repaid by the borrowing Fund promptly.
As required by the 1940 Act, a Fund must maintain continuous asset coverage
(total assets, including assets acquired with borrowed funds, less liabilities
exclusive of borrowing) of 300% of all amounts borrowed. If, at any time, the
value of a Fund's assets should fail to meet this 300% coverage test, the Fund,
within three days (not including Sundays and holidays), will reduce the amount
of the Fund's borrowing to the extent necessary to meet this 300% coverage.
Maintenance of this percentage limitation may result in the sale of portfolio
securities at a time when investment considerations otherwise indicate that it
would be disadvantageous to do so.
In addition to the foregoing, the Funds are authorized to borrow money from
banks as a temporary measure for extraordinary or emergency purposes in amounts
not in excess of 5% of the value of a Fund's total assets. This borrowing is not
subject to the foregoing 300% asset coverage requirement The Funds are
authorized to pledge portfolio securities as the Advisor deems appropriate in
connection with any borrowing.
FOREIGN ISSUERS
The Funds will invest in issuers located outside the United States. This may be
achieved by purchasing American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and/or Global Depositary Receipts ("GDRs")
(collectively, "Depositary Receipts"). Depositary Receipts are typically issued
by a financial institution ("depository") and evidence ownership interests in a
security or a pool of securities ("underlying securities") that have been
deposited with the depository. In ADRs, the depository is typically a U.S.
financial institution and the underlying securities are issued by a foreign
issuer. In other Depositary Receipts, the depository may be a foreign or a U.S.
entity, and the underlying securities may have a foreign or a U.S. issuer.
Depositary Receipts will not necessarily be denominated in the same currency as
their underlying securities. Depositary Receipts may be issued pursuant to
sponsored or unsponsored programs. In sponsored programs, an issuer has made
arrangements to have
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its securities traded in the form of Depositary Receipts. In unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the Depositary Receipts. For purposes of a Fund's investment policies,
investments in Depositary Receipts will be deemed to be investments in the
underlying securities. Thus, a Depositary Receipt representing ownership of
common stock will be treated as common stock. When Depositary Receipts which are
purchased with and sold for U.S. dollars, this protects the Funds from the
foreign settlement risks described below. Note, however, that Depositary
Receipts are also subject to the risks inherent in investing in foreign
securities generally, other than foreign settlement risks, and that purchasing
and selling Depositary Receipts with U.S. Dollars may not protect the Funds from
these types of risks.
Investing in foreign companies may involve risks not typically associated with
investing in United States companies. The value of securities denominated in
foreign currencies, and of dividends from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less trading volume and less
liquidity than United States markets, and prices in some foreign markets can be
very volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those that apply to United States companies, and it may
be more difficult to obtain reliable information regarding a foreign issuer's
financial condition and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions, and custodial fees,
generally are higher than for United States investments.
Investing in companies located abroad carries political and economic risks
distinct from those associated with investing in the United States. Foreign
investment may be affected by actions of foreign governments adverse to the
interests of United States investors, including the possibility of expropriation
or nationalization of assets, confiscatory taxation, restrictions on United
States investment, or on the ability to repatriate assets or to convert currency
into U.S. dollars. There may be a greater possibility of default by foreign
governments or foreign- government sponsored enterprises. Investments in foreign
countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
NON-U.S. EQUITY PORTFOLIOS
An investment in the Funds involves risks similar to those of investing in a
broadly-based portfolio of equity securities traded on exchanges in the
respective countries covered by the individual Funds. These risks include market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in stock prices. Investing in
securities issued by companies domiciled in countries other than the domicile of
the investor and denominated in currencies other than an investor's local
currency entails certain considerations and risks not typically encountered by
the investor making investments in its home country and in that country's
currency. These considerations include favorable or unfavorable changes in
interest rates, currency exchange rates, exchange control regulations and the
costs that may be incurred in connection with conversions between various
currencies. Investing in a Fund whose portfolio contains non-U.S. issuers
involves certain risks and considerations not typically associated with
investing in the securities of U.S. issuers. These risks include generally less
liquid and less efficient securities markets; generally greater price
volatility; less publicly available information about issuers; the imposition of
withholding or other taxes; restrictions on the expatriation of funds or other
assets of a Fund; higher transaction and custody costs; delays attendant in
settlement procedures; difficulties in enforcing contractual obligations; lesser
liquidity and significantly smaller market capitalization of most non-U.S.
securities markets; lesser levels of regulation of the securities markets; more
substantial government
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involvement in the economy; higher rates of inflation; greater social, economic,
and political uncertainty; and the risk of nationalization or expropriation of
assets and risk of war.
CURRENCY TRANSACTIONS
Foreign exchange transactions involve a significant degree of risk and the
markets in which foreign exchange transactions are effected are highly volatile,
highly specialized and highly technical. Significant changes, including changes
in liquidity and prices, can occur in such markets within very short periods of
time, often within minutes. Foreign exchange trading risks include, but are not
limited to, exchange rate risk, maturity gaps, interest rate risk and potential
interference by foreign governments through regulation of local exchange
markets, foreign investment, or particular transactions in foreign currency. If
the Advisor utilizes foreign exchange transactions at an inappropriate time or
judges market conditions, trends or correlations incorrectly, foreign exchange
transactions may not serve their intended purpose of improving the correlation
of a Fund's return with the performance of the corresponding LMI and may lower
the Fund's return. A Fund could experience losses if the values of its currency
forwards, options and futures positions were poorly correlated with its other
investments or if it could not close out its positions because of an illiquid
market. In addition, each Fund will incur transaction costs, including trading
commissions, in connection with certain of its foreign currency transactions.
ILLIQUID SECURITIES
The Funds may purchase illiquid securities, including securities that are not
readily marketable and securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "1933 Act"), but
which can be offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. A Fund will not invest more than 15% of the Fund's net
assets in illiquid securities. The term "illiquid securities" for this purpose
means securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the Fund has valued the
securities. Under the current guidelines of the staff of the Securities and
Exchange Commission (the "Commission"), illiquid securities also are considered
to include, among other securities, purchased over-the-counter options, certain
cover for over-the-counter options, repurchase agreements with maturities in
excess of seven days, and certain securities whose disposition is restricted
under the Federal securities laws. The Fund may not be able to sell illiquid
securities when the Advisor considers it desirable to do so or may have to sell
such securities at a price that is lower than the price that could be obtained
if the securities were more liquid. In addition, the sale of illiquid securities
also may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.
Institutional markets for restricted securities have developed as a result of
Rule 144A, which provides a "safe harbor" from 1933 Act registration
requirements for qualifying sales to institutional investors. When Rule 144A
securities present an attractive investment opportunity and otherwise meet
selection criteria, a Fund may make such investments. Whether or not such
securities are "illiquid" depends on the market that exists for the particular
security. The Commission staff has taken the position that the liquidity of Rule
144A restricted securities is a question of fact for a board of trustees to
determine, such determination to be based on a consideration of the
readily-available trading markets and the review of any contractual
restrictions. The staff also has acknowledged that, while a board of trustees
retains ultimate responsibility, the trustees may delegate this function to an
investment adviser. The trustees of the Trust (the "Trustees") have delegated to
the Advisor the responsibility for determining the liquidity of Rule 144A
restricted securities which may be invested in by a Fund. It is not possible to
predict with assurance exactly how the market for Rule 144A restricted
securities or any other security will develop. A security that may have enjoyed
a fair degree of marketability when purchased may subsequently become illiquid.
Accordingly, a security that was deemed to be liquid at the time of acquisition
may subsequently
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become illiquid. In such event, appropriate remedies will be considered to
minimize the effect on a Fund's liquidity.
LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, each of the Funds may
lend portfolio securities to brokers, dealers, and financial institutions,
provided that cash equal to at least 100% of the market value of the securities
loaned is deposited by the borrower with the Fund and is maintained each
business day in a segregated account pursuant to applicable regulations. While
such securities are on loan, the borrower will pay the lending Fund any income
accruing thereon, and the Fund may invest the cash collateral in portfolio
securities, thereby earning additional income. A Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which the Fund's shares are qualified for sale, and the Funds
will not lend more than 33 1/3% of the value of the Fund's total assets. Loans
would be subject to termination by the lending Fund on four business days'
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
lending Fund and that Fund's shareholders. A lending Fund may pay reasonable
finders, borrowers, administrative, and custodial fees in connection with a
loan.
OPTIONS TRANSACTIONS
Options on Securities. The Funds may buy call options and write (sell) put
options on securities, and may buy put options and write call options on
securities for the purpose of realizing the Fund's investment objective. By
writing a call option on securities, a Fund becomes obligated during the term of
the option to sell the securities underlying the option at the exercise price if
the option is exercised. By writing a put option, a Fund becomes obligated
during the term of the option to purchase the securities underlying the option
at the exercise price if the option is exercised.
During the term of the option, the writer may be assigned an exercise notice by
the broker-dealer through whom the option was sold. The exercise notice would
require the writer to deliver (in the case of a call) or take delivery of (in
the case of a put) the underlying security against payment of the exercise
price. This obligation terminates upon expiration of the option, or at such
earlier time that the writer effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the same
exercise price and expiration date as the one previously sold. Once an option
has been exercised, the writer may not execute a closing purchase transaction.
To secure the obligation to deliver the underlying security in the case of a
call option, the writer of a call option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Option
Clearing Corporation (the "OCC"), an institution created to interpose itself
between buyers and sellers of options. The OCC assumes the other side of every
purchase and sale transaction on an exchange and, by doing so, gives its
guarantee to the transaction.
Options on Security Indexes. The Funds may purchase call options and write put
options, and may purchase put options and write call options, on stock indexes
listed on international securities exchanges or traded in the over-the-counter
market as an investment vehicle for the purpose of realizing a Fund's investment
objective.
Options on indexes are settled in cash, not in delivery of securities. The
exercising holder of an index option receives, instead of a security, cash equal
to the difference between the closing price of the securities index and the
exercise price of the option. When a Fund writes a covered option on an index,
the Fund will be required to deposit and maintain with a custodian, cash or
liquid securities equal in value to the aggregate exercise price of a put or
call option pursuant to the requirements and the rules of the applicable
exchange. If, at the close of
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business on any day, the market value of the deposited securities falls below
the contract price, the Fund will deposit with the custodian cash or liquid
securities equal in value to the deficiency.
Options on Futures Contracts. Under Commodities Futures Trading Commission
("CFTC") Regulations, a Fund may engage in futures transactions, either for
"bona fide hedging" purposes, as this term is defined in the CFTC Regulations,
or for non-hedging purposes to the extent that the aggregate initial margins and
option premiums required to establish such non-hedging positions do not exceed
5% of the liquidation value of the Fund's portfolio. In the case of an option on
futures contracts that is "in-the-money" at the time of purchase (i.e., the
amount by which the exercise price of the put option exceeds the current market
value of the underlying security, or the amount by which the current market
value of the underlying security exceeds the exercise price of the call option),
the in-the-money amount may be excluded in calculating this 5% limitation.
When a Fund purchases or sells a stock index futures contract, or sells an
option thereon, the Fund "covers" its position. To cover its position, a Fund
may maintain with its custodian bank (and marked-to-market on a daily basis), a
segregated account consisting of cash or liquid securities that, when added to
any amounts deposited with a futures commission merchant as margin, are equal to
the market value of the futures contract or otherwise "cover" its position. If
the Fund continues to engage in the described securities trading practices and
properly segregates assets, the segregated account will function as a practical
limit on the amount of leverage which the Fund may undertake and on the
potential increase in the speculative character of the Fund's outstanding
portfolio securities. Additionally, such segregated accounts will generally
assure the availability of adequate funds to meet the obligations of the Fund
arising from such investment activities.
A Fund may cover its long position in a futures contract by purchasing a put
option on the same futures contract with a strike price (i.e., an exercise
price) as high or higher than the price of the futures contract. In the
alternative, if the strike price of the put is less than the price of the
futures contract, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its long position
in a futures contract by taking a short position in the instruments underlying
the futures contract, or by taking positions in instruments with prices which
are expected to move relatively consistently with the futures contract. A Fund
may cover its short position in a futures contract by taking a long position in
the instruments underlying the futures contracts, or by taking positions in
instruments with prices which are expected to move relatively consistently with
the futures contract.
A Fund may cover its sale of a call option on a futures contract by taking a
long position in the underlying futures contract at a price less than or equal
to the strike price of the call option. In the alternative, if the long position
in the underling futures contracts is established at a price greater than the
strike price of the written (sold) call, the Fund will maintain in a segregated
account cash or liquid securities equal in value to the difference between the
strike price of the call and the price of the futures contract. A Fund may also
cover its sale of a call option by taking positions in instruments with prices
which are expected to move relatively consistently with the call option. A Fund
may cover its sale of a put option on a futures contract by taking a short
position in the underlying futures contract at a price greater than or equal to
the strike price of the put option, or, if the short position in the underlying
futures contract is established at a price less than the strike price of the
written put, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its sale of a put
option by taking positions in instruments with prices which are expected to move
relatively consistently with the put option.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements with financial institutions. The
Funds each follow certain procedures designed to minimize the risks inherent in
such agreements. These procedures include effecting
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<PAGE> 41
repurchase transactions only with large, well-capitalized and well-established
financial institutions whose condition will be continually monitored by the
Advisor. In addition, the value of the collateral underlying the repurchase
agreement will always be at least equal to the repurchase price, including any
accrued interest earned on the repurchase agreement. In the event of a default
or bankruptcy by a selling financial institution, a Fund will seek to liquidate
such collateral. However, the exercising of a Fund's right to liquidate such
collateral could involve certain costs or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase were less
than the repurchase price, the Fund could suffer a loss. It is the current
policy of the Funds not to invest in repurchase agreements that do not mature
within seven days if any such investment, together with any other illiquid
assets held by the Fund, amounts to more than 15% of the Fund's total assets.
The investments of a Fund in repurchase agreements, at times, may be substantial
when, in the view of the Advisor, liquidity or other considerations so warrant.
U.S. GOVERNMENT SECURITIES
Although the Funds have no present intention of doing so, each Fund may at
certain times invest in U.S. Treasury securities, which are backed by the full
faith and credit of the U.S. Treasury and which differ only in their interest
rates, maturities, and times of issuance. U.S. Treasury bills have initial
maturities of one year or less; U.S. Treasury notes have initial maturities of
one to ten years; and U.S. Treasury bonds generally have initial maturities of
greater than ten years. Certain U.S. Government Securities are issued or
guaranteed by agencies or instrumentalities of the U.S. Government including,
but not limited to, obligations of U.S. Government agencies or instrumentalities
such as Fannie Mae, the Government National Mortgage Association, the Small
Business Administration, the Federal Farm Credit Administration, the Federal
Home Loan Banks, Banks for Cooperatives (including the Central Bank for
Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks,
the Tennessee Valley Authority, the Export-Import Bank of the United States, the
Commodity Credit Corporation, the Federal Financing Bank, the Student Loan
Marketing Association, and the National Credit Union Administration.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury. Other obligations issued by or guaranteed by
Federal agencies, such as those securities issued by Fannie Mae, are supported
by the discretionary authority of the U.S. Government to purchase certain
obligations of the Federal agency, while other obligations issued by or
guaranteed by Federal agencies, such as those of the Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the U.S. Treasury. While
the U.S. Government provides financial support to such U.S. Government-sponsored
Federal agencies, no assurance can be given that the U.S. Government will always
do so, since the U.S. Government is not so obligated by law. U.S. Treasury notes
and bonds typically pay coupon interest semi-annually and repay the principal at
maturity. A Fund will invest in such U.S. Government Securities only when the
Advisor is satisfied that the credit risk with respect to the issuer is minimal.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectuses)
are fundamental policies of the Funds which cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of that Fund are present or represented by proxy, or (ii)
more than 50% of that Fund's outstanding shares, whichever is less.
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<PAGE> 42
A Fund may not:
(i) purchase a security (other than obligations of the United States
Government, its agencies and instrumentalities) or enter into futures contracts
or stock swap agreements if as a result 25% of more of its total assets would
be invested in a single security, either directly through common stock
ownership and/or indirectly through the security's proportional interest of any
LMI futures contracts and LMI swap agreements in which the Fund has invested;
(ii) lend any securities or other Fund assets except through the purchase of an
issue of securities or obligations in which it is permitted to invest and except
that a Country Index Fund may lend its portfolio securities in an amount not to
exceed 331/3% of the value of its total assets;
(iii) issue senior securities or borrow money from a bank, except borrowings for
temporary or emergency purposes in an amount up to 15% of the value of the
Fund's total assets (including the amount borrowed), less liabilities (not
including the amount borrowed) value at the time the borrowing is made, nor
purchase securities while borrowings of the Fund exceed 5% of the Fund's total
assets provided that short term credit necessary for the clearance of
transactions not be considered borrowing; or
(iv) pledge, hypothecate, mortgage or otherwise encumber its asset, except to
secure permitted borrowings.
The foregoing percentages are based on total assets and will apply at the time
of the purchase of a security and shall not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of a
purchase of such security.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the Advisor is responsible
for decisions to buy and sell securities for each of the Funds, the selection of
brokers and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. The Advisor expects that the Funds may execute brokerage or
other agency transactions through registered broker-dealers for a commission, in
conformity with the 1940 Act, the Securities Exchange Act of 1934, and the rules
and regulations thereunder.
The Advisor may serve as an investment manager to a number of clients, including
other investment companies. It is the practice of the Advisor to cause purchase
and sale transactions to be allocated among the Funds and others whose assets
the Advisor manages in such manner as the Advisor deems equitable. The main
factors considered by the Advisor in making such allocations among the Funds and
other client accounts of the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the person or persons responsible, if any,
for managing the portfolios of the Funds and the other client accounts.
The policy of each Fund regarding purchases and sales of securities is that
primary consideration will be given to obtaining the most favorable prices and
efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, each Fund's policy is
to pay commissions which are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in all circumstances.
Each Fund believes that a requirement to always seek the lowest possible
commissions could impede effective portfolio management and preclude the Fund
and the Advisor from obtaining high quality brokerage and research services. In
seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Advisor relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
25
<PAGE> 43
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
Purchases and sales of U.S. Government securities, if any, are normally
transacted through issuers, underwriters or major dealers in U.S. Government
Securities acting as principals. Such transactions are made on a net basis and
do not involve payment of brokerage commissions. The cost of securities
purchased from an underwriter usually includes a commission paid by the issuer
to the underwriters. Transactions with dealers normally reflect the spread
between bid and asked prices.
In seeking to implement the Funds' policies, the Advisor effects transactions
with those brokers and dealers who the Advisor believes provide the most
favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Funds or the Advisor. Such services may include, but are not
limited to, any one or more of the following: information as to the availability
of securities for purchase or sale; statistical or factual information or
opinions pertaining to investments; wire services; and appraisals or evaluations
of portfolio securities. If the broker-dealer providing these additional
services is acting as a principal for its own account, no commissions would be
payable. If the broker-dealer is not a principal, a higher commission may be
justified at the determination of the Advisor, for the additional services.
The information and services received by the Advisor from brokers and dealers
may be of benefit to the Advisor in the management of accounts of some of the
Advisor's other clients and may not in all cases benefit the Funds directly.
While the receipt of such information and services is useful in varying degrees
and would generally reduce the amount of research or services otherwise
performed by the Advisor and thereby reduce the Advisor's expenses, this
information and these services are of indeterminable value and the management
fee paid to the Advisor is not reduced by any amount that may be attributable to
the value of such information and services.
Consistent with each Fund's investment objectives, the Advisor has the
discretion to select sub-advisers that will determine which securities and the
total amount of securities which are to be bought or sold for each Fund's
account. Each sub-adviser's decision to buy and sell securities is subject to
the overall review of each Fund's Advisor and Trustees. The Advisor selects
sub-advisers whose primary objective in placing orders for the purchase or sale
of securities for a Fund is to obtain the most favorable net results taking into
account such factors as price, commission, size of order, difficulty of
execution and skill required of the broker. The Advisor has ultimate
responsibility for the investment performance of each Fund due to its
responsibility to oversee and direct each sub-adviser and to recommend their
hiring, termination and replacement.
A sub-adviser generally has the authority to select brokers to effect
transactions on a Fund's behalf. When a sub- adviser places orders for the
purchase or sale of portfolio securities for a Fund's account, it uses
reasonable efforts to seek the best combination of price and execution in
selecting brokers. Each sub-adviser selects brokers on the basis of best price
(including commissions) and execution capability. In selecting a broker to
execute a transaction for a Fund, a sub-adviser may consider a variety of
factors, including the following: the broker's capital depth; the broker's
market access; the broker's transaction confirmation and account statement
practices; its knowledge of negotiated commission rates and spreads currently
available; the nature of the security or instrument being traded; the size and
type of the transaction; the nature and character of the markets for the
security or instrument to be purchased or sold; the desired timing of the
transaction; the execution, clearance and settlement capabilities of the broker
selected and others considered; the reputation and perceived soundness of the
broker selected and others considered; the sub-adviser's knowledge of any actual
or apparent operational problems of a broker; and the reasonableness of the
commission or its equivalent for the specific transaction. While each
sub-adviser generally seeks competitive commission rates and dealer spreads, it
will not necessarily pay the lowest commission
26
<PAGE> 44
or commission equivalent. Transactions may involve specialized services on the
part of the broker and thereby justify higher commissions or their equivalent
than would be the case with other transactions requiring more routine services.
A Fund may limit a sub-adviser's discretionary authority in any or all of the
situations described above. In particular, a Fund may reserve the right to
direct a sub-adviser to purchase, sell, or transfer securities held for the
Fund's account or to use a particular broker or dealer to execute transactions
for its account. When a Fund directs the use of a particular broker or dealer,
the sub-adviser may not be in a position to freely negotiate commission rates or
spreads, or to select brokers or dealers on the basis of best price and
execution. In addition, transactions for a Fund who directs brokerage may not be
batched for execution with transactions in the same securities for other
clients. As a result, directed brokerage transactions may result in higher
commissions, greater spreads, or less favorable net prices than would be the
case if a sub-adviser were authorized to choose the brokers or dealers through
which to execute transactions for the Fund's account.
Consistent with obtaining best execution for clients, a sub-adviser may direct
brokerage transactions for Fund portfolios to brokers who provide research and
execution services to it and, indirectly, to its clients. These services are of
the type described in Section 28(e) of the Securities Exchange Act of 1934 and
are designed to augment the sub-adviser's own internal research and investment
strategy capabilities. Sub-advisers may not use each particular research
service, however, to service each of its clients. As a result, a client may pay
brokerage commissions that are used, in part, to purchase research services that
are not used to benefit that specific client. Brokers selected by a sub-adviser
may be paid commissions for effecting transactions for its clients that exceed
the amounts other brokers would have charged for effecting these transactions if
a sub-adviser determines in good faith that such amounts are reasonable in
relation to the value of the brokerage and/or research services provided by
those brokers, viewed either in terms of a particular transaction or the
sub-adviser's overall duty to its discretionary client accounts.
Certain items obtained with soft dollars might not be used exclusively for
either brokerage or research services. The cost of such "mixed-use" products or
services will be fairly allocated between soft dollars (paid by clients) and
hard dollars (paid by the sub-adviser), according to the proposed use. For
example, the cost of a computer that is used for both research services and
administrative purposes will be allocated between hard and soft dollars
according to the percentage of time it is used for each purpose. Although such
an allocation will not always be a precise calculation, the sub-adviser will
make a good faith effort to reasonably allocate such services.
ORGANIZATION OF THE TRUST AND THE FUNDS
The Funds are separate series of an open-end, management investment company
which was organized on June 9, 1998 as a Trust under the laws of the
Commonwealth of Massachusetts, of a type commonly known as a Massachusetts
business trust.
MANAGEMENT OF THE TRUST
The Trustees of the Trust are responsible for the general supervision of the
Trust's business. The day-to-day operations of the Trust are the
responsibilities of the Trust's officers. The names, addresses and ages of the
Trustees and the officers of the Trust and the officers of the Advisor, together
with information as to their principal business occupations during the past five
years, are set forth below. Fees and expenses for non-interested Trustees will
be paid by the Trust.
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<PAGE> 45
TRUSTEES
*
- ----------------
- ----------------
- ----------------
- ----------------
- ------------------------
* This trustee is deemed to be an "interested person" of the Trust under the
1940 Act.
OFFICERS
- ----------------
- ----------------
- ----------------
- ----------------
THE ADVISORY AGREEMENT
Under an investment advisory agreement with the Advisor, the Advisor serves as
the investment adviser for, provides investment advice to, and oversees the
day-to-day operations of the Funds, subject to direction and control by the
Trustees and the officers of the Trust.
The Advisor manages the investment and the reinvestment of the assets of each of
the Funds, in accordance with the investment objectives, policies, and
limitations of each Fund, subject to the general supervision and control of the
Trustees and the officers of the Trust. The Advisor bears all costs associated
with providing these advisory services and the expenses of the Trustees of the
Trust who are affiliated with or interested persons of the Advisor. The Advisor,
from its own resources, including profits from advisory fees received from the
Funds, provided such fees are legitimate and not excessive, may make payments to
broker-dealers and other financial institutions for their expenses in connection
with the distribution of Fund shares, and otherwise currently pay all
distribution costs for Fund shares.
COSTS AND EXPENSES
Each Fund bears all expenses of its operations other than those assumed by the
Advisor or the Servicer. Fund expenses include: the management fee; the
servicing fee (including administrative, transfer agent, and shareholder
servicing fees); custodian and accounting fees and expenses; legal and auditing
fees; securities valuation expenses; fidelity bonds and other insurance
premiums; expenses of preparing and printing prospectuses, confirmations, proxy
statements, and shareholder reports and notices; registration fees and expenses;
proxy and annual meeting expenses, if any; all Federal, state, and local taxes
(including, without limitation, stamp, excise, income, and franchise taxes);
organizational costs; non-interested Trustees' fees and expenses; the costs and
expenses of redeeming shares of the Fund; fees and expenses paid to any
securities pricing organization; dues and expenses
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<PAGE> 46
associated with membership in any mutual fund organization; and costs for
incoming telephone WATTS lines. In addition, each of the Funds pays an equal
portion of the Trustees' fees and expenses for attendance at Trustee meetings
for the Trustees of the Trust who are not affiliated with or interested persons
of the Advisor.
The estimated annual compensation paid by the Trust to each of its Trustees is
set forth in the table below1:
COMPENSATION TABLE
<TABLE>
<CAPTION>
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Accrual Compensation
From Fund Benefits Benefits Upon From Fund and
Accrued Retirement Fund Complex
as Part of Fund Paid to
Expenses Directors
- ---------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
*
- --------------
- --------------
- --------------
</TABLE>
- ------------------------------
(1) The information provided in this table is based on estimated future payments
which will be made in the upcoming fiscal year.
* Mr. ______is an "interested person" of the Trust.
As of the date of this Statement of Additional Information, the Trustees and the
officers of the Trust, as a group, owned, of record and beneficially, less than
1% of the outstanding shares of each Fund.
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust's Declaration of Trust disclaims liability of the shareholders of the
Trust or the Trustees of the Trust for acts or obligations of the Trust which
are binding only on the assets and property of the Trust. The Declaration of
Trust provides for indemnification out of Trust property for all loss and
expense of any Trust shareholder held personally liable for the obligations of
the Trust. The risk of a Trust shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the Trust itself
would not be able to meet the Trust's obligations. Accordingly, this risk should
be considered remote.
DETERMINATION OF NET ASSET VALUE
GENERAL
The net asset value of a Fund serves as the basis for the purchase and
redemption price of that Fund's shares. The net asset value per share of a Fund
is calculated by dividing the market value of the Fund's securities plus the
values of its other assets, less all liabilities, by the number of outstanding
shares of the Fund.
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<PAGE> 47
FOREIGN SECURITIES
The value of a foreign security is determined as of the close of trading on the
foreign exchange on which it is traded or as of the close of trading on the New
York Stock Exchange (the "NYSE"), if that is earlier. The value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, New York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the foreign security is valued
within the range of the most recent quoted bid and ask prices. Occasionally
events that affect the values of foreign securities and foreign exchange rates
may occur between the times at which they are determined and the close of the
exchange and will, therefore, not be reflected in the computation of a Fund's
net asset value. If events materially affecting the values of these foreign
securities occur during this period, the securities will be valued in accordance
with procedures established by the Trustees.
TIMING DIFFERENCES
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which a Fund's net asset value is not calculated. Thus, the calculation of a
Fund's net asset value does not take place contemporaneously with the
determination of the prices of many of the portfolio securities used in the
calculation and, if events materially affecting the values of these foreign
securities occur, the securities will be valued at fair value as determined by
management and approved in good faith by the Trustees.
OPTIONS AND FUTURES
For purposes of determining net asset value per share of a Fund, options and
futures contracts are valued at the closing prices of the exchanges on which
they trade. The value of a futures contract equals the unrealized gain or loss
on the contract that is determined by marking the contract to the current
settlement price for a like contract acquired on the day on which the futures
contract is being valued. The value of options on futures contracts is
determined based upon the current settlement price for a like option acquired on
the day on which the option is being valued. Lacking any sales that day or if
the last sale price is outside the bid and ask prices, options are valued within
the range of the current closing bid and ask prices if the valuation is believed
to fairly reflect the contract's market value. A settlement price may not be
used for the foregoing purposes if the market makes a limited move with respect
to a particular commodity.
ILLIQUID SECURITIES
Illiquid securities, securities for which reliable quotations or pricing
services are not readily available, and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Trustees, which procedures may include the delegation of
certain responsibilities regarding valuation to the Advisor or the officers of
the Trust. The officers of the Trust report, as necessary, to the Trustees
regarding portfolio valuation determinations. The Trustees, from time to time,
will review these methods of valuation and will recommend changes which may be
necessary to assure that the investments of the Funds are valued at fair value.
PERFORMANCE INFORMATION
From time to time, each of the Funds may include a Fund's total return in
advertisements or reports to shareholders or prospective shareholders.
Quotations of average annual total return for a Fund will be expressed in terms
of
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<PAGE> 48
the average annual compounded rate of return on a hypothetical investment in the
Fund over a period of at least one, five, and ten years, up to the life of the
Fund (the ending date of the period will be stated). Total return of a Fund is
calculated from two factors: the amount of dividends earned by each Fund share
and by the increase or decrease in value of the Fund's share price. See
"Calculation of Return Quotations," below.
Performance information for each of the Funds contained in reports to
shareholders or prospective shareholders, advertisements, and other promotional
literature may be compared to the record of various unmanaged indexes. Such
indexes include, but are not limited to, ones provided by Dow Jones & Company,
Standard & Poor's Corporation, Lipper Analytical Services, Inc., Lehman
Brothers, National Association of Securities Dealers Automated Quotations, The
Frank Russell Company, Value Line Investment Survey, the American Stock
Exchange, the Philadelphia Stock Exchange, the Financial Times Stock Exchange,
Morgan Stanley Capital International, Wilshire Associates, the All Ordinaries
Index, CAC-40, Deutsche Aktienindex, Hang Seng, MIB-30, Nikkei-225, Amsterdam
Exchanges Index, IBEX-35, Stockholm Options Market Index, Swiss Market Index,
and FTSE-100, all of which are unmanaged market indicators. Such comparisons can
be a useful measure of the qualify of a Fund's investment performance.
Such unmanaged indexes may assume the reinvestment of dividends, but generally
do not reflect deductions for operating costs and expenses. In addition, a
Fund's total return may be compared to the performance of broad groups of
comparable mutual funds with similar investment goals, as such performance is
tracked and published by such independent organizations as Lipper Analytical
Services, Inc. ("Lipper") and CDA Investment Technologies, Inc., among others.
When Lipper's tracking results are used, a Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and portfolio holdings.
Rankings may be listed among one or more of the asset-size classes as determined
by Lipper. Since the assets in all mutual funds are always changing, a Fund may
be ranked within one Lipper asset-size class at one time and in another Lipper
asset-size class at some other time. Footnotes in advertisements and other
marketing literature will include the time period and Lipper asset-size class,
as applicable, for the ranking in question. Performance figures are based on
historical results and are not intended to indicate future performance.
Additional investment information sources may include: The Financial Times,
Bloomberg, DRI/McGraw-Hill, the World Bank, the International Monetary Fund,
International Federation of Stock Exchanges, MSCI, Morgan Stanley, PFPC, Inc.,
U.S. government agencies, foreign government agencies, Salomon Brothers, JP
Morgan, The Economist, Morningstar, Ibbottson, Russell, Wall Street Journal, New
York Times, Los Angeles Times, Time, Newsweek, Business Week, Forbes, Fortune,
foreign country stock exchanges, Reuters, Wilshire, Merrill Lynch, Citibank,
Chase Manhattan Bank, Deutsche Bank, Barclays Bank, ING, Bankers Trust, Robert
Fleming, Jardine Fleming, the United Nations, Worldscope, State Street Global
Advisors and State Street Bank.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of a Fund to that of other
mutual funds and to other relevant market indexes in advertisements or in
reports to shareholders, performance for the Fund may be stated in terms of
total return. Under the rules of the SEC ("SEC Rules"), a Fund's advertising
performance must include total return quotes calculated according to the
following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
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<PAGE> 49
n = number of years (1, 5 or 10); and
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5 or 10 year
periods, at the end of the 1, 5, or 10 year periods (or
fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover 1, 5, and
10 year periods or a shorter period dating from the effectiveness of the
Registration Statement of the Trust. In calculating the ending redeemable value,
all dividends and distributions by a Fund are assumed to have been reinvested at
net asset value as described in the Prospectuses on the reinvestment dates
during the period. Total return, or "T" in the formula above, is computed by
finding the average annual compounded rates of return over the 1, 5, and 10 year
periods (or fractional portion thereof) that would equate the initial amount
invested to the ending redeemable value.
From time to time, each Fund also may include in such advertising a total return
figure that is not calculated according to the formula set forth above in order
to compare more accurately the performance of the Fund with other measures of
investment return. For example, in comparing the total return of a Fund with
data published by Lipper Analytical Services, Inc., each respective Fund
calculates its aggregate total return or the specified periods of time by
assuming the investment of $10,000 in Fund shares and assuming the investment of
each dividend or other distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the beginning
value. Such alternative total return information will be given no greater
prominence in such advertising than the information prescribed under SEC Rules.
INFORMATION ON COMPUTATION OF YIELD
In addition to the total return quotations discussed above, a Fund may advertise
its yield based on a thirty-day (or one month) period ended on the date of the
most recent balance sheet included in the Trust's Registration Statement,
computed by dividing the net investment income per share of a Fund earned during
the period by the maximum offering price per Fund share on the last day of the
period, according to the following formula:
a - b 6
YIELD = 2[(------ + 1) - 1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day
of the period.
Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (i) computing the yield to maturity of each obligation
held by a Fund based on the market value of the obligation at the close of
business on the last day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest),
(ii) dividing that figure by 360 and multiplying the quotient by the market
value of the obligation (including actual accrued interest as referred to above)
to determine the interest income on the obligation that is in the Fund's
portfolio (assuming a month of thirty days), and (iii) computing the total of
the
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<PAGE> 50
interest earned on all debt obligations and all dividends accrued on all equity
securities during the thirty-day or one month period. In computing dividends
accrued, dividend income is recognized by accruing 1/360 of the stated dividend
rate of a security each day that the security is in the Fund's portfolio.
Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price
calculation required pursuant to "d" above.
A Fund from time to time may also advertise its yield based on a thirty-day
period ending on a date other than the most recent balance sheet included in the
Trust's Registration Statement, computed in accordance with the yield formula
described above, as adjusted to conform with the differing period for which the
yield computation is based.
Any quotation of performance stated in terms of yield (whether based on a
thirty-day or one month period) will be given no greater prominence than the
information prescribed under SEC Rules. In addition, all advertisements
containing performance data of any kind will include a legend disclosing that
such performance data represents past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost of such
shares.
PURCHASE AND REDEMPTION OF SHARES
MINIMUM INVESTMENT REQUIREMENTS
Shareholders will be informed of any increase in the minimum investment
requirements by a new prospectus or a prospectus supplement, in which the new
minimum is disclosed. Any request for a redemption (including pursuant to check
writing privileges) by an investor whose account balance is (a) below the
currently applicable minimum investment, or (b) would be below that minimum as a
result of the redemption, will be treated as a request by the investor of a
complete redemption of that account. In addition, the Trust may redeem an
account whose balance (due in whole or in part to redemptions since the time of
last purchase) has fallen below the minimum investment amount applicable at the
time of the shareholder's most recent purchase of Fund shares (unless the
shareholder brings his or her account value up to the currently applicable
minimum investment).
TAX CONSEQUENCES
Note that in the case of tax-qualified retirement plans, a redemption from such
a plan may have adverse tax consequences. A shareholder contemplating such a
redemption should consult his or her own tax advisor. Other shareholders should
consider the tax consequences of any redemption.
SUSPENSION OF THE RIGHT OF REDEMPTION
The Funds may suspend the right of redemption or the date of payment: (i) for
any period during which the NYSE, the Federal Reserve Bank of New York, the
NASDAQ, the Chicago Mercantile Exchange ("CME"), the CBOT, or any other
exchange, as appropriate, is closed (other than customary weekend or holiday
closings), or trading on the NYSE, the NASDAQ, the CME, the CBOT, or any other
exchange, as appropriate, is restricted; (ii) for any period during which an
emergency exists so that sales of a Fund's investments or the determination of
its net asset value is not reasonably practicable; or (iii) for such other
periods as the SEC may permit for the protection of a Fund's investors.
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<PAGE> 51
REDEMPTIONS IN KIND
The Trust intends to pay your redemption proceeds in cash. However, under
unusual circumstances that make the payment of cash unwise (and for the
protection of the remaining shareholders of a Fund), the Trust reserves the
right to pay all or part of your proceeds in securities that have a market value
equal to the redemption price (a "redemption in kind"). Although it is unlikely
that your shares would be redeemed in kind, if you sold the securities you
received, you would probably have to pay brokerage fees and capital gains taxes
on that sale.
HOLIDAYS
The NYSE, the Federal Reserve Bank of New York, the NASDAQ, the CME, the CBOT,
and other U.S. exchanges are closed on weekends and on the following holidays:
(i) New Year's Day, Martin Luther King Jr.'s Birthday, Presidents' Day, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day, Thanksgiving Day,
and Christmas Day; and (ii) the preceding Friday if any of these holidays falls
on a Saturday, or the subsequent Monday if any of these holidays falls on a
Sunday. Although the Trust expects the same holiday schedules to be observed in
the future, each of the aforementioned exchanges may modify its holiday schedule
at any time.
The Funds intend to effect deliveries of Portfolio Securities on a basis of "T"
plus seven New York business days (i.e., days on which the New York Stock
Exchange is open) in the relevant foreign market of each Fund, except as
discussed below. The ability of the Fund to effect in-kind redemptions within
three New York Business Days of receipt of a redemption request is subject,
among other things, to the condition that, within the time period from the date
of the request to the date of delivery of the securities, there are no days that
are local market holidays but "good" New York business days. For every
occurrence of one or more intervening holidays in the local market that are not
holidays observed in New York, the redemption settlement cycle will be extended
by the number of such intervening local holidays. In addition to foreign
holidays, other unforeseeable closings in a foreign market due to emergencies
may also prevent the Fund from delivering securities within seven New York
business days. See "DETERMINATION OF NET ASSET VALUE" above. Although certain
holidays may occur on different dates in subsequent years, the number of days
required to deliver redemption proceeds in any given year is not expected to
exceed the maximum number of days listed above for each Fund. The proclamation
of new holidays, the treatment by market participants of certain days as
"informal holidays" (e.g., days on which no or limited securities transactions
occur, as a result of substantially shortened trading hours), the elimination of
existing holidays, or changes in local securities delivery practices, could
affect the information set forth herein at some time in the future.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and any distributions of net realized
capital gains from each of the Funds will be distributed as described in the
Prospectuses under "Dividends and Distributions." All such distributions of a
Fund normally automatically will be reinvested without charge in additional
shares of the same Fund.
FOREIGN SECURITIES
Dividend income and other distributions are recorded on the ex-dividend date,
except for certain dividends from foreign securities which are recorded as soon
as the Trust is informed after the ex-dividend date.
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REGULATED INVESTMENT COMPANY STATUS
As a regulated investment company (a "RIC") under Subchapter M of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), a Fund would not be
subject to Federal income taxes on the net investment income and capital gains
that the Fund distributes to the Fund's shareholders. The distribution of net
investment income and capital gains will be taxable to Fund shareholders
regardless of whether the shareholder elects to receive these distributions in
cash or in additional shares. Distributions reported to Fund shareholders as
capital gains from property held for more than 18 months, or from property held
for more than 1 year but not for more than 18 months, shall be taxable as such,
regardless of how long the shareholder has owned the shares. Fund shareholders
will be notified annually by the Fund as to the Federal tax status of all
distributions made by the Fund. Distributions may be subject to state and local
taxes. To qualify as a RIC, the Code requires that at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's total
assets be invested in cash, U.S. Government Securities, the securities of other
regulated investment companies, and other securities, with such securities of
any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of Fund's total assets and 10% of the outstanding
voting securities of any one issuer, and (ii) not more than 25% of the value of
the Fund's total assets be invested in the securities of any one issuer (other
than U.S. Government Securities or the securities of other regulated investment
companies), or of two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses, or related
trades or businesses.
Each of the Funds will seek to qualify for treatment as a RIC under the Code.
Provided that a Fund (i) is a RIC and (ii) distributes at least 90% of the
Fund's net investment income (including, for this purpose, net realized
short-term capital gains), the Fund itself will not be subject to Federal income
taxes to the extent the Fund's net investment income and the Fund's net realized
long and short-term capital gains, if any, are distributed to the Fund's
shareholders. To avoid an excise tax on its undistributed income, each Fund
generally must distribute at least 98% of its income, including its net
long-term capital gains. One of several requirements for RIC qualification is
that the Fund must receive at least 90% of the Fund's gross income each year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of securities or foreign currencies, or other
income derived with respect to the Fund's investments in stock, securities, and
foreign currencies (the "90% Test").
In the event of a failure by a Fund to qualify as a RIC, the Fund would be
subject to Federal income taxes on its taxable income and the Fund's
distributions, to the extent that such distributions are derived from the Fund's
current or accumulated earnings and profits, would constitute dividends that
would be taxable to the shareholders of the Fund as ordinary income and would be
eligible for the dividends received deduction for corporate shareholders. This
treatment would also apply to any portion of the distributions that might have
been treated in the shareholder's hands as long-term capital gains, as discussed
below, had the Fund qualified as a RIC.
If a Fund were to fail to qualify as a RIC for one or more taxable years, the
Fund could then qualify (or requalify) as a RIC for a subsequent taxable year
only if the Fund had distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the interest charge
mentioned below, if applicable) attributable to such period. The Fund might also
be required to pay to the U.S. Internal Revenue Service (the "IRS") interest on
50% of such accumulated earnings and profits. In addition, pursuant to the Code
and an interpretative notice issued by the IRS, if the Fund should fail to
qualify as a RIC and should thereafter seek to requalify as a RIC, the Fund may
be subject to tax on the excess (if any) of the fair market of the Fund's assets
over the Fund's basis in such assets, as of the day immediately before the first
taxable year for which the Fund seeks to requalify as a RIC.
35
<PAGE> 53
If a Fund determines that the Fund will not qualify as a RIC under Subchapter M
of the Code, the Fund will establish procedures to reflect the anticipated tax
liability in the Fund's net asset value.
TRANSACTIONS BY THE FUNDS
If a call option written by a Fund expires, the amount of the premium received
by the Fund for the option will be treated as a gain from the sale or exchange
of a capital asset held for not more than 1 year, i.e., short-term capital gain.
If such an option is closed by a Fund, any gain or loss realized by the Fund as
a result of the closing purchase transaction will be either short-term, mid term
or long-term capital gain or loss, depending on whether the Fund's holding
period for the underlying security or underlying futures contract was not for
more than 1 year (short-term), for more than 1 year but not for more than 18
months (mid-term), or for more than 18 months (long-term). If the holder of a
call option exercises the holder's right under the option, any gain or loss
realized by the Fund upon the sale of the underlying security or underlying
futures contract pursuant to such exercise will be short-term, mid-term or
long-term capital gain or loss to the Fund depending on the Fund's holding
period for the underlying security or underlying futures contract. The amount
paid to the Fund for the option will be added to the amount of the proceeds
received by the Fund.
With respect to call options purchased by a Fund, the Fund will realize
short-term, mid-term or long-term capital gain or loss if such option is sold
and will realize short-term, mid-term or long-term capital loss if the option is
allowed to expire depending on the Fund's holding period for the call option. If
such a call option is exercised, the amount paid by the Fund for the option will
be added to the basis of the stock or futures contract so acquired.
A Fund has available to it a number of elections under the Code concerning the
treatment of option transactions for tax purposes. A Fund will utilize the tax
treatment that, in the Fund's judgment, will be most favorable to a majority of
investors in the Fund. Taxation of these transactions will vary according to the
elections made by the Fund. These tax considerations may have an impact on
investment decisions made by the Fund.
Each of the Funds also may utilize options on foreign stock indexes. Gains and
losses resulting from the expiration, exercise, or closing of such options, as
well as gains and losses resulting from futures contract transactions, will be
treated as regular income.
The trading strategies of each of the Funds involving options on stock indexes
may constitute "straddle" transactions. "Straddles" may affect the taxation of
such instruments and may cause the postponement of recognition of losses
incurred in certain closing transactions. Each of the Funds will also have
available to the Fund a number of elections under the Code concerning the
treatment of option transactions for tax purposes. Each such Fund will utilize
the tax treatment that, in the Fund's judgment, will be most favorable to a
majority of investors in the Fund. Taxation of these transactions will vary
according to the elections made by the Fund. These tax considerations may have
an impact on investment decisions made by the Fund.
A Fund's transactions in options, under some circumstances, could preclude the
Fund's qualifying for the special tax treatment available to investment
companies meeting the requirements of Subchapter M of the Code. However, it is
the intention of each Fund's portfolio management to limit gains from such
investments to less than 10% of the gross income of the Fund during any fiscal
year in order to maintain this qualification.
BACK-UP WITHHOLDING
Each Fund is required to withhold and remit to the U.S. Treasury 31% of (i)
reportable taxable dividends and distributions; and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who is not
36
<PAGE> 54
exempt from withholding and who fails to furnish the Trust with a correct
taxpayer identification number, who fails to report fully dividend or interest
income, or who fails to certify to the Trust that the shareholder has provided a
correct taxpayer identification number and that the shareholder is not subject
to withholding. (An individual's taxpayer identification number is the
individual's social security number.) The 31% "back-up withholding tax" is not
an additional tax and may be credited against a taxpayer's regular Federal
income tax liability.
FOREIGN TAX CONSIDERATIONS
The Country Index Funds may elect to "pass through" to shareholders of those
Funds the foreign income taxes paid by the Funds. If this election is made
because it was deemed to be in the best interest of shareholders, shareholders
would be required to include in their gross income their proportional share of
the foreign taxes paid by their respective Fund. Shareholders will, however, be
able to treat this income as either an itemized deduction or a foreign tax
credit (but not both) against U.S. income taxes. The U.S. shareholders of the
Country Index Funds may claim a foreign tax credit or deduction by reason of the
Fund's election under Section 853 of the Code, provided that more than 50% of
the value of the total assets of the Fund at the close of the taxable year
consists of securities of foreign corporations. The foreign tax credit and
deduction available to shareholders is subject to certain limitations imposed by
the Code. Also, under Section 63 of the Code, no deduction for foreign taxes may
be claimed by shareholders who do not itemize deductions on their federal income
tax returns, although any such shareholder may claim a credit for foreign taxes
and in any event will be treated as having taxable income in respect to the
shareholder's pro rata share of foreign taxes paid by the Fund.
If the Country Index Funds elect to "pass through" foreign taxes to
shareholders, the tax credit would not pass through to Funds of Index Funds
shareholders. Because the Funds of Index Funds hold shares of the Country Index
Funds which are U.S. business entities, and do not hold shares of foreign
securities, the Funds of Index Funds cannot pass through the tax credit to
shareholders. The Funds of Index Funds may, however, claim a deduction for any
foreign taxes paid by the underlying Country Index Funds. The effective rate of
foreign taxes to which a Fund will be subject depends on the specific countries
in which each Fund's assets will be invested and the extent of the assets
invested in each such country and, therefore, cannot be determined in advance.
FOREIGN CURRENCY GAINS AND LOSSES
Under the Code, gains or losses attributable to fluctuations in exchange rates,
including foreign currency gain or loss attributable to a forward contract, a
futures contract, or option, which occur between the time a Fund accrues income
or other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time a Fund actually collects such receivables or pays
such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on the disposition of debt securities denominated in a foreign
currency and on the disposition of certain options, futures, forward and other
contracts, gain or loss attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract and the
date of disposition also are treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of a Fund's net investment income to be
distributed to its shareholders. If Section 988 losses exceed other investment
company taxable income (which includes, among other items, dividends, interest
and the excess, if any, of net short-term capital gains over net long-term
capital losses) during the taxable year, a Fund would not be able to make any
ordinary dividend distributions, and distributions made before the losses were
realized would be recharacterized as a return of capital to shareholders or, in
some cases, as capital gain, rather than as an ordinary dividend.
37
<PAGE> 55
OTHER ISSUES
Each Fund may be subject to tax or taxes in certain states where the Fund does
business. Furthermore, in those states which have income tax laws, the tax
treatment of a Fund and of Fund shareholders with respect to distributions by
the Fund may differ from Federal tax treatment.
Shareholders are urged to consult their own tax advisors regarding the
application of the provisions of tax law described in this SAI in light of the
particular tax situations of the shareholders and regarding specific questions
as to Federal, state, or local taxes.
EXPERTS
Price Waterhouse, LLP, 300 Atlantic Street, Stamford, CT 06901, are the auditors
and the independent certified public accountants of the Trust and each of the
Funds.
Morgan, Lewis & Bockius, LLP, 1800 M Street, N.W., Washington, D.C. 20036, serve
as counsel to the Trust and each of the Funds.
38
<PAGE> 56
PART C: OTHER INFORMATION
Item 23. Exhibits:
(a) Agreement and Declaration of Trust of Worldwide Index Funds
(b) By-Laws
Item 24. Persons Controlled by or under Common Control with the Fund
Not applicable.
Item 25. Indemnification
Article VIII of the Declaration of Trust, filed as Exhibit (a) to the
Registration Statement, is incorporated by reference.
Item 26. Business and other Connections of the Investment Adviser:
ADVISER
Watermark Investment Advisors(the "Adviser") is the investment adviser for the
Trust. The principal address of the Adviser is 790 East Colorado Boulevard, 9th
Floor, Pasadena, California 91101. The Adviser is an investment adviser
registered under the Advisers Act.
The list required by this Item 28 of officers and directors of the Adviser,
together with information as to any other business profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years is incorporated by reference to Schedules A and D of
Form ADV filed by the Adviser to the Advisers Act (SEC File No.801-55369).
Item 27. Principal Underwriters
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the securities
of the Registrant also acts as a principal underwriter, distributor or
investment adviser.
First Data Distributors, Inc., a wholly-owned subsidiary of First
Data Corporation, acts as distributor for ABN AMRO Funds pursuant to
a distribution agreement dated February 26, 1998. First Data
Distributors, Inc. also acts as underwriter for BT Insurance Funds
Trust, First Choice Funds Trust, The Galaxy Fund, The Galaxy VIP
Fund, Galaxy Fund II, Panorama Trust, CT&T Funds, Wilshire Target
Funds, Inc., Potomac Funds, Undiscovered Managers Funds, LKCM Funds,
IBJ Funds Trust and the ICM Series Trust. The Distributor is
registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of
Securities Dealers. The Distributor is a wholly-owned subsidiary of
First Data Corporation and is located at 4400 Computer Drive,
Westborough, Massachusetts 01581.
(b) Furnish the Information required by this Item 27 (b) with respect to each
director, officer, or partner of First Data Distributors, Inc. is
incorporated by reference to Schedule A of Form 8D filed by First Data
Distributors, Inc. with the Securities and Exchange Commission pursuant
to the Securities Act of 1934 (File No. 8-45467.)
ii
<PAGE> 57
Item 28. Location of Accounts and Records
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6);
(8); (12); and 31a-1(d), the required books and records will be maintained
at the offices of Registrant's Custodian:
To be determined
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b),(4); (2)(C) and (D); (4);
and 31a-1(f), the required books and records are maintained at the offices
of Registrant's Administrator:
First Data Investor Services Group, Inc.
One Exchange Place
Boston, MA 02109
(c) With respect to Rules 31a-1(b)(5), (6), (9), (10) and (11) and
31a-1(f), the required books and records are maintained at the principal
offices of the Registrant's Adviser:
Watermark Investment Advisors, Ltd.
790 East Colorado Boulevard, 9th Floor
Pasadena, CA 91101
Item 29. Management Services
iii
<PAGE> 58
Not applicable
Item 30. Undertakings
Not applicable
iv
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement (File No._________) to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Pasadena, State of California on this
8th day of June, 1998.
Worldwide Index Funds
By: /s/ F. Brian Cerini
-------------------
F. Brian Cerini
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacity on the dates
indicated.
By: /s/ F. Brian Cerini President, Trustee and Chief June 8, 1998
--------------------- Financial Officer
F. Brian Cerini
v
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
Name Exhibit Page
- ---- ------------
<S> <C>
Agreement and Declaration of Trust of EX-99 (a)
the Worldwide Index Funds
By-Laws EX-99 (b)
</TABLE>
vi
<PAGE> 1
WORLDWIDE INDEX FUNDS
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST, as of this 28th day of May, 1998, the
Trustees hereunder, and by the holders of Shares of beneficial interest to be
issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an investment
company; and
WHEREAS, the Trustees elected in accordance with Article IV hereof have agreed
to manage all property coming into their hands as trustees of a Massachusetts
business trust with transferable Shares in accordance with the provisions
hereinafter set forth.
NOW, THEREFORE, the Trustees elected in accordance with Article IV hereof hereby
declare that they will hold all cash, securities and other assets, which they
may from time to time acquire in any manner as Trustees hereunder IN TRUST to
manage and dispose of the same for the pro rata benefit of the holders from time
to time of Shares in this Trust issued hereunder on the terms and conditions
hereinafter set forth.
ARTICLE I
NAME, PRINCIPAL PLACE OF BUSINESS AND RESIDENT AGENT, AND DEFINITIONS
NAME
Section 1. This Trust shall be known as Worldwide Index 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.
PRINCIPAL PLACE OF BUSINESS AND RESIDENT AGENT
Section 2. The principal place of business of the Trust is 790 East Colorado
Boulevard, 9th Floor, Pasadena, California 91101. The name of the Trust's
resident agent in the Commonwealth of Massachusetts is CT Corporation, 2 Oliver
Street, Boston, Massachusetts 02109.
1
<PAGE> 2
DEFINITIONS
Section 3. Whenever used herein, unless otherwise required by the context or
specifically provided:
(a) The "Trust" refers to Worldwide Index Funds the trust created hereby.
(b) "Trustee" or "Trustees" refers to the Trustees of the Trust named herein
or elected in accordance with Article IV hereof and then in office.
(c) "Shares" refers to units of beneficial interest in the assets of the
Trust. When used in relation to any particular series established by the
Trustees hereunder, "Shares" refers to units of beneficial interest in the
assets specifically allocated to that series. "Shares" includes fractional
as well as whole Shares.
(d) The "1940 Act" refers to the Investment Company Act of 1940 and the Rules
and Regulations thereunder, all as amended from time to time.
(e) "Shareholder" means a record owner of Shares.
(f) "Affiliated Person," "Assignment," "Commission," "Interested Person," and
"Principal Underwriter" shall have the meanings given them in the 1940
Act.
(g) "Majority Shareholder Vote" shall have the same meaning as "vote of a
majority of the outstanding voting securities" as that phrase is defined
in the 1940 Act, provided that such majority shall be calculated by
reference to the number of votes represented by shares entitled to vote
and present at the meeting, either in person or by proxy. Such term may be
used herein with respect to the Shares of the Trust as a whole or the
Shares of a particular series, as the context may require.
(h) "Declaration of Trust" shall mean this Agreement and Declaration of Trust,
as further amended or restated from time to time, provided that reference
made in this Agreement and Declaration of Trust and in any amendment
hereto to "hereby," "hereof," "herein," "hereunder" or similar terms shall
be deemed to refer to this Declaration of Trust, as amended from time to
time, rather than the Article or Section in which such words appear,
unless the context otherwise requires.
(i) "By-Laws" shall mean the By-Laws of the Trust referred to in Article IV,
Section 4 hereof, as amended from time to time.
(j) "Disinterested Trustees" shall mean Trustees who are not "interested
persons" as such term is defined in the 1940 Act (including any Trustee
who has been exempted from being an "interested person" by any rule,
regulation or order of the Commission). In limitation
2
<PAGE> 3
of the foregoing, however, as used in Article VIII hereof, a
"Disinterested Trustee" shall mean a Disinterested Trustee against whom,
at the time of the votes to be taken pursuant to said Article VIII, none
of the actions, suits or other proceedings referred to in such Article
VIII, nor any other action, suit or other proceeding on the same or
similar grounds, is or has been pending.
ARTICLE II
PURPOSE
The purpose of the Trust is to provide investors with one or more managed
investment portfolio(s) consisting primarily of securities, including debt
instruments and other instruments and rights of a financial character.
ARTICLE III
SHARES
DIVISION OF BENEFICIAL INTEREST
Section 1. The Trustees may divide the beneficial interest in the Trust
into an unlimited number of Shares, authorize the issuance of Shares without
prior Shareholder approval, and may in their discretion provide in a By-Law or
otherwise that Shares may have voting rights based upon the value thereof.
Shares may be issued in series and, if so, Shares of any series will constitute
units of beneficial interest in assets of the Trust specifically allocated to
such series. Shares of the Trust, or any series thereof, shall have no par
value, shall represent equal and proportionate interests in the Trust, or such
series, with none having priority or preference over any other except as
specifically set forth in this Article III, and shall be transferable. All
Shares issued hereunder, including any Shares issued in payment of dividends or
other distributions or in connection with any split of Shares, shall be fully
paid and non-assessable. Shares of the Trust or of any series may be issued in
two or more classes, as the Trustees may, without Shareholder approval,
authorize, and Shares of any class shall be identical to those of any other
class of the Trust or such series except that, if the Trustees have authorized
the issuance of Shares of any particular series in two or more classes, then
such classes may, consistent with the 1940 Act, or pursuant to any exemptive
order issued by the Commission and other applicable law, have such variations as
to dividends, redemption charges, conversion, voting rights, net asset value,
expenses borne by the class, and other matters as the Trustees shall have
determined. The Trustees may from time to time, without Shareholder approval,
divide or combine the Shares of a series into a greater or lesser number without
thereby changing their proportionate beneficial interests in assets allocated to
such series.
3
<PAGE> 4
OWNERSHIP OF SHARES
Section 2. The ownership of Shares shall be recorded on the books of the
Trust or its transfer or similar agent, which books shall be maintained
separately for the Shares of each series. 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, the 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, as the case may be, shall be conclusive
as to who are the Shareholders of each series or class and as to the number of
Shares of each series or class held from time to time by each Shareholder.
INVESTMENTS IN THE TRUST; ASSETS OF THE SERIES
Section 3. The Trustees may accept investments in the Trust from such
persons and on such terms and, subject to any requirements of law, for such
consideration, which may consist of cash or tangible or intangible property or a
combination thereof, as they may from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares of
each series, together with all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to the series of Shares
with respect to which the same were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so recorded upon the books
of account of the Trust and are herein referred to as "assets of" such series.
In addition, any assets, income, earnings, profits, and proceeds thereof, funds,
or payments which are not readily identifiable as belonging to any particular
series shall be allocated by the Trustees between and among one or more of the
series in such manner as they, in their sole discretion, deem fair and
equitable. Each such allocation to any series shall be conclusive and binding
upon the Shareholders of all series for all purposes, and shall be referred to
as assets belonging to that series. No holder of Shares of any particular series
shall have any claim on or right to any assets allocated or belonging to any
other series.
ESTABLISHMENT OF CLASS OR SERIES
Section 4. The establishment and designation of any class or series of
Shares shall be effective upon the adoption of a resolution by a majority of the
Trustees (or of a committee thereof) setting forth such establishment and
designation and the relative rights and preferences of the Shares of such class
or series. Such establishment and designation shall not constitute an amendment
to this Declaration of Trust, although the Trustees may, at their option, set
forth such establishment and designation in a written instrument signed by them
or by an
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officer of the Trust. The Trustees (or a committee thereof) may by majority vote
amend such establishment and designation. At any time, if no Shares are
outstanding of a particular class or series previously so established and
designated, the Trustees (or a committee thereof) may by majority vote abolish
such class or series and said establishment and designation thereof.
NO PREEMPTIVE RIGHTS
Section 5. Shareholders shall have no preemptive or other right to
receive, purchase or subscribe for any additional Shares or other securities
issued by the Trust, except as otherwise provided herein or as the Trustees in
their sole discretion shall have determined by resolution.
STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
Section 6. 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 hereto. 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, nor shall the ownership of Shares constitute the
Shareholders partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholder, nor, except as specifically provided herein, 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. A
Shareholder, as such, shall not be personally liable for any act, omission or
obligation, of the Trustees or of the Trust.
TRUSTEES AND OFFICERS AS SHAREHOLDERS
Section 7. Any Trustee, officer or other agent of the Trust may acquire,
own and dispose of Shares of the Trust to the same extent as if he or she were
not a Trustee, officer or agent; and the Trustees may issue and sell or cause to
be issued and sold Shares to and buy such Shares from any such person or any
firm or company in which he is interested, subject only to the general
limitations herein contained as to the sale and purchase of such Shares; and all
subject to any restrictions which may be contained in the By-Laws.
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POWER OF TRUSTEES TO CHANGE PROVISIONS RELATING TO SHARES.
Section 8. Notwithstanding any other provisions of this Declaration of
Trust and without limiting the power of the Trustees to amend the Declaration of
Trust as provided elsewhere herein, the Trustees shall have the power to amend
this Declaration of Trust, at any time and from time to time, in such manner as
the Trustees may determine in their sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration of Trust for the
purpose of responding to or complying with any regulations, orders, rulings or
interpretations of any governmental agency or any laws, now or hereafter
applicable to the Trust.
Without limiting the generality of the foregoing or of any other
provision of this Declaration of Trust , the Trustees may, for the purposes
stated above and in Section 4 of this Article III, amend the Declaration of
Trust to:
(a) Create one or more Series or classes of Shares (in addition to any
Series or classes already existing or otherwise) with such rights and
preferences and such eligibility requirements for investment therein as the
Trustees shall determine and reclassify any or all outstanding Shares as Shares
of particular Series or classes in accordance with such eligibility
requirements;
(b) Amend any of the provisions set forth in paragraphs (a) through (i) of
Section 9 of this Article III;
(c) Combine one or more Series or classes of Shares into a single Series
or class on such terms and conditions as the Trustees shall determine;
(d) Change or eliminate any eligibility requirements for investment in
Shares of any Series or class, including without limitation the power to provide
for the issue of Shares of any Series or class in connection with any merger or
consolidation of the Trust with another trust or company or any acquisition by
the Trust of part or all of the assets of another trust or company;
(e) Change the designation of any Series or class of Shares;
(f) Change the method of allocating dividends among the various Series and
classes of Shares;
(g) Allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series or
classes of Shares; and
(h) Specifically allocate assets to any or all Series or classes of Shares
or create one or more additional Series or classes of Shares which are preferred
over all other Series or classes of Shares in respect of assets specifically
allocated thereto or any dividends paid by the Trust with respect to any net
income, however determined, earned from the investment and reinvestment of
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any assets so allocated or otherwise provide for any special voting or other
rights with respect to such Series or classes.
ARTICLE IV
THE TRUSTEES
QUALIFICATION; NUMBER OF TRUSTEES; ELECTION
Section 1. There shall initially be one Trustee. Each Trustee shall be a
natural person and may, but need not, be a Shareholder. A Trustee may be elected
either by the Trustees or the Shareholders subject to the limitations of the
1940 Act. Each Trustee shall hold office during the lifetime of this Trust until
the election and qualification of his or her successor, or until he or she
sooner dies, resigns or is removed. The number of Trustees shall be fixed from
time to time by a vote of a majority of the Trustees then in office. The number
of Trustees so fixed may be increased either by the Shareholders of the Trust or
by the Trustees by a vote of a majority of the Trustees then in office. The
number of Trustees so fixed may be decreased either by the Shareholders of the
Trust or by the Trustees by vote of a majority of the Trustees then in office,
but only to eliminate vacancies existing by reason of the death, resignation or
removal of one or more Trustees.
In case of the declination, death, resignation, retirement, removal,
incapacity, or inability of any of the Trustees, or in case a vacancy shall
exist by reason of an increase in number, or for any other reason, the remaining
Trustees shall fill such vacancy by appointing such other person as they in
their discretion shall see fit consistent with the 1940 Act. Until any such
vacancy is filled as provided in this Section 1, the Trustees then in office
shall, regardless of their number, have all powers granted to and discharge all
duties imposed on the Trustees hereby. Such appointment shall be evidenced by a
written instrument signed by a majority of the Trustees in office, even though
less than a quorum, or by recording in the records of the Trust, and shall take
effect upon such signing or recording and the acceptance of such appointment by
the Trustee so appointed. An appointment of a Trustee may be made by the
Trustees then in office in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective at a later
date, provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees.
REMOVAL AND RESIGNATION
Section 2. By vote of the Shareholders holding a majority of the shares
entitled to vote, the Shareholders may remove a Trustee with or without cause.
By vote of a majority of the Trustees then in office, the Trustees may remove a
Trustee with or without cause. Any Trustee
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may resign at any time by written instrument signed by him or her and delivered
to any officer of the Trust, to each other Trustee or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal.
EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE
Section 3. 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.
POWERS
Section 4. Subject to the provisions of this Declaration of Trust, the
Trustees shall manage the business of the Trust as an investment company, and
they shall have all powers necessary or convenient to carry out that
responsibility. Without limiting the foregoing, the Trustees may adopt By-Laws
not inconsistent with this Declaration of Trust providing for the conduct of the
business of the Trust and may amend and repeal them to the extent that such
ByLaws do not reserve that right to the Shareholders; they may fill vacancies in
their number, including vacancies resulting from increases in their number, may
remove from their number with or without cause, and may elect and remove such
officers and appoint and terminate such agents as they consider appropriate;
they may appoint from their own number, and terminate, any one or more
committees consisting of two or more Trustees, including an executive committee
which may, when the Trustees are not in session, exercise some or all of the
powers and authority of the Trustees as the Trustees may determine; they may
appoint an advisory board, the members of which shall not be Trustees and need
not be Shareholders; they may employ one or more investment advisers or
administrators as provided in Section 9 of this Article IV; they may employ one
or more custodians of the assets of the Trust and may authorize such custodians
to employ subcustodians and to deposit all or any part of such assets in a
system or systems for the central handling of securities, retain a transfer
agent or a shareholder servicing agent, or both, provide for the distribution of
Shares by the Trust through one or more principal underwriters or otherwise, set
record dates for the determination of Shareholders with respect to various
matters, and in general delegate such authority as they consider desirable to
any officer of the Trust, to any committee of the Trustees and to any agent or
employee of the Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
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(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write
options on, or lease any or all of the assets of the Trust;
(c) 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;
(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in the
name of the Trustees or of the Trust or in the name of a custodian,
subcustodian or other depositary or a nominee or nominees or
otherwise;
(f) To establish separate and distinct series of shares with separately
defined investment objectives, policies and purposes, and with
separately defined relative powers, rights, privileges and
liabilities, and to allocate assets, liabilities and expenses of the
Trust to a particular series of Shares or to apportion the same
among two or more series, provided that any liability or expense
determined by the Trustees to have been incurred by a particular
series of Shares shall be payable solely out of the assets of that
series and to establish separate classes of shares of each series,
all in accordance with Article III hereof;
(g) 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 or was 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;
(h) 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;
(i) 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;
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(j) To enter into joint ventures, general or limited partnerships,
limited liability companies, and any other combinations or
associations;
(k) To borrow funds;
(l) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and
to mortgage and pledge the Trust property or any part thereof to
secure any or all of such obligations;
(m) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct
of the business, 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, Trustees, officers, employees, agents,
investment advisers or administrators, 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,
administrator, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the power
to indemnify such person against such liability;
(n) To pay pensions, 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;
(o) 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 giving
notice to such Shareholder;
(p) To enter into contracts of any kind and description;
(q) To name, or to change the name or designation of the Trust or any
series or class of the Trust;
(r) To take whatever action may be necessary to enable the Trust to
comply with any applicable Federal, state or local statute, rule or
regulation; and
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(s) To engage in any other lawful act or activity in which corporations
organized under the Massachusetts Business Corporation Law may
engage.
The Trustees shall not in any way be bound or limited by any present
or future law or custom in regard to investments by Trustees. The Trustees shall
not be required to obtain any court order to deal with any assets of the Trust
or take any other action hereunder.
MANNER OF ACTING
Section 5. Except as otherwise provided herein or from time to time in the
By-Laws, any action to be taken by the Trustees, or a committee thereof, may be
taken by a majority of the Trustees present at a meeting of Trustees, or of the
committee members present at a meeting of such committee (if in either case a
quorum be present), within or without Massachusetts, including any meeting held
by means of a conference telephone or other communications equipment by means of
which all persons participating in the meeting can communicate with each other
simultaneously and participation by such means shall constitute presence in
person at a meeting, or by written consent of a majority of the Trustees, or
members of such committee, then in office. At any meeting of the Trustees, or a
committee thereof, one third of the Trustees or members of such committee, as
the case may be, shall constitute a quorum. If a quorum is present when a duly
called or held meeting is convened, the Trustees present at such meeting may,
following the withdrawal of one or more Trustees originally present, continue to
transact business until adjournment thereof, even though such Trustees would not
otherwise constitute a quorum. Meetings of the Trustees, or a committee thereof,
may be called orally or in writing by the Chairman of the Trustees or of such
committee or by any two other Trustees or committee members, as the case may be.
Notice of the time, date and place of all meeting of the Trustees, or a
committee thereof, shall be given to each Trustee or committee member as
provided in the ByLaws.
Notice of any meeting need not be given to any Trustee (or committee
member) who attends that meeting without objecting to the lack of notice or who
executes a written waiver of notice with respect to the meeting. Subject to the
requirements of the 1940 Act, the Trustees by majority vote may delegate to any
one of their number the authority to approve particular matters or take
particular actions on behalf of the Trust.
PAYMENT OF EXPENSES BY THE TRUST
Section 6. The Trustees are authorized to pay or to cause to be paid out
of the principal or income of the Trust, or partly out of principal and partly
out of income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation, as authorized pursuant to Article VII, Section 1 hereof, and
reimbursement for
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expenses and disbursements and such expenses and charges for the services of the
Trust's officers, employees, investment adviser, administrator, principal
underwriter, auditor, counsel, custodian, transfer agent, shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur, provided,
however, that all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with a particular series of Shares or class as determined
by the Trustees consistent with applicable law, shall be payable solely out of
the assets of that Series or class. Any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as belonging
to any particular series shall be allocated and charged by the Trustees between
or among any one or more of the Series in such manner as the Trustees in their
sole discretion deem fair and equitable. Each such allocation shall be
conclusive and binding upon the Shareholders of all Series for all purposes. Any
creditor of any Series may look only to the assets of that series to satisfy
such creditor's debt.
Section 7. The Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder, or each Shareholder of any particular
Series, to pay directly, in advance or arrears, for any and all expenses of the
Trust, an amount fixed from time to time by the Trustees, by setting off such
charges due from such Shareholder from declared but unpaid dividends owed such
Shareholder and/or by reducing the number of Shares in the account of such
Shareholder by that number of full and/or fractional Shares which represents the
outstanding amount of such charges due from such Shareholder.
OWNERSHIP OF ASSETS OF THE TRUST
Section 8. Title to all of the assets of each series of Shares and the
Trust shall at all times be considered as vested in the Trustees as joint
tenants. The right, title and interest of the Trustees in such assets shall vest
automatically in each person who may hereafter become a Trustee, and upon any
Trustees' death, resignation or removal, such Trustee shall automatically cease
to have any right, title or interest in such assets. Vesting and cessation of
title as set forth in this Section 8 shall be effective notwithstanding the
absence of execution and delivery of any conveyancing documents.
ADVISORY, ADMINISTRATION AND DISTRIBUTION SERVICES
Section 9. The Trustees may, at any time and from time to time, contract
with respect to the Trust or any series thereof for exclusive or nonexclusive
investment advisory and/or administration services with any corporation, trust,
association or other organization, every such contract to comply with such
requirements and restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine, including, without
limitation, in the case of a contract for investment advisory or sub-advisory
services, authority to determine from
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time to time what investments shall be purchased, held, sold or exchanged and
what portion, if any, of the assets of the Trust or any series thereof shall be
held uninvested and to make changes in the investments of the Trust or any
series thereof. Any contract for investment advisory services shall be subject
to such Shareholder approval as required by the 1940 Act. The Trustees may also,
at any time and from time to time, contract with any corporation, trust,
association or other organization, appointing it exclusive or nonexclusive
distributor or principal underwriter for the Shares, every such contract to
comply with such requirements and restrictions as may be set forth in the
By-Laws; and any such contract may contain such other terms interpretive of or
in addition to said requirements and restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee,
administrator, investment adviser, principal underwriter,
distributor or affiliate or agent of or for any corporation, trust,
association, or other organization, or of or for any parent or
affiliate of any organization, with which an investment advisory or
administration or principal underwriter's or distributor's contract,
or transfer, shareholder servicing or other agency contract may have
been or may hereafter be made, or that any such organization, or any
parent or affiliate thereof, is a Shareholder or has an interest in
the Trust, or that
(ii) any corporation, trust, association or other organization with which
an investment advisory or administration or principal underwriter's
or distributor's contract, or transfer, Shareholder servicing or
other agency contract may have been or may hereafter be made also
has an investment advisory or administration contract, or principal
underwriter's or distributor's contract, or transfer, Shareholder
servicing or other agency contract with one or more other
corporations, trusts, associations, or other organizations, or has
other businesses or interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the
Trust or its Shareholders.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
The Shareholders shall have power to vote only (i) for the election
or removal of Trustees as provided in Article IV, Section 1 hereof, (ii) with
respect to any investment adviser as provided in Article IV, Section 7 hereof,
(iii) with respect to any termination of the Trust or any series or class to the
extent and as provided in Article IX, Section 4 hereof, (iv) with respect to
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any amendment of this Declaration of Trust to the extent and as provided in
Article IX, Section 9 hereof, (v) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, (vi) with
respect to any merger, consolidation, sale of assets, or incorporation of the
Trust or any series to the extent and as provided in Article IX, Sections 6 and
7 hereof, and (vii) with respect to such additional matters relating to the
Trust as may be required by law, by this Declaration of Trust, by the ByLaws or
by any registration of the Trust with the Securities and Exchange Commission or
any state, or as the Trustees may consider necessary or desirable.
Notwithstanding any other provisions of this Declaration of Trust, on any matter
submitted to a vote of Shareholders, all Shares of the Trust then entitled to
vote shall be voted by individual series or class, except that (1) when so
required by the 1940 Act, Shares shall be voted in the aggregate and not by
individual series or class, and (2) when the Trustees have determined that the
matter affects only the interests of one or more series or class, then only
Shareholders of such series or class(es) shall be entitled to vote thereon. The
Shareholders may hold meetings and take action as provided in the By-Laws,
subject to the requirements of the 1940 Act where applicable. 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.
There shall be no cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. A proxy with respect to Shares held in the name of
two or more persons shall be valid if executed by any one of them, unless at or
prior to exercise of the proxy the Trust receives a specific written notice to
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
At any time when no Shares of a Series are outstanding, the Trustees may
exercise all rights of Shareholders of that Series and may take any action
required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.
ARTICLE VI
DISTRIBUTIONS, REDEMPTIONS, REPURCHASES
AND DETERMINATION OF NET ASSET VALUE
DISTRIBUTIONS
Section 1. The Trustees may, but need not, distribute from time to time
to the Shareholders of each series such income and gains, accrued or realized,
as the Trustees may determine, after providing for actual and accrued expenses
and liabilities (including such reserves as the Trustees may establish)
determined in accordance with good accounting practices. The Trustees shall have
full discretion to determine which items shall be treated as income and which
items as capital and their determination shall be binding upon the Shareholders.
Distributions of each year's income of each series, if any be made, may be made
in one or more payments, which
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shall be in Shares, in cash or otherwise and on a date or dates determined by
the Trustees. At any time and from time to time in their discretion, the
Trustees may distribute to the Shareholders of any one or more series as of a
record date or dates determined by the Trustees, in Shares, in cash or
otherwise, all or part of any gains realized on the sale or disposition of
property of the series or otherwise, or all or part of any other principal of
the Trust attributable to the series. Each distribution pursuant to this Section
1 shall be made ratably according to the number of Shares of the series or class
held by the several Shareholders on the applicable record date thereof, provided
that no distributions need be made on Shares purchased pursuant to orders
received, or for which payment is made, after such time or times as the Trustees
may determine. Any such distribution paid in Shares will be paid at the net
asset value thereof as determined in accordance with this Declaration of Trust.
REDEMPTIONS AND REPURCHASES
Section 2. Any holder of Shares of the Trust may, by presentation of a
written request, together with his or her certificates, if any, for such Shares,
in proper form for transfer, at the office of the Trust, the adviser, the
underwriter or the distributors, or at a principal office of a transfer or
shareholder services agent appointed by the Trust (as the Trustees may
determine), or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize, redeem his or her Shares in accordance
with the provisions of this Section 2 for the net asset value thereof determined
and computed in accordance with the By-Laws, less any redemption charge the
Trustees may establish, including any contingent deferred sales charge to which
redemption of such Shares may be subject. Upon receipt of such written request
for redemption of Shares by the Trust, the adviser, the underwriter or the
distributor, or the Trust's transfer or shareholder services agent, the Trust
shall purchase such Shares and shall pay therefor the net asset value thereof
next determined after such receipt or the net asset value thereof determined as
of such other time fixed by the Trustees, as may be permitted or required by the
1940 Act in each instance, less any applicable redemption charge.
The obligation of the Trust to redeem its Shares as set forth in
this Section 2 shall be subject to the condition that, such obligation may be
suspended by the Trust by or under authority of the Trustees for such period or
periods when and to the extent permissible under the 1940 Act. If there is such
a suspension, any Shareholder may withdraw any demand for redemption and any
tender of Shares which has been received by the Trust during any such period and
any tender of Shares the applicable net asset value of which would but for such
suspension be calculated as of a time during such period. Shareholders who do
not so withdraw any such demand shall receive payment based on the net asset
value next determined after the termination of such suspension.
The Trust may also purchase, repurchase or redeem Shares in
accordance with such other methods, upon such other terms and subject to such
other conditions as the Trustees
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may from time to time authorize at a price not exceeding the net asset value of
such Shares in effect when the purchase or repurchase or any contract to
purchase or repurchase is made.
PAYMENT IN KIND
Section 3. Subject to any generally applicable limitation imposed by the
Trustees, any payment on redemption, purchase or repurchase by the Trust of
Shares may, if authorized by the Trustees, be made wholly or partly in kind,
instead of in cash. Such payment in kind shall be made by distributing
securities or other property, constituting, in the opinion of the Trustees, a
fair representation of the various types of securities and other property then
held by the series of Shares being redeemed, purchased or repurchased (but not
necessarily involving a portion of each of that series' holdings) and taken at
their value used in determining the net asset value of the Shares in respect of
which payment is made.
ADDITIONAL PROVISIONS RELATING TO REDEMPTIONS AND REPURCHASES
Section 4. The completion of redemption, purchase or repurchase of Shares
shall constitute a full discharge of the Trust and the Trustees with respect to
such Shares and the Trustees may require that any certificate or certificates
issued by the Trust to evidence the ownership of such Shares shall be
surrendered to the Trustees for cancellation or notation.
ASSETS AVAILABLE FOR DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES
Section 5. No dividend or distribution (including, without limitation,
any distribution paid upon termination of the Trust or of any series) with
respect to, nor any redemption or repurchase of, the Shares of any series shall
be effected by the Trust other than from the assets of such series.
REDEMPTIONS AT THE OPTION OF THE TRUST
Section 6. The Trustees shall have the power at any time to redeem
Shares, of any class or any series, of a Shareholder at a redemption price
determined in accordance with the provisions of Section 2 of this Article if at
such time the aggregate net asset value of the Shares of that class of that
series in such Shareholder's account is less than the minimum investment amount
established by the Trustees for that class of that series. A Shareholder shall
be notified prior to any such redemption and shall be allowed 60 days to make
additional investments in Shares of that class or that series before such
redemption is effected.
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ARTICLE VII
COMPENSATION AND LIMITATION
OF LIABILITY OF TRUSTEES
COMPENSATION
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, administration, legal, accounting, investment banking or other
services and payment for the same by the Trust.
LIMITATION OF LIABILITY
Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, investment
adviser, administrator, principal underwriter or custodian, nor shall any
Trustee be responsible for any obligation of the Trust or the act or omission of
any other Trustee, but nothing herein contained shall protect any Trustee
against any liability to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
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 or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
ARTICLE VIII
INDEMNIFICATION
TRUSTEES
Section 1. Subject to the exceptions and limitations contained in this
Article, every person who is, or has been, a Trustee or officer of the Trust
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 a Trustee
or officer and against amounts paid or incurred by him in settlement thereof.
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No indemnification shall be provided hereunder to a Trustee or
officer:
(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;
(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 Trustee or officer, unless there has
been either a determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, 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 hereinafter provided may be insured
against by policies maintained by the Trust, shall be severable, shall not
affect any other rights to which any Trustee or officer may now or hereafter be
entitled, shall continue as to a person who has ceased to be such Trustee or
officer 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 Trustees and
officers may be entitled by contract or otherwise under law.
Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in the next to the last
paragraph of this Article 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 Article, 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
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(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 Article, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include without limitation, attorney's fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
SHAREHOLDERS
Section 2. In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
shareholder of the Trust or of a particular Series and not because of his or her
acts or omissions or for some other reason, the Shareholder or former
Shareholder (or his or her 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 to be held harmless from and
indemnified against all loss and expenses arising from such liability, but only
out of the assets of the particular Series of which he or she is or was a
Shareholder.
ARTICLE IX
MISCELLANEOUS
TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE
Section 1. All persons extending credit to, contracting with or having
any claim against the Trust or a particular series or class of Shares thereof
shall look only to the assets of the Trust, the assets of that particular series
the assets or attributable to that particular class, as the case may be 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. Nothing in this
Declaration of Trust 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 the office of Trustee.
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
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file with the Secretary of the Commonwealth of Massachusetts and shall recite
that the same was executed or made by or on behalf of the Trust or 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, or upon the assets belonging to the relevant Series or attributable
to the relevant class of Shares for the benefit of which the Trustees have
caused the note, land, content, instrument, certificate or undertaking to be
issued or made, and may contain such further recital as he, she or they may deem
appropriate, but the omission of any such recital shall not operate to bind any
Trustees or Trustee or officers or officer or Shareholders or Shareholder or any
other person individually.
TRUSTEES' GOOD FAITH ACTION, EXPERT ADVICE; NO BOND OR SURETY
Section 2. The exercise by the Trustees of their powers and discretion
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her 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, 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 shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES
Section 3. 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.
DURATION AND TERMINATION OF TRUST
Section 4. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote of
Shareholders holding at least 66 2/3% of the Shares of each Series entitled to
vote and voting separately by Series or by the Trustees by written notice to the
Shareholders. Any series or class of Shares may be terminated at any time by
vote of at least 66 2/3% of the Shares of such series or class entitled to vote
or by the Trustees by written notice to the Shareholders of such series or
class. Upon termination of the Trust or of any one or more series or classes of
Shares, after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated, of the Trust or of the
particular series or class as may be determined by the Trustees, the Trust
shall, in accordance with such procedures as the Trustees consider appropriate,
reduce the remaining assets to distributable form in cash or Shares or other
securities, or any combination
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thereof, and distribute the proceeds to the Shareholders of the series or class
involved, ratably according to the number of Shares of such series or class held
by the several Shareholders of such
series or class on the date of termination.
Section 5. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trust with the Secretary of the Commonwealth of
Massachusetts and with the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer 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 of the Trust to be a copy of this
instrument or of any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as part hereof or control or affect the
meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
MERGER, CONSOLIDATION AND SALE OF ASSETS
Section 6. Any one or more series of the Trust may, either as the
successor, survivor or non-survivor, (1) consolidate or merge with one or more
other trusts, partnerships, associations or corporations, including any series
or class thereof, organized under the laws of the Commonwealth of Massachusetts
or any other state of the United States; or (2) transfer a substantial portion
of its assets to one or more other trusts, partnerships, associations or
corporations, including any series or class thereof, organized under the laws of
the Commonwealth of Massachusetts or any other state of the United States, any
such consolidation, merger or transfer to be upon such terms and conditions as
are specified in an agreement and plan of reorganization authorized and approved
by the Trustees and entered into by the relevant series in connection therewith.
Any such consolidation, merger or transfer may be authorized by vote of a
majority of the Trustees then in office without the approval of shareholders of
any series.
INCORPORATION, REORGANIZATION
Section 7. The Trustees may cause to be organized or assist in organizing
a corporation or corporations under the laws of any jurisdiction, or any other
trust, unit investment trust, partnership, association or other organization to
take over the assets of any one or more series of the Trust or to carry on any
business in which such series of the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer such assets to any such corporation,
trust, partnership, association or organization in exchange for the shares or
securities thereof or otherwise, and to lend money to, subscribe for the shares
or securities of, and enter into any contracts with any such corporation, trust,
partnership, association or organization in which the
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Trust holds or is about to acquire shares or any other interest. Subject to
Section 6 of this Article IX, the Trustees may also cause a merger or
consolidation between such series of the Trust or any successor thereto and any
such corporation, trust, partnership, association or other organization if and
to the extent permitted by law.
APPLICABLE LAW
Section 8. The Trust shall be of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust. This
Declaration of Trust is to be governed by and construed and administered
according to the laws of said Commonwealth.
AMENDMENTS
Section 9. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by a vote or written consent of Shareholders, except that an amendment
which 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
or written consent of the Shareholders of each series or classes affected and no
vote of Shareholders of a series or classes not affected shall be required.
Amendments having the purpose of changing the name of the Trust or of supplying
any omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision contained herein shall not require
authorization by Shareholder vote.
IN WITNESS WHEREOF, the undersigned being the sole Trustee of the Trust,
has executed this document this 1st day of June, 1998.
/s/ F. Brian Cerini
-------------------
F. Brian Cerini
Sole Trustee
790 East Colorado Boulevard, 9th Floor
Pasadena, California 91101
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BY-LAWS
OF
THE WORLDWIDE INDEX FUNDS
SECTION 1. AGREEMENT AND DECLARATION OF TRUST AND PRINCIPAL OFFICE
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Worldwide Index Funds, a Massachusetts
business trust established by the Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located at 790 East Colorado Boulevard, 9th Floor, Pasadena, California
91101.
SECTION 2. SHAREHOLDERS
2.1 Annual Meeting. The Trust will not hold annual meetings of the
shareholders.
2.2 Special Meetings. A special meeting of the Shareholders of the Trust or of
any series or class may be called at any time by the Trustees, by the
President or such other person or persons as may be specified in these
By-Laws, and held from time to time for the purpose of taking action upon
any matter requiring the vote or the authority of the Shareholders of the
Trust or any series or class as herein provided or upon any other matter
deemed by the Trustees to be necessary or desirable. Each call of a
meeting shall state the place, date, hour and purposes of the meeting. If
the Trustees shall fail to call or give notice of any meeting of
Shareholders for a period of thirty days after written application by
Shareholders holding at least 10% of the Shares then outstanding
requesting a meeting to be called for a purpose requiring action by the
Shareholders as provided herein, then Shareholders holding at least 10% of
the Shares then outstanding may call and give notice of such meeting, and
thereupon the meeting shall be held in the manner provided for herein in
case of call thereof by the Trustees. Notice of a meeting need not be
given to any Shareholder if a written waiver of notice, executed by him or
her before or after the meeting, is filed with the records of the meeting,
or to any Shareholder who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him or her.
2.3 Place of Meetings. All meetings of the shareholders shall be held at such
place within the United States as shall be designated by the Trustees or
the President of the Trust.
2.4 Notice of Meetings. A written notice of each meeting of shareholders,
stating the place, date and hour and the purposes of the meeting, shall be
given to each shareholder entitled to vote thereat by leaving such notice
with him or at his residence or usual place of
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business or by mailing it, postage prepaid, and addressed to such
shareholder at his address as it appears in the records of the Trust at
least seven days before the meeting. Such notice shall be given by the
Secretary or an Assistant Secretary or by an officer designated by the
Trustees. No notice of any meeting of shareholders need be given to a
shareholder if a written waiver of notice, executed before or after the
meeting by such shareholder or his attorney thereunto duly authorized, is
filed with the records of the meeting.
2.5 Voting Power. Each whole Share held entitles the holder of record to one
vote as to any matter on which the holder is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote.
There shall be no cumulative voting in the election of Trustees. Shares
may be voted in person or by proxy.
2.6 Quorum and Required Vote. A majority in interest of the Shares entitled to
vote shall be a quorum for the transaction of business at a Shareholders'
meeting, except that where any provision of law or of the Declaration of
Trust permits or requires that holders of any series or class shall vote
as a series or class, then a majority in interest of the Shares of that
series or class entitled to vote shall be necessary to constitute a quorum
for the transaction of business by that series or class. Any lesser
number, however, shall be sufficient for adjournments. Any adjourned
session or sessions may be held within a reasonable time after the date
set for the original meeting without the necessity of further notice.
Except when a larger vote is required by law, or by any provisions of the
Declaration of Trust or these By-Laws, a majority in interest of the
Shares voted on any matter shall decide such matter and a plurality shall
elect a Trustee, provided that where any provision of law or of this
Declaration of Trust permits or requires that the holders of any series or
class shall vote as a series or class, then a majority in interest of the
Shares of that series or class voted on the matter shall decide that
matter insofar as that series or class is concerned.
A majority in interest shall mean more than 50 % or more of total votes
represented by all shares entitled to vote and present at the meeting
either in person or by proxy.
2.7 Ballots. No ballot shall be required for any election unless requested by
a shareholder present or represented at the meeting and entitled to vote
in the election.
2.8 Proxies. Shareholders entitled to vote may vote either in person or by
proxy in writing dated not more than six months before the meeting named
therein, which proxies shall be filed with the Secretary or other person
responsible to record the proceedings of the meeting before being voted.
Unless otherwise specifically limited by their terms, such proxies shall
entitle the holders thereof to vote at any adjournment of such meeting but
shall not be valid after the final adjournment of such meeting.
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A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to the
exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall rest on
the challenger.
2.9 Action by Written Consent. Any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger vote as shall be required by any provision of the
Declaration of Trust or these By-Laws) consent to the action in writing
and such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote
taken at a meeting of Shareholders.
SECTION 3. TRUSTEES
3.1 Regular Meetings. Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees. A
regular meeting of the Trustees may be held without call or notice
immediately after and at the same place as the annual meeting of the
shareholders.
3.2 Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting, when called by the
Chairman of the Board, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the
Secretary or an Assistant Secretary or by the officer or one of the
Trustees calling the meeting.
3.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least 48 hours before the meeting or by telegram,
facsimile, or overnight courier service at least 24 hours before the
meeting addressed to the Trustee at his or her usual or last known
business or residence address or to give notice to him or her in person or
by telephone or video at least 24 hours before the meeting. Notice of a
meeting need not be given to any Trustee if a written waiver of notice,
executed by him or her before or after the meeting, is filed with the
records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him
or her. Neither notice of a meeting nor a waiver of a notice need specify
the purposes of the meeting.
3.4 Quorum. At any meeting of the Trustees one-third of the Trustees then in
office shall constitute a quorum; provided, however, a quorum shall not be
less than two. Any meeting may be adjourned from time to time by a
majority of the votes cast upon the
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question, whether or not a quorum is present, and the meeting may be held
as adjourned without further notice.
3.5 Committees. The Trustees may appoint from their number and from among the
Trust's officers an executive committee and other committees, each of
which shall consist of not less than Trustees. Except as the Trustees may
otherwise determine, any such committee may make rules for conduct of its
business. A committee shall have and may exercise all the power and
authority of the Board with respect to all matters other than as set forth
in 3.6 of this Section 3.
3.6 Limitation of Committee Powers. No committee of the Board shall have power
or authority to:
(a) recommend to shareholders any action requiring authorization of
shareholders pursuant to statute or the Agreement and Declaration of
Trust;
(b) approve or terminate any contract with an investment adviser or
principal underwriter, as such terms are defined in the Investment
Company Act of 1940 ("1940 Act"), or take any other action required
to be taken by the Board of Trustees by the 1940 Act;
(c) amend or repeal these Bylaws or adopt new Bylaws;
(d) declare dividends or other distributions or issue capital stock of
the Trust; and
(e) approve any merger, division or share exchange which does not
require shareholder approval.
3.7 Committee Meetings and Appointments. One-third, but not less than two
members, of the members of any committee shall be present in person at any
meeting of such committee in order to constitute a quorum for the
transaction of business at such meeting, and the act of a majority present
shall be the act of such committee. The Board may designate a chairman of
any committee and such chairman or any two members of any committee may
fix the time and place of its meetings unless the Board shall otherwise
provide. In the absence or disqualification of any member or any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Trustees to act at
the meeting in the place of any such absent or disqualified member. The
Board shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members, to
replace any absent or disqualified member, or to dissolve any such
committee.
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All committees shall keep written minutes of their proceedings and shall
report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; if third parties shall not be
prejudiced by such revision or alteration.
3.8 Presence through Communications Equipment. Except as required by law, the
Board and any committee may, except as otherwise required by law, the
Agreement and Declaration of Trust, or these By-laws, hold any meeting by
means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each
other at the same time. Participation by such means shall constitute
presence in person at such meeting.
SECTION 4. OFFICERS AND AGENTS
4.1 Enumeration; Qualification. The officers of the Trust shall be a
President, a Treasurer, a Secretary and such other officers, if any, as
the Trustees from time to time may in their discretion elect or appoint.
The Trust may also have such agents, if any, as the Trustees from time to
time may in their discretion appoint. Any officer may be, but none need
be, a Trustee or shareholder. Any two or more offices may be held by the
same person.
4.2 Powers. Subject to the other provisions of these By-Laws, each officer
shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly
incident to his or her office as if the Trust were organized as a
Massachusetts business corporation and such other duties and powers as the
Trustees may from time to time designate.
4.3 Election. The President, the Treasurer and the Secretary shall be elected
annually by the Trustees. Other officers, if any, may be elected or
appointed by the Trustees at any time.
4.4 Tenure. The President, the Treasurer, the Secretary, and any other
officers elected by the Trustees shall hold office until their respective
successors are chosen and qualified, or in each case until he or she
sooner dies, resigns, is removed or becomes disqualified. Each officer
shall hold office and each agent shall retain his or her authority at the
pleasure of the Trustees.
4.5 President and Vice Presidents. The President shall be the chief executive
officer of the Trust. The President shall, subject to the control of the
Trustees, have general charge and supervision of the business of the
Trust. Any Vice President shall have such duties and powers as shall be
designated from time to time by the Trustees.
4.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected,
he or she shall have the duties and powers specified in these By-Laws and
have such other duties and powers as may be determined by the Trustees.
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4.7 Treasurer and Assistant Treasurer. The Treasurer shall be the chief
financial officer of the Trust and subject to any arrangement made by the
Trustees with a bank or trust company or other organization as custodian
or transfer or shareholder services agent, shall be in charge of its
valuable papers and shall have such other duties and powers as may be
designated from time to time by the Trustees or by the President. If at
any time there shall be no Assistant Treasurer, the Treasurer shall also
be the chief accounting officer of the Trust and shall have the duties and
powers prescribed the Trust and shall have the duties and powers
prescribed herein for the Assistant Treasurer. Any Assistant Treasurer
shall have such duties and powers as shall be designated from time to time
by the Trustees.
The Assistant Treasurer, if any be elected, shall be the chief accounting
officer of the Trust and shall be in charge of its books of account and
accounting records. The Assistant shall be responsible for preparation of
financial statements of the Trust and shall have such other duties and
powers as may be designated from time to time by the Trustees or the
President.
4.8 Secretary and Assistant Secretaries. The Secretary shall record all
proceedings of the shareholders and the Trustees in books to be kept
therefor, which books shall be kept at the principal office of the Trust
or such other location designated by the Board. In the absence of the
Secretary from any meeting of shareholders or Trustees, an Assistant
Secretary, or if there be none or he or she is absent, a temporary clerk
chosen at the meeting shall record the proceedings thereof in the
aforesaid books.
SECTION 5. RESIGNATION AND REMOVALS
Any Trustee or officer may resign at any time by delivering his or her
resignation in writing to the Chairman of the Board, the President, the
Treasurer or the Secretary or to a meeting of the Trustees. The Trustees may
remove any officer elected by them with or without cause by the vote of a
majority of the Trustees then in office. Except to the extent expressly provided
in a written agreement with the Trust, no Trustee or officer resigning, and no
officer removed shall have any right to any compensation for any period
following his or her resignation or removal, or any right to damages on account
of such removal.
SECTION 6. VACANCIES
A vacancy in any office may be filled at any time. Each successor shall hold
office for the unexpired term, and in the case of the President, the Treasurer
and the Secretary, until his or her successor is chosen and qualified, or in
each case until he or she sooner dies, resigns, is removed or becomes
disqualified.
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SECTION 7. SHARES OF BENEFICIAL INTEREST
In lieu of issuing certificates for shares, the Trustees or the transfer or
shareholder services agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
SECTION 8. RECORD DATE
The Trustees may fix in advance a time, which shall not be more than 90 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or making of any other distribution to shareholders, as the record
date for determining the shareholders having the right to notice and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on such record
date shall have such right, notwithstanding any transfer of shares on the books
of the Trust after the record date.
SECTION 9. SEAL
The seal of the Trust shall, subject to alteration by the Trustees, consist of a
flat-faced circular die with the word "Massachusetts", together with the name of
the Trust and the year of its organization, cut or engraved thereon; but, unless
otherwise required by the Trustees, the seal shall not be necessary to be placed
on, and its absence shall not impair the validity of, any document, instrument
or other paper executed and delivered by or on behalf of the Trust.
SECTION 10. EXECUTION OF PAPERS
Except as the Trustees may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers, contracts,
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the Trust shall be signed, and any transfers of securities standing in the name
of the Trust shall be executed, by the President or by one of the Vice
Presidents or by the Treasurer or by whomsoever else shall be designated for
that purpose by the vote of the Trustees and need not bear the seal of the
Trust.
SECTION 11. FISCAL YEAR
The fiscal year of the Trust shall end on such date in each year as the Trustees
shall from time to time determine.
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SECTION 12. PROVISIONS RELATING TO THE CONDUCT OF THE TRUST'S BUSINESS
12.1 Dealings with Affiliates. No officer, Trustee or agent of the Trust and no
officer, director or agent of any investment adviser shall deal for or on
behalf of the Trust with himself as principal or agent, or with any
partnership, association or corporation in which he has a material
financial interest; provided that the foregoing provisions shall not
prevent (a) officers and Trustees of the Trust from buying, holding or
selling shares in the Trust, or from being partners, officers or directors
of or financially interested in any investment adviser to the Trust or in
any corporation, firm or association which may at any time have a
distributor's or principal underwriter's contract with the Trust; (b)
purchases or sales of securities or other property, if such transaction is
permitted by or is exempt or exempted from the provisions of the
Investment Company Act of 1940 or any Rule or Regulation thereunder, and
if such transaction does not involve any commission or profit to any
securities dealer who is, or one or more of whose partners, shareholders,
officers or directors is, an officer or Trustee of the Trust or an officer
or director of the investment adviser, administrator or principal
underwriter of the Trust; (c) employment of legal counsel, registrar,
transfer agent, shareholder services, dividend disbursing agent or
custodian who is, or has a partner, stockholder, officer or director who
is, an officer or Trustee of the Trust; or (d) sharing statistical,
research and management expenses, including rent, personnel and services,
with any other company in which an officer or Trustee of the Trust is an
officer or director or financially interested.
12.2 Dealing in Securities of the Trust. The Trust, the investment adviser, any
corporation, firm or association which may at any time have an exclusive
distributor's or principal underwriter's contract with the Trust (the
"distributor") and the officers and Trustees of the Trust and officers and
directors of every investment adviser and distributor, shall not take long
or short positions in the securities of the Trust, except that:
(a) the distributor may place orders with the Trust for its shares
equivalent to orders received by the distributor;
(b) shares of the Trust may be purchased at not less than net asset
value for investment by the investment adviser and by officers and
directors of the distributor, investment adviser, or the Trust and
by any trust, pension, profit-sharing or other benefit plan for such
persons, no such purchase to be in contravention of any applicable
state or federal requirement.
12.3 Limitation on Certain Loans. The Trust shall not make loans to any
officer, Trustee or employee of the Trust or any investment adviser or
distributor or their respective officers, directors or partners or
employees.
12.4 Custodian. All securities and cash owned by the Trust shall be maintained
in the custody of one or more banks or trust companies having (according
to its last published report) not
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less than two million dollars ($2,000,000) aggregate capital, surplus and
undivided profits (any such bank or trust company is hereinafter referred
to as the "custodian"). The custodian may deliver securities as collateral
on borrowings effected by the Trust, provided that such delivery shall be
conditioned upon receipt of the borrowed funds by the custodian except
where additional collateral is being pledged on an outstanding loan, and
the custodian may deliver securities lent by the Trust against receipt of
initial collateral specified by the Trust. Subject to such rules,
regulations and orders, if any, as the Securities and Exchange Commission
may adopt, the Trust may, or may permit any custodian to, deposit all or
any part of the securities owned by the Trust in a system for the central
handling of securities operated by the Federal Reserve Banks, or
established by a national securities exchange or national securities
association registered with said Commission under the Securities Exchange
Act of 1934, or such other person as may be permitted by said Commission,
pursuant to which system all securities of any particular class or series
of any issue deposited with the system are treated as fungible and may be
transferred or pledged by bookkeeping entry, without physical delivery of
such securities.
The Trust shall upon the resignation or inability to serve of its
custodian or upon change of the custodian:
(a) in the case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian;
(b) require that the cash and securities owned by this corporation be
delivered directly to the successor custodian; and
(c) in the event that no successor custodian can be found, submit to the
shareholders, before permitting delivery of the cash and securities
owned by the Trust otherwise than to a successor custodian, the
question whether or not the Trust shall be liquidated or shall
function without a custodian.
12.5 Limitations on Investment. Each series of Shares may not invest in
securities other than those described in the Trust's then current
prospectus as appropriate for the series of Shares for which such
securities are being purchased.
12.6 Determination of Net Asset Value. Determinations of net asset value made
in good faith shall be binding on all parties concerned.
The term "net asset value" with respect to shares of any series shall
mean that amount by which the assets of that series exceed its
liabilities, all as determined by or under the direction of the Trustees.
Such value shall be determined on such days and at such times as the
Trustees may determine. Such determination shall be made with respect to
securities for which market quotations are readily available, at the
market value of such securities; and with respect to other securities and
assets, at the fair value as determined in
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good faith by the Trustees, provided, however, that the Trustees, without
Shareholder approval, may alter the method of appraising portfolio
securities insofar as permitted under the 1940 Act and interpretations
thereof adopted or issued by the Commission or insofar as permitted by any
order of the Commission. The Trustees may delegate any powers and duties
under this Section 12.6 with respect to appraisal of assets and
liabilities. At any time the Trustees may cause the value per Share last
determined to be determined again in similar manner and may fix the time
when such redetermined value shall become effective.
12.7 Reports to Shareholders; Distributions from Realized Gains. The Trust
shall send to each shareholder of record at least annually a statement of
the condition of the Trust and of the results of its operation, containing
all information required by applicable laws or regulations.
SECTION 13. AMENDMENTS
These By-Laws may be amended or repealed, in whole or in part, by a majority of
the Trustees then in office at any meeting of the Trustees, or by one or more
writings signed by such majority.
Adopted this 1st day of June, 1998.
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