WORLDWIDE INDEX FUNDS, 497, 1998-09-11

WORLDWIDE INDEX FUNDS
497, 1998-09-11

Previous: MJD COMMUNICATIONS INC, S-4/A, 1998-09-11

Next: CONTINENTAL CAPITAL & EQUITY CORP, SB-2/A, 1998-09-11

<PAGE> 1
WORLDWIDE INDEX FUNDS(SM)

PROSPECTUS September 1, 1998
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
----------------------

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.

[WORLDWIDE INDEX FUNDS LOGO]

P.O. BOX 9698 PROVIDENCE, RI 02940 TOLL-FREE: 1-877-463-9363
www.worldwideindexfunds.com
<PAGE> 2

[WORLDWIDE INDEX FUNDS LOGO]
<PAGE> 3

TABLE OF CONTENTS

- ------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT SUMMARY:
INVESTMENTS, STRATEGIES AND RISKS 1
- ----------------------------------------
FEES AND EXPENSES OF THE FUNDS 4
- ----------------------------------------
COUNTRY INDEX FUNDS 5
- ----------------------------------------
COUNTRY INDEX FUND LMI DESCRIPTIONS 6
- ----------------------------------------
FUNDS OF INDEX FUNDS 7
- ----------------------------------------
ADDITIONAL RISK CONSIDERATIONS 8
- ----------------------------------------
HOW TO INVEST IN THE FUNDS 10
- ----------------------------------------
REDEMPTIONS 13
- ----------------------------------------
DIVIDENDS AND DISTRIBUTIONS 14
- ----------------------------------------
TAX INFORMATION 14
- ----------------------------------------
MANAGEMENT OF THE FUNDS 15
- ----------------------------------------
ADDITIONAL FUND INFORMATION BACK COVER
- ----------------------------------------
</TABLE>

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 that reasonably corresponds with local
market equity returns. Each Fund seeks to track as closely as possible the
perfor- mance of a widely used index of local market equity securities (the
"LOCAL MARKET INDEX"(SM) or "LMI"(SM)) for each respective country, and seeks
to reduce or eliminate the impact of currency fluctuation.

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 that reasonably corresponds with local market equity returns of
the group of countries in which the underlying Country Index Funds invest, and
seek to reduce or eliminate the impact of currency fluctuation. 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.

1
<PAGE> 4

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.

"Related Securities" may be options or other securities based upon an underlying
futures contract or forward contract.

Once a Country Index Fund has reached a sufficient asset level, it will invest
at least 65% of its total assets in the stocks included in its respective LMI.
Until that time, any assets not invested in those stocks will be invested in
some or all of the intruments listed above.

The Funds will generally invest in all the underlying securities within each
LMI and in the same proportion as the LMI. Nonetheless, the Funds may not
invest in all of the securities in, or in the same proportion as, an LMI if the
securities: (i) make up a small percentage of the total LMI and LMI Investment
Advisors LLC (the "Advisor") and/or State Street Global Advisors (the
"Sub-Advisor") believe that such securities will have no material effect on a
Fund's performance; or (ii) if investing in the securities would be
inconsistent with Federal tax diversification requirements. A Fund may hold a
representative sampling of its LMI using "portfolio sampling" which considers
each stock based on its capitalization, industry and investment
characteristics.

The Country Index Funds will hedge local currencies against the U.S. Dollar in
an attempt to significantly reduce or eliminate the impact of currency
fluctuation.

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 its assets in I Class shares of the Spain Index Fund. The Funds of
Index Funds will reallocate their investments on a continuous basis. The Funds
of Index Funds use country capitalization figures published by the Financial
Times when calculating allocation percentages under the Allocation Method.

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.

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:

2
<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 these foreign markets. 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. In addition, 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. The Funds will seek to hedge fully against
this risk at all times but cannot guarantee that such a strategy will be
successful.

Investing in foreign companies may involve risks not typically associated with
investing in U.S. companies. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions and custodial fees, generally
are higher than for U.S. investments.

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, other than the Japan, Australia and United Kingdom
Index Funds, are "non-diversified" mutual funds. This means that each
non-diversified Fund may invest a significant portion of its assets in
securities issued by a few companies which may make the Fund susceptible to the
risks associated with those particular companies, 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 will
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. (A Fund will not "concentrate" its investments if doing so
will cause the Fund to lose its status as a regulated investment company
("RIC") under the Internal Revenue Code.) These investment strategies may cause
a Fund's net asset value or share price to be more volatile than that of a
"diversified" mutual fund, such as the Japan, Australia, United Kingdom,
European and International Index Funds.

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").

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. 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.

BECAUSE INVESTING IN THESE FUNDS INVOLVES CERTAIN RISKS, YOU COULD LOSE MONEY.

3
<PAGE> 6

FEES AND EXPENSES OF THE FUNDS

This table describes the highest fees and expenses that you could currently be
charged 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 payable to the
respective Fund on any purchase into a Fund. THESE PURCHASE FEES ARE NOT SALES
CHARGES, BUT ARE RETAINED BY THE RESPECTIVE FUND FOR THE BENEFIT OF ALL
SHAREHOLDERS. Purchase fees are intended to cover brokerage fees, other costs
associated with purchasing or selling portfolio securities and other
transaction-related expenses. 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 reflect the application of purchase fees,
but do not reflect voluntary fee waivers and/or expense reimbursements from the
Advisor.

SHAREHOLDER FEES

<TABLE>
<CAPTION>
R CLASS I CLASS
-----------------------------------------------------
Country Funds of Country Funds of
Index Funds Index Funds Index Funds Index Funds
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed
on Purchase (as a percentage of offering
price).................................. None None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends (as a percentage of
net asset value)........................ None None None None
Purchase Fee+........................... .50% .50% .50% .50%
</TABLE>

ANNUAL FUND OPERATING EXPENSES++
(expenses that are deducted from Fund assets)

<TABLE>
<CAPTION>
R CLASS I CLASS
-----------------------------------------------------
Country Funds of Country Funds of
Index Funds Index Funds Index Funds Index Funds
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees......................... .50% 0.0% .50% 0.0%
Other Expenses*......................... .75% 1.30% .50% 1.05%
Underlying Fund Expenses.............. None 1.00% None 1.00%
Miscellaneous......................... .75% .30% .50% .05%
- -----------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES.... 1.25% 1.30% 1.00% 1.05%
- -----------------------------------------------------------------------------------------------
</TABLE>

+ The purchase fee is deducted from all purchases, but not from
reinvested dividends or capital gains distributions.

++ THE ADVISOR COMMITS, BY WAIVING ITS FEES AND REIMBURSING EXPENSES AS
NECESSARY, TO LIMIT EACH COUNTRY INDEX FUND'S TOTAL EXPENSE RATIO AND
EACH FUNDS OF INDEX FUNDS' TOTAL EXPENSE RATIO, INCLUDING THE
UNDERLYING FUND EXPENSES, 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, WITHOUT NOTICE.

* 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.

4
<PAGE> 7

EXAMPLE

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 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 $177 $389 $151 $311
Funds of
Index Funds** $182 $397 $157 $317
</TABLE>

** 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.

COUNTRY INDEX FUNDS

The Country Index Funds and Corresponding LMIs

<TABLE>
<S> <C>
COUNTRY INDEX FUND LOCAL MARKET INDEX ("LMI")(SM)
- -----------------------------------------------------------------------------------------
Australia Index Fund All Ordinaries Index ("AOI")
- -----------------------------------------------------------------------------------------
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")
- -----------------------------------------------------------------------------------------
</TABLE>

5
<PAGE> 8

COUNTRY INDEX FUND LMI DESCRIPTIONS

The AUSTRALIA INDEX FUND seeks to track the All Ordinaries Index ("AOI") which
is a capitalization-weighted index of 310 common stocks listed on the
Australian Stock Exchange. As of June 30, 1998, the three stocks representing
the highest approximate percentage of capitalization in the index are National
Australia Bank, Ltd. (7.35%), Broken Hill Proprietary Company, Ltd. (6.43%),
and News Corporation, Ltd. (5.64%).

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 June
30, 1998, the three stocks representing the highest approximate percentage of
capitalization in the index are France Telecom (9.87%), AXA-UAP (6.96%), and
L'Oreal (5.90%).

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 June 30, 1998, the three stocks representing
the highest approximate percentage of capitalization in the index are Allianz,
AG (10.54%), SAP, AG (8.58%),
and Daimler-Benz (7.24%).

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
June 30, 1998, the three stocks representing the highest approximate percentage
of capitalization in the index are HSBC Holdings, PLC (30.07%), Hong Kong
Telecommunications (10.38%), and Hutchison Whampoa (8.86%).

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 June 30, 1998, the three stocks representing the highest
approximate percentage of capitalization in the index are ENI, Spa (13.90%),
Telecom Italia (11.70%), and Telecom Italia Mobile, Spa (12.32%).

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 June 30, 1998, the three stocks
representing the highest approximate percentage of capitalization in the index
are Sony Corporation (8.05%), Honda Motor Co. (3.27%), and Fuji Photo Film
(3.23%).

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 June 30,
1998, the three stocks representing the highest approximate percentage of
capitalization in the index are AEGON (12.98%), ING Groep NV (11.32%), and
Unilever NV (10.76%).

The SPAIN INDEX FUND seeks to track the IBEX-35 ("IBEX") which is a
capitalization-weighted index of the 35 most liquid Spanish

6
<PAGE> 9

stocks traded on the Continuous Markets. As of June 30, 1998, the three stocks
representing the highest approximate percentage of capitalization in the index
are Telefonica de Espana (21.36%), Banco de Santander (12.93%), and Endesa SA
(9.60%).

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 June 30, 1998, the
three stocks representing the highest approximate percentage of capitalization
in the index are Ericsson, LM (25.59%), Astra, AB (11.69%), and Hennes &
Mauritz (5.76%).

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 June 30, 1998, the three stocks
representing the highest approximate percentage of capitalization in the index
are Novartis (17.03%), Union Bank Switzerland (16.44%), and Nestle, SA
(15.68%).

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 June 30, 1998, the three stocks
representing the highest approximate percentage of capitalization in the index
are Glaxo Wellcome (6.12%), British Telecom (5.05%), and British Petroleum
(4.61%).

For specific information on each country, see "The Funds and Country Specific
Economic Considerations" in the Statement of Additional Information ("SAI").

THE COUNTRY INDEX FUNDS ARE NOT SPONSORED, ENDORSED, SOLD, OR PROMOTED BY THEIR
RESPECTIVE LMIs.

<TABLE>
<S> <C> <C>
FUNDS OF INDEX FUNDS
-----------------------------------------------------------------------------------------
FUNDS OF UNDERLYING COUNTRY INDEX FUNDS
INDEX FUNDS (and approximate allocation percentage as of June 30, 1998)
-----------------------------------------------------------------------------------------
EUROPE - France Index Fund (13.2%) - Spain Index Fund (4.7%)
INDEX FUND - Germany Index Fund (15.4%) - Sweden Index Fund (4.9%)
- Italy Index Fund (6.7%) - Switzerland Index Fund (10.8%)
- Netherlands Index Fund - United Kingdom Index Fund (35.5%)
(8.7%)
-----------------------------------------------------------------------------------------
INTERNATIONAL - Australia Index Fund (2.5%) - Netherlands Index Fund (6.2%)
INDEX FUND - France Index Fund (9.5%) - Spain Index Fund (3.4%)
- Germany Index Fund (11.0%) - Sweden Index Fund (3.5%)
- Hong Kong Index Fund (2.2%) - Switzerland Index Fund (7.8%)
- Italy Index Fund (4.8%) - United Kingdom Index Fund (25.4%)
- Japan Index Fund (23.8%)
</TABLE>

7
<PAGE> 10

ADDITIONAL RISK CONSIDERATIONS

NON-DIVERSIFICATION -- The Country Index Funds, other than the Japan, Australia
and United Kingdom Index Funds, are classified as "non-diversified" for
purposes of the Investment Company Act of 1940 (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 ("RIC") 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 will
necessarily "concentrate" its investments in companies engaged in the same or
similar industries if the underlying LMI represents a concentration in those
industries, unless such "concentration" would affect a Fund's qualification as
a RIC.

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 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
8
<PAGE> 11

performance may not be the same as the performance of its respective LMI.

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 may 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 LMIs 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 stan-

9
<PAGE> 12

dards 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.

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.
Consequently, 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.

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.

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

10
<PAGE> 13

trading in any of the relevant foreign markets, fair value prices may be
determined by the Advisor, 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 New York Stock Exchange (the "NYSE") 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 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 First Data Distributors, Inc. (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.

11
<PAGE> 14

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
Application 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 form.

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 form. 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.

Because of the risks associated with common stock investments, the Funds 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 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 4:00 p.m., Eastern Time (1:00 p.m. Pacific
Time), in order to be processed for that Business Day's net asset value. Fill
out an Account Application and make a check payable to "WorldWide Index Funds."
Mail the check, along with the completed application to:

WORLDWIDE INDEX FUNDS
P.O. BOX 9698
PROVIDENCE, RI 02940

"Good form" means that all information, signatures, documents and payments
accompany the completed application. Federal law requires you to provide a
certified tax identification number when you open an account. The Trust
reserves the right to reject or delay the processing of your Account
Application if it is not received in good form.

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. Please call the Trust toll-free at 1-877-463-9363 for
specific instructions. For initial investments you will be asked to fill out an
Account Application and fax the completed application in good form, along with a
request for a shareholder account number, to the Trust. For both initial and
subsequent investments, you must request that your bank

12
<PAGE> 15

wire transfer the purchase amount using the following instructions:

BOSTON SAFE DEPOSIT AND TRUST COMPANY
ABA 0110-0123-4
WORLDWIDE INDEX GLOBAL ACCOUNT
#17-749-0
[YOUR NAME]
REFERENCE SHAREHOLDER ACCOUNT NO.:
[YOUR SHAREHOLDER ACCOUNT NUMBER]
BOSTON, MA

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 and subsequent investments in the
Funds must be received in good form at the Trust, on any Business Day by 4:00
p.m., Eastern Time in order to be processed at that Business Day's net asset
value. An initial Account Application that is faxed to the Trust does not
constitute a purchase order until such 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 from the purchase
date.

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 WorldWide Index Funds, P.O.
Box 9698, Providence, RI 02940, 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) 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.

13
<PAGE> 16

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 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 Financial 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.

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

14
<PAGE> 17

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 (but not both) an itemized deduction
against gross income or a foreign tax credit against U.S. income taxes. The
Fund will report to shareholders about the status of such "pass through" taxes
on an annual basis.

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

LMI Investment Advisors LLC (the "Advisor"), a Delaware limited liability
company 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 the Sub-Advisor with the Funds' investment objectives,
policies and limits, as well as with laws and regulations applicable to the
Funds; evaluating 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

15
<PAGE> 18

will receive from each Fund the following management fee:

<TABLE>
<CAPTION>
COUNTRY FUNDS OF
INDEX FUNDS INDEX FUNDS
<S> <C> <C>
Management Fee: .50% .0%
</TABLE>

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 20 years. As of March 31, 1998, the
Sub-Advisor managed assets of approximately $471 billion, including $85 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 following
sub-advisory fee:

<TABLE>
<CAPTION>
COUNTRY FUNDS OF
INDEX FUNDS INDEX FUNDS
<S> <C> <C>
Sub-Advisory Fee: .15% .0%
</TABLE>

16
<PAGE> 19

[WORLDWIDE INDEX FUNDS LOGO]
<PAGE> 20

ADDITIONAL FUND INFORMATION

Additional information about the WorldWide Index Funds is included in a
Statement of Additional Information dated September 1, 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 P.O. Box 9698, Providence, RI 02940. 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 1940 Act
registration number is 811-08805.

LOGO

www.worldwideindexfunds.com
WIFPR(9/98)
<PAGE> 21
STATEMENT OF ADDITIONAL INFORMATION

WORLDWIDE INDEX FUNDS(SM)

P.O. Box 9698
Providence, RI 02940
Toll Free: 1-877-463-9363

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 September 1, 1998. Copies of the Prospectus are available, without charge,
upon request to the Trust at P.O. Box 9698, Providence, RI 02940 or by calling
toll-free, 1-877-463-9363.

The date of this SAI is September 1, 1998.

<PAGE> 22

STATEMENT OF ADDITIONAL INFORMATION

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
THE FUNDS AND COUNTRY SPECIFIC ECONOMIC CONSIDERATIONS.................... 3

ADDITIONAL RISK CONSIDERATIONS ...........................................18

INVESTMENT POLICIES AND OBJECTIVES .......................................19

INVESTMENT TECHNIQUES ....................................................21

INVESTMENT RESTRICTIONS ..................................................27

PORTFOLIO TRANSACTIONS AND BROKERAGE .....................................28

ORGANIZATION OF THE TRUST AND THE FUNDS ..................................31

MANAGEMENT OF THE TRUST ..................................................31

DETERMINATION OF NET ASSET VALUE .........................................35

PERFORMANCE INFORMATION ..................................................36

CALCULATION OF RETURN QUOTATIONS .........................................36

INFORMATION ON COMPUTATION OF YIELD ......................................37

PURCHASE AND REDEMPTION OF SHARES ........................................38

DIVIDENDS, DISTRIBUTIONS, AND TAXES ......................................39

SERVICE PROVIDERS ........................................................43

EXPERTS ..................................................................43
</TABLE>

2
<PAGE> 23

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 "AOI"). 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 AOI; (ii) AOI 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 AOI is a capitalization-weighted index of common stocks listed on the
Australian Stock Exchange. As of June 30, 1998, the top five stocks represented
in the AOI and their approximate proportional percentages are The National
Australia Bank, Ltd. (7.35%), The Broken Hill Proprietary Company, Ltd. (6.43%),
The News Corporation, Ltd. (5.64%), Westpac Banking Corporation (4.37%), and
Telstra Corp. (4.31%).

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.

Economic activity in Australia grew moderately in late 1997 and early 1998.
Asia's economic problems have yet to leave their mark fully on the Australian
economy. Consumer spending was strong, due to the current low interest rate
environment and rising consumer confidence. Inflation remained in check, and
interest-rate sensitive sectors, such as housing continued to benefit from
favorable monetary policy developments. Despite the new right-of-center liberal
national coalition elected to power in March of 1996, unemployment remains at
8.1% as of May, 1998 and growth remains below the 4% pace needed to cut the
jobless rate. The GDP forecasts for 1998 and 1999 are 2.8% and 3.2%,
respectively. Full-time employment is up sharply. Resource companies that export
commodities such as coal, natural gas, and minerals have suffered due to the
weakened Australian dollar, which hit a 3 1/2-year low against the U.S. dollar
in October of 1997.

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 June 30, 1998, the total market capitalization of the Australian equity
markets was approximately US $287.4 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.

3
<PAGE> 24

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 June 30, 1998, the top five stocks represented in the
CAC and their approximate proportional percentages are France Telecom (9.87%),
AXA-UAP (6.96%), L'Oreal (5.90%), Elf Aquitaine (5.55%), and Alcatel Alsthom
(5.38%).

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
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 June 30, 1998, the total market capitalization of the French
equity markets was approximately US $882.6 billion.

France is a leading industrial country. Its large service sectors, 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 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

4
<PAGE> 25

about the French authorities' commitment to cut the budget deficit in line with
the European Monetary Union ("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.

The French GDP grew by 2.5% in 1997, while inflation was 1.2%, the lowest level
seen since the 1950's. The government deficit was 3% of GDP in 1997.
Unemployment, while still high, dropped from 12.5% in April, 1997 to 11.9% in
April, 1998. As employment numbers improved, consumer spending increased, which
led to a significant rise in import consumption. However, foreign demand for
French cars stimulated car exports to record levels. Consumer spending is
expected to continue this trend, acting as the main catalyst for the French
recovery. Additionally, corporate investment has increased dramatically. GDP
growth forecasts for 1998 and 1999 are 2.9% and 2.8%, respectively. Due to
record low inflation together with significant excess capacity, no change is
anticipated in current monetary policy.

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 June 30, 1998, the top five stocks
represented in the DAX and their approximate proportional percentages are
Allianz, AG (10.54%), SAP, AG (8.58%), Daimler-Benz (7.24%), Deutsche Bank
(5.47%), and Muenchener Rue (5.21%).

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
June 30, 1998, the total market capitalization of the Germany equity markets was
approximately US $1,068.4 billion.

5
<PAGE> 26

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. The German economy continued to show signs of
strength in 1997 despite continued labor problems. Unemployment rose to a new
record high in January 1998, at 12.8%, dropping to 11.2% in May. There was
continued unrest among the trade unions, with protest marches taking place
throughout the country.

Rising capacity utilization rates, together with a significant decline in unit
labor costs over the past two years, should produce an increase in employment in
1998 - the first in six years. Domestic demand, both capital and consumer, is
expected to replace exports as the driving force in Germany's economic recovery.
Capital spending has already surged in early 1998 in response to the high rate
of capacity utilization and rising profits. Consumers have been driving a
miniature consumption boom, accelerating purchases of consumer durables. The
Bundesbank clearly signaled that it would take a proactive role in monetary
policy, announcing an M3 money supply target range of 3% to 6% for 1998. M3
money supply includes the money consumers use for ordinary purchases of goods
and services (M1), time deposits, money market funds, overnight repurchase
agreements (M2) and time deposits of more than $100,000 and repurchase
agreements with terms longer than one day. GDP growth forecasts for 1998 and
1999 are 2.6% and 2.8%, respectively. Germany's fiscal health and prosperity
over the next few years will largely depend on the continued growth of
capitalism in eastern Germany.

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 June 30, 1998, the top five stocks represented in the HSI and
their approximate proportional percentages are HSBC Holdings, PLC (30.07%), Hong
Kong Telecommunications (10.38%), Hutchison Whampoa (8.86%), China Telecom
(8.29%), and Cheung Kong (4.9%).

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

6
<PAGE> 27

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 June 30,
1997, the total market capitalization of the Hong Kong equity markets was
approximately US $238.1 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 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.

While it is impossible to pinpoint the economic effects of the transfer of
sovereignty from Britain to China, the transition appeared to have little impact
on the economy. During 1997, Hong Kong's economy felt the effects of the Asian
economic problems. Tourism is suffering from weakened currencies in Southeast
Asia, Korea, and Japan, which historically have accounted for 35% of Hong Kong's
tourism revenue. Decreased tourism has also negatively affected Hong Kong's
retail and hospitality industries. In November 1997, manufacturers saw a 9%
decline in orders from the prior month, with the plastics, electronics and
electrical industries being the hardest hit. At the same time, the printing and
publishing industries recorded an increase in orders of 14%. Climbing
unemployment indicated a slowing economy, edging up to 2.5% in late 1997 and
inflation was also somewhat high

7
<PAGE> 28

at 5.8%. The government raised interest rates in late 1997 to defend the Hong
Kong dollar's peg to the US dollar, as Hong Kong became a target of currency
speculation. While GDP in 1997 grew by 5.5%, the highest growth since 1993, it
fell sharply to -2.8% in the first quarter of 1998.

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 June 30, 1998, the top five stocks represented in
the MIB and their approximate proportional percentages are ENI, SPA (13.90%),
Telecom Italia (11.70%), Telecom Italia Mobile, SPA (12.32%), Generali
Assicurazioni (10.38%), and Fiat, SPA (4.10%).

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 June
30, 1998, the total market capitalization of the Italian equity markets was
approximately US $454.4 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 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

8
<PAGE> 29

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.

As Italy makes its case to join the EMU, real growth in 1997 was 1.5%, with a
strong fourth quarter rate of 2.8%. GDP growth forecasts for 1998 and 1999 are
2.1% and 2.8%, respectively. The budget deficit represented 2.7% of GDP. General
government debt declined in 1997, due to significant privatization revenues and
unexpected tax revenues. Short-run growth in the consumer price index ("CPI")
has continued at an annual rate of approximately 2% for the last five months of
1997, with year on year inflation increasing to 1.6% in December. Industrial
production figures showed growth at the end of 1997, with the year on year
growth rate at 8.1%, up from 4.9% in November. Unemployment remained relatively
constant from June 1997 to June 1998 at around 12%. Due to its growth rate being
the slowest in the European Union, Italy's fiscal policy is expected to be less
restrictive, with the Bank of Italy cutting interest rates and stimulating
economic growth. The Italian lira is strong, stimulated by investor demand for
high-yielding Italian bonds. Rising confidence and real wages are expected to
boost consumer demand, with increased capital spending not far behind.

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 June 30, 1998, the top
five stocks represented in the NKI and their approximate proportional
percentages are Sony Corporation (8.05%), Honda Motor Co. (3.27%), Fuji Photo
Film (3.23%), Takeda Chemical (2.27%), and Toyota Motor (2.17%).

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

9
<PAGE> 30

than that required of U.S. corporations. As of June 30, 1998, the total market
capitalization of the Japanese equity markets was approximately US $2,166.2
billion.

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.

The Japanese economy found no relief in 1997 from the economic struggles it has
experienced for the last seven years. The benchmark Nikkei Stock Average sank
4.2% on November 7, falling below the 16,000-point level for the first time in
more than two years, and it finished the year at a low not seen since 1985. The
decline wiped out unrealized stock gains in the portfolios of seven of Japan's
top 20 banks, fueling a pessimistic outlook on the financial crisis. By the end
of 1997, three major financial institutions had collapsed amidst overwhelming
debt: Sanyo Securities, Hokkaido Takushoku Bank, and Yamaichi Securities.
Yamaichi left behind $23 billion in debt, Japan's largest bankruptcy ever.
Bankruptcies are no longer newsworthy as banks tighten credit and enforce
tougher regulatory requirements. Consumers, anticipating a recession and reeling
from increases in taxes and medical fees, have cut spending considerably. Retail
sales in November of 1997 dropped 4.7% from a year earlier,

10
<PAGE> 31

the largest drop since 1955. Industrial production has also dropped. GDP
forecasts for 1998 and 1999 are -1.4% and 0.05%, respectively. While Asia needs
an economic leader to anchor any future recovery, Japan has been unable to take
on that role, actually cutting new investment in Thailand, Malaysia, Indonesia
and the Philippines by 29% over the summer of 1997. The economic trials of
Japan's neighbors continue to raise concerns over profit levels for the big
Japanese exporters.

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.

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 June 30,
1998, the top five stocks represented in the AEX and their approximate
proportional percentages are Aegon, NV (12.98%), ING Groep, NV (11.32%),
Unilever, NV (10.76%), Konolif (9.02%), and ABN Amro Holdings (8.49%).

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
June 30, 1998, the total market capitalization of the Dutch equity markets was
approximately US $579.1 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.

11
<PAGE> 32

Continuing the growth trend of the last seven years, the Dutch economy grew at a
rate of 3.25% in 1997, with forecasted GDP growth in 1998 and 1999 at 3.6% and
3.4%, respectively. The Netherlands' bid for membership in the EMU is very
likely to be successful, since its economy is admired by its European
counterparts due to its high growth, deficit reduction and low unemployment. The
Netherlands' only significant weakness is its high debt ratio, which was over
60% in 1997, but has been trending down since 1995. The Netherlands' economic
stability is due to the key role of agricultural produce in the export mix,
particularly to Germany. Exports make up almost 55% of the Dutch GDP. However,
1997 saw a sharp increase in demand for imports and a decrease in the export
trade balance due in part to higher domestic consumption and investment
spending. Inflation was about 2.2% for 1997, 0.75% higher than the EU average.
With output growth projected to remain strong, there is upward pressure on
inflation. Moderate wage growth has resulted from cooperation between the
government, trade unions, and employers. Unlike many other European countries,
the Dutch labor market is remarkably flexible, using a deregulated labor market
similar to that of the U.S. while still retaining a European-style social safety
net. Unemployment as of June 1998 was 4.2%, down from 5.8% a year earlier.
Current interest rates are low, but as interest rates in Germany are expected to
climb, forecasts show a modest tightening of monetary policy in the Netherlands
as well.

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 June 30, 1998, the top five stocks
represented in the IBEX and their approximate proportional percentages are
Telefonica de Espana (21.36%), Banco Santander (12.93%), Endesa, SA (9.60%),
Repsol, SA (6.87%), and Banco Central Hispanico (5.75%).

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
June 30, 1998, the total market capitalization of the Spanish equity markets was
approximately US $297.1 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.

12
<PAGE> 33

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.

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 18.9% as of April 1998.

Like many of its European neighbors trying to improve themselves for the EMU,
Spain enjoyed a healthy growth rate of 3.4% in 1997, up from 2.3% in 1996. GDP
forecasts for 1998 and 1999 is 3.8% for both years. This strong showing is
attributable to the private consumption component of the economy, with Spain
being the first European country to achieve a demand-driven recovery. The
combination of 3% employment growth, rising real disposable income, and lower
interest rates were all factors in the increase in consumption. Low interest
rates drove a spending boom on durable goods, and mortgage payments have
decreased, giving homeowners more disposable income. On a quarter-by-quarter
basis, however, consumption is decelerating, raising expectations that inflation
will continue to be low. Unemployment is still the highest in Europe at 20%, yet
consumer confidence is at its highest in years. The deficit has been reduced to
2.6% of GDP, down from 6.6% in 1995, due to economic growth and increased
employment. Strong imports drove a negative net trade balance in the fourth
quarter, although exports are still quite strong. Spain's greatest challenge
will be to increase the flexibility of its labor markets.

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 June 30, 1998, the top
five stocks represented in the OMX and their approximate proportional
percentages are Ericsson, LM (25.59%), Astra, AB (11.69%), Hennes & Mauritz
(5.76%), Foreningssparban (4.83%), and SV Handelsbanken (4.60%).

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

13
<PAGE> 34

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
June 30, 1998, the total market capitalization of the Swedish equity markets was
approximately US $311.6 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. Sweden is in the midst of a cyclical upturn, with a 1997
GDP growth rate of 2.3%, and forecasts for 1998 and 1999 at 2.8% and 3.0%,
respectively. The 1997 growth was split evenly between domestic demand and net
exports. The deficit, at 1.9% of GDP in 1997, is expected to revert to a balance
in 1998. As the economy continues to improve, Sweden has seen an improvement in
its unemployment rate, which is currently at 6.9% as of June 1998, down form
8.8% a year earlier. Inflation was 1.9% for 1997, leading to expectations of
tighter monetary policy by the Riksbank in 1998. Long yields are expected to
absorb most of the prospective tightening of monetary policy. Overall, Sweden's
fiscal situation continues to improve, with the deficit ratio equivalent to 1.6%
of GDP in 1997, contrasted to a 1994 ratio of 10.3%. 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.

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.

14
<PAGE> 35

The SMI is a capitalization-weighted index of the largest and most liquid stocks
traded on the Electronic Bourse System. As of June 30, 1998, the top five stocks
represented in the UKX and their approximate proportional percentages are
Novartis (17.03%), Union Bank of Switzerland (16.44%), Nestle, SA (15.68%),
Roche Holdings (Genussh) (13.28%), and Credit Suisse Group (11.56%).

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
June 30, 1998, the total market capitalization of the Swiss equity markets was
approximately US $673.6 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. As of June 1998, unemployment dropped to 3.6%. The falling Swiss
franc helped Switzerland post the first real GDP growth since 1990, at 0.5% for
1997. The growth was driven by a strong demand for exports, which jumped 8.2%
since the second quarter of the prior year period. This increased demand was due
to similar economic recoveries in the rest of Europe, which consumes 62% of
Switzerland's exports. Net exports made a small positive contribution to growth.
Strong export sectors are chemicals, pharmaceuticals, and watchmakers. Although
Asia accounts for 13% of its exports, Switzerland has not experienced much
fallout from the Asian crisis to date. In contrast, domestic demand remains weak
with a growth rate of 0.25%, and consumer confidence is continuing at low
levels. Consumption growth was also slow at 1% for 1997. Capital investment
declined in 1997, falling by 2.75%. Inflationary pressures remain low, with
annual consumer price inflation in January 1998 at 0.1%, the lowest rate since
1986. The inflation rate for 1997 as a whole was 0.5%. The Organization of
Economic Cooperation and Development, estimates that the output gap (i.e. the
difference between peak capacity and actual output) in Switzerland was almost 5%
of GDP in 1997, reflecting significant capacity in Switzerland at present.
Forecasted GDP growth rates for 1998 and 1999 are 1.9% and 2.0%, respectively.
Nominal short-term interest rates have fallen to 1.25%. Once growth is
established, the Swiss National Bank is expected to return to a neutral monetary
policy. The biggest worry for the future is the success of monetary union in
Europe. If the EMU does not go smoothly, a panic flight to the Swiss franc could
result in significant appreciation, causing the economy to lapse into a
recession.

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

15
<PAGE> 36

(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.

The UKX is a capitalization-weighted index of the 100 most highly capitalized
companies traded on the London Stock Exchange. As of June 30, 1998, the top five
stocks represented in the UKX and their approximate proportional percentages are
Glaxo Wellcome (6.12%), British Telecom (5.05%), British Petroleum (4.61%),
Lloyds TSB Group (4.48%), and Shell Trans & Trading (3.78%).

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 June 30, 1998, the total market
capitalization of the UK equity markets was approximately US $2,183.6 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 showed 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. With a GDP growth rate of 3.5%
for 1997, Britain sustained a fifth straight year of growth. GDP growth
forecasts for 1998 and 1999 are 2.2% and 1.3%, respectively. Britain's economy
has sparked some fears of inflation, however, given the tightness of the labor
market. The unemployment rate in 1997 was at 5.5% and rose to 6.3% as of May
1998. Accordingly, the Bank of England raised interest rates in five
quarter-point moves between May and November 1997. The specter of inflation
continued into early 1998, creating public debate over the necessity of further
rate hikes. The consensus is that the economy is now slowing. Industrial
production slowed in both November and December of 1997. Consumer spending was
less robust than in 1996 and rising interest rates have increased mortgage
payments as most mortgage-holders pay variable rates. The strength of sterling,
which is about 25% higher than in mid-1996, is expected to lead to a surge of
imports, which, along with the Asian crisis, is expected to have a dampening
effect on British exports. Fiscal policy remained unchanged in early 1998, due
to these slowdowns, and manufacturing output continued to fall in early 1998,
putting off any imminent interest rate hikes. Consumer confidence could
stimulate the economy since the aggregate household balance sheet is strong.

16
<PAGE> 37

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.

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, Italy, Ireland, Luxembourg, Spain, Portugal, and the Netherlands. 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.

17
<PAGE> 38

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 LMI Investment Advisors LLP (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 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

18
<PAGE> 39

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 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.

Once a Country Index Fund has reached a sufficient asset level ("Asset Level"),
it will invest at least 65% of its total assets in the stocks included in its
respective LMI. Achieving the optimum mix of a combination of securities,
futures and other investment vehicles to best track a Funds respective LMI,
depends on such factors as the number of securities represented in an LMI and
costs, such as transaction and custody expenses. Therefore, projecting precise
Asset Levels for each Fund is difficult. Nevertheless, the Advisor believes
that each Fund will invest at least 65% of its assets in underlying stocks once
that Fund achieves the following Asset Levels:

Australia Index Fund ($50 Million), France Index Fund ($35 Million), Germany
Index Fund ($30 Million), Hong Kong Index Fund ($45 Million), Italy Index Fund
($30 Million), Japan Index Fund ($50 Million), Netherlands Index Fund ($40
Million), Spain Index Fund ($45 Million), Sweden Index Fund ($45 Million),
Switzerland Index Fund ($30 Million), and United Kingdom Index Fund ($40
Million).

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 not invest in all of the underlying
securities within each LMI if the Advisor and/or State Street Global Advisors
(the "Sub-Advisor") determine that some securities make up a small percentage of
the total LMI and such securities will have no material effect on a Fund's
performance.

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

- --------

(1) The singular "LMI" should be read as "LMIs" in the context of the Funds
of Index Funds.

19
<PAGE> 40

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 will 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. (A Fund will not "concentrate" its investments if
doing so will cause the Fund to lose its status as a regulated investment
company ("RIC") under the Internal Revenue Code.) 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. The Fund's composition will be rebalanced on a
continuous basis 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 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 33a% 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

20
<PAGE> 41

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 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.

21
<PAGE> 42

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 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.

22
<PAGE> 43

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 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

23
<PAGE> 44

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 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 33a% 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

24
<PAGE> 45

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 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

25
<PAGE> 46

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 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,

26
<PAGE> 47

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 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.

A Fund may not:

1. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate the Fund to purchase securities or
require that Fund to segregate assets are not considered to be borrowing.
Asset coverage of a least 300% is required for all borrowing, except
where the Fund has borrowed money for temporary purposes in amounts not
exceeding 5% of its total assets. The Fund will not purchase securities
while its borrowing exceed 5% of its total assets.

2. Make loans if, as a result, more than 33 1/3% of its total assets would
be lent to other parties, except that the Fund may (i) purchase or hold
debt instruments in accordance with its investment objective and
policies; (ii) enter into repurchase agreements; and (iii) lend its
securities.

3. Purchase or sell real estate, physical commodities, or commodities
contracts, except that the Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
estate investment trusts), commodities, or commodities contracts; and
(ii) commodities contracts relating to financial instruments, such as
financial futures contracts and options on such contracts.

4. Issue senior securities (as defined in the 1940 Act) except as permitted
by rule, regulation or order of the SEC.

5. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.

27
<PAGE> 48

6. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.

NON-FUNDAMENTAL POLICIES

The following investment limitations are non-fundamental policies of the Funds
and may be changed with respect to any Fund by the Board of Trustees.

A Fund may not:

1. Pledge, mortgage or hypothecate assets except to secure borrowing
permitted by the Fund's fundamental limitation on borrowing.

2. Invest in companies for the purpose of exercising control.

3. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act or any rule, regulation or order of the SEC.

4. Purchase or hold illiquid securities, i.e., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing in
more than seven days) if, in the aggregate, more than 15% of its net
assets would be invested in illiquid securities.

Except for Non-Fundamental Policy number 4, above (which is based on net
assets), the foregoing percentages are based on total assets. Except for
Fundamental Policy number 1 and Non-Fundamental Policy number 4, above, the
foregoing percentages 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

28
<PAGE> 49

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 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

29
<PAGE> 50

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 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

30
<PAGE> 51

business occupations during the past five years, are set forth below. Fees and
expenses for non-interested Trustees will be paid by the Trust.

TRUSTEES

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S) DURING
NAME, ADDRESS, AND AGE POSITION(S) HELD WITH FUND PAST 5 YEARS

<S> <C> <C>
F. Brian Cerini,* 47 Chairman of the Board, Trustee, President, LMI Capital Management LLC, LMI
790 E. Colorado Boulevard President and CEO Investment Advisors LLC, and LMI Capital
9th Floor Administration LLC, 1998 to present; President of
Pasadena, CA 91101. Sierra Capital Management Corporation, 1988 to
1997; President, Sierra Administration, 1988 to
1997; Chairman of the Board, Sierra Advisors, 1988
to 1997; President, Sierra Investment Services, 1992
to 1998; Chairman of the Board, Trustee and President,
Sierra Group of Funds, 1988-1997.

Kunduck Moon, 45 Trustee Managing Director, ING (U.S.) Capital Corp., 1995
135 East 57th Street to present; Country Head, Duetsche Bank, Mexico,
New York, NY 10022 1994 to 1995; Director, Duetsche Bank, NY, 1992
to 1994.

Lawrence J. Sheehan, 66 Trustee Of Counsel, O'Melveny & Meyers, 1995 to present;
1999 Avenue of the Stars Partner, O'Melveny & Meyers, 1969 to 1994;
Suite 700 Director, FPA Capital, Inc., FPA New Income Fund,
Los Angeles, CA 90067 Inc., FPA Perennial Fund, Inc., Source Capital,
Inc. (NYSE), and TCW Convertible Securities Fund,
Inc. (NYSE).

Christopher Robert LaBonge, 49 Trustee President, Grey Direct West, 1994 to present;
700 N. Brand #800 Executive V.P., FCB Direct, 1979 to 1994.
Glendale, CA 91203
</TABLE>

31
<PAGE> 52

<TABLE>
<S> <C> <C>
Alfred E. Osborne, Jr., Ph.D. Trustee Professor, The Anderson School and Director, The
110 Westwood Plaza Harold Price Center for Entrepreneurial Studies
Suite C305 at UCLA, 1972 to present; Director, Times Mirror
Los Angeles, CA 90095 Company, 1980 to present; Director, United States
Filter Corporation, 1991 to present; Director,
Nordstrom, Inc., 1987 to present; Director,
Greyhound Lines, Inc., 1994 to present;
Independent general partner, Technology Funding
Partners V, 1990 to present; former Governor,
National Association of Securities Dealers,
Inc., 1994 to 1996; former Director, NASD
Regulation, September 1996 to December 1996;
Trustee, WM Group of Funds, 1998 to present;
Trustee, Sierra Group of Funds, 1996-1998.

Keith B. Pipes, 42 Treasurer, CFO and Secretary Managing Director, LMI Capital Management LLC,
790 E. Colorado Boulevard LMI Investment Advisors LLC, and LMI Capital
9th Floor Administration LLC, 1998 to present; Senior V.P.,
Pasadena, CA 91101 CFO and Secretary, Sierra Capital Management
Corporation, 1988 to 1998; CFO, Secretary
and Treasurer, Sierra Administration, 1988
to 1998; Executive V.P. and Secretary,
Sierra Advisors, 1988 to 1998; Senior
V.P., CFO and Secretary, Sierra Investment
Services, 1992 to 1998.

Whit Wannamaker, 40 Vice President Managing Director, LMI Capital Management LLC,
790 E. Colorado Boulevard LMI Investment Advisors LLC, and LMI Capital
9th Floor Administration LLC, 1998 to present; Senior V.P.,
Pasadena, CA 91101 Sierra Investment Services Corp., 1994-1998;
Senior V.P., Kemper Financial Services, 1985-1994
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

- ------------------------------
* This trustee is deemed to be an "interested person" of the Trust under the
1940 Act.

32
<PAGE> 53
COSTS AND EXPENSES

Each Fund bears all expenses of its operations other than those assumed by the
Advisor or LMI Capital Administration LLP (the "Administrator"). 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 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. Such fees consist of an annual retainer in the amount of $2,500,
paid in quarterly installments, $1,500 per Board Meeting attended and $1,000 per
Committee Meeting attended ($500 additional per meeting for the Chairman of the
Committee) plus out-of-pocket expenses incurred as a Trustee.

The estimated annual compensation paid by the Trust to each of its Trustees is
set forth in the table below:
COMPENSATION TABLE

<TABLE>
<CAPTION>
Name of Person, Aggregate Pension or Estimated Accrual Total
Position Compensation Retirement Benefits Upon Compensation
From Fund Benefits Accrued Retirement From Fund and
as Part of Fund Complex
Fund Expenses Paid to Trustees
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
F. Brian Cerini,* Trustee, -0- -0- -0- -0-
President and CEO

Kunduck Moon, Trustee -0- -0- -0- -0-

Lawrence J. Sheehan, Trustee -0- -0- -0- -0-

Christopher Robert LaBonge, -0- -0- -0- -0-
Trustee

Alfred E. Osborne, Jr., Ph.D., -0- -0- -0- -0-
Trustee
</TABLE>

- ------------------------------

(1)The information provided in this table is based on estimated future payments
which will be made in the upcoming fiscal year. Each Trustee will waive his fees
for the fiscal year ending July 31, 1999, with the exception of out-of-pocket
expenses.

* Mr. Cerini is an "interested person" of the Trust.

33
<PAGE> 54

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.

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

34
<PAGE> 55

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 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.

35
<PAGE> 56

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 (the purchase fee is included in the total return calculation).
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;

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.

36
<PAGE> 57

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:

6
YIELD = 2[(a - b + 1) - 1]
-----
cd

Where: a = dividends and interest earned during the period;

b = expenses accrued for the period (net of reimbursements);

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 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. The Trust may redeem an account whose balance (due to
redemptions) has fallen below the minimum investment amount applicable at the
time of the

37
<PAGE> 58

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.

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.

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.

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

38
<PAGE> 59

property held for more than 1 year, 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 annually at least 98% of its income, including its net
long-term capital gains as calculated on a calendar year basis as defined by the
Code. 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. 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 qualify 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 qualify as a RIC. A
similar rule may apply if the Fund initially qualifies as a RIC, then fails to
qualify for more than 1 taxable year, and subsequently requalifies as a RIC.

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.
Similarly, if such an option is closed by a Fund, any gain or loss realized by
the Fund as a result of the

39
<PAGE> 60

closing transaction will be treated as a gain or loss from the sale or exchange
of capital assets held for not more than a year. 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 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 or long-term capital gain or loss if such option is sold and will
realize short-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.

Each of the Funds also may utilize options on foreign stock indexes. Certain
options on broad-based stock indexes are classified as "nonequity options" under
the Code. Gains and losses resulting from the expiration, exercise, or closing
of "non-equity options" will be treated as short-term capital gain or loss to
the extent of 40% of such gain or loss, and long-term capital gain or loss to
the extent of 60% of such gain or loss.

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 certain options, futures and forwards 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 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 (but not both) an itemized deduction against
gross income or a foreign tax credit against U.S. income taxes. The U.S.
shareholders

40
<PAGE> 61

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 stock or securities of foreign corporations. The foreign tax
credit or 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 gross income
in respect of 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
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.

PASSIVE FOREIGN INVESTMENT COMPANIES

It is anticipated that the Funds may make investments in "passive foreign
investment companies" ("PFICs") within the meaning of section 1297 of the Code.
Under the general rules applicable to PFICs, a Fund would be required to
include in its gross income gains and "excess distributions" that may be
allocated to the Fund's current and prior years. This treatment could result in
tax and an interest charge being imposed on the Fund. This result might be
avoided if the Funds were able to elect to treat the PFIC as a "qualified
electing fund" ("QEF") in which case a Fund would include in its income, on a
current basis, its share of the PFIC's income, whether or not distributed. It
may not be possible for a Fund to make a QEF election with respect to PFICs in
which it is a shareholder. Under recent legislation, a Fund may be able to make
a mark-to-market election with respect to stock of a PFIC. Under such an
election, a Fund includes in income each year an amount equal to the excess of
any of the fair market value of the PFIC stock as of the close of the taxable
year over the Fund's basis in such stock. The Fund is allowed a deduction for
the excess, if any, of the adjusted basis of the PFIC stock over its fair market
value as of the close of the taxable year. However, deductions are allowable
under this rule only to the extent of any net mark-to-market gains with respect
to the stock included by the Fund for prior taxable years.

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, local or foreign taxes.

All or a portion of losses incurred by a shareholder from a redemption of a
Fund's shares may be disallowed (deferred) for tax purposes if shares of the
Fund are purchased 30 days before to 30 days after the redemption date.

SERVICE PROVIDERS

INVESTMENT ADVISORS

LMI Investment Advisors (the "Advisor") serves as the investment adviser for
each Fund. State Street Global Advisors (the "Sub-Advisor") serves as the
investment sub-advisor for each Fund.

41
<PAGE> 62

ADMINISTRATOR AND TRANSFER AGENT

LMI Capital Administration (the "Administrator") provides shareholder service
other administrative services under and an Administration Agreement with the
Trust. The Administrator is under common control with the Advisor. The
Administrator is located at 790 East Colorado Boulevard Pasadena, California
91101. Pursuant to an Administration Agreement, the Administrator is responsible
for all administrative functions with respect to the Trust, although it
delegates certain of its responsibilities to First Data Investor Services Group,
Inc. ("Investor Services Group"), a subsidiary of First Data Corporation. The
Administrator is entitled to a monthly fee at an annual rate of 0.20% of each
Country Index Fund's average daily net assets and at an annual rate of 0.05% of
each Fund of Index Fund's average daily net assets. Investor Services Group
serves as sub-administrator under a Services Agreement with the Administrator
and the Trust and Transfer Agent under a Transfer Agency Agreement with the
Trust. Investor Services Group is located at 4400 Computer Drive, Westboro,
Massachusetts 01581. The Administrator and the Trust compensates Investor
Services Group for its services as sub-administrator and Transfer Agent.

DISTRIBUTOR

First Data Distributors, Inc. (the "Distributor") serves as Distributor for the
Funds. Under its Distribution Agreement with the Trust, the Distributor provides
for the sale and distribution of shares of the Funds.

CUSTODIAN

State Street Bank and Trust Company (the "Custodian") serves as Custodian for
the Trust on behalf of each of the Funds. Under its custodian contract with the
Trust (the "Contract"), the Custodian is authorized to employ one or more
sub-custodians located in the United States in accordance with an applicable
vote by the Trustees. In accordance with the Contract and a similar applicable
vote of the Trustees, the Custodian may also employ foreign banking institutions
and foreign securities depositories as sub-custodians for the Trust's foreign
securities.

EXPENSE LIMITS

Through December 31, 2001, the Advisor and the Administrator have agreed, by
waiving fees and reimbursing expenses, to limit each Fund's total annual expense
ratio to 0.99% for R Class shares and 0.74% for I Class shares ("Expense
Limits"). In subsequent years, a Fund may, subject to certain limitations,
reimburse the Advisor or the Administrator for fees and expenses waived or
reimbursed under the Expense Limits.

EXPERTS

PricewaterhouseCoopers LLP, 160 Federal Street, Boston, MA 02110, serve as
auditor and independent public accountant to the Trust and each of the Funds.

Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, DC 20036, serve as
counsel to the Trust and each of the Funds.