As filed with the Securities and Exchange Commission
on September 30, 1999
Securities Act File No. 333-56445
Investment Company Act File No. 811-08805
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 1 X
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 3 X
WORLDWIDE INDEX FUNDS
(Exact Name of Registrant as Specified in Charter)
1060 East Green Street, Suite 209, Pasadena, California 91106
Registrant's Telephone Number, including Area Code: (626) 793-8078
Name and Address of Agent for Service: Copies to:
Linda J. Hoard, Esq. W. John McGuire, Esq.
First Data Investor Services Group, Inc. Morgan, Lewis & Bockius LLP
101 Federal Street, BOS610 1800 M Street, N.W.
Boston, Massachusetts 02110 Washington, D.C. 20036
It is proposed that the filing will become effective:
immediately upon filing pursuant to paragraph (b) on_______
pursuant to paragraph (b) 60 days after filing pursuant to
paragraph (a)(1)
_X_ on December 1, 1999 pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on pursuant to paragraph (a)(2) of Rule 485
<PAGE>
WORLDWIDE INDEX FUNDS(SM)
PROSPECTUS December 1, 1999
FRANCE INDEX FUND
GERMANY INDEX FUND
HONG KONG INDEX FUND
ITALY INDEX FUND
JAPAN INDEX FUND
SPAIN 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"), nine 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 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>
[WORLDWIDE INDEX FUNDS LOGO]
<PAGE>
TABLE OF CONTENTS
INVESTMENT SUMMARY:
INVESTMENTS, STRATEGIES AND RISKS
FEES AND EXPENSES OF THE FUNDS
COUNTRY INDEX FUNDS
COUNTRY INDEX FUND LMI DESCRIPTIONS
FUNDS OF INDEX FUNDS
ADDITIONAL RISK CONSIDERATIONS
HOW TO INVEST IN THE FUNDS
REDEMPTIONS
DIVIDENDS AND DISTRIBUTIONS
TAX INFORMATION
MANAGEMENT OF THE FUNDS
ADDITIONAL FUND INFORMATION BACK COVER
INVESTMENT SUMMARY:
INVESTMENTS, STRATEGIES AND RISKS
INVESTMENT OBJECTIVES
The France, Germany, Hong Kong, Italy, Japan, Spain 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 performance of a widely used index of local
market equity securities (the "LOCAL MARKET INDEX"(SM) or "LMI"(SM)) for each
respective country. The Europe Index Fund and International Index Fund
are "funds of funds" (the "Funds of Index Funds") which will invest in 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. The Europe Index Fund will invest in the following Country Index
Funds: France, Germany, Italy, Spain and United Kingdom (collectively, the
"European Country Index Funds"). The International Index Fund will invest in the
five European Country Index Funds and the Hong Kong and Japan Country Index
Funds.
<PAGE>
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 Funds of Index Funds will invest in 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 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.
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: 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.
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 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, 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").
BECAUSE INVESTING IN THESE FUNDS INVOLVES CERTAIN RISKS, YOU COULD LOSE MONEY.
<PAGE>
FEES AND EXPENSES OF THE FUNDS
These tables describe the highest fees and expenses that you could currently be
charged if you buy and hold shares of the Funds.
SHAREHOLDER FEES
(paid directly from your investment)
<TABLE>
<CAPTION>
<S> <C> <C>
Country Funds of
Index Funds Index Funds
Maximum Sales Charge (Load) Imposed
on Purchase (as a percentage of offering
price)........................................ None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends (as a percentage of
net asset value).............................. None None
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FRANCE INDEX FUND
ANNUAL FUND OPERATING EXPENSES FOR PERIOD ENDED JULY 31, 1999 (expenses that are
deducted from Fund assets)
Management Fees............................... .50%
Other Expenses*............................... %
- ------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES.......... %
- ------------------------------------------------------------------
FEE WAIVER/EXPENSE REIMBURSEMENT.............. %
NET EXPENSES++................................ [1.50]%
++ The Advisor has contractually agreed to limit the Fund's net annual
operating expenses to the amount shown until December 31, 2001.
* 0.25% of Other Expenses is a shareholder servicing fee.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
GERMANY INDEX FUND
ANNUAL FUND OPERATING EXPENSES FOR PERIOD ENDED JULY 31, 1999 (expenses that are
deducted from Fund assets)
Management Fees............................... .50%
Other Expenses*............................... %
- ------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES.......... %
- ------------------------------------------------------------------
FEE WAIVER/EXPENSE REIMBURSEMENT.............. %
NET EXPENSES++................................ [1.50]%
++ The Advisor has contractually agreed to limit the Fund's net annual
operating expenses to the amount shown until December 31, 2001.
* 0.25% of Other Expenses is a shareholder servicing fee.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
HONG KONG INDEX FUND
ANNUAL FUND OPERATING EXPENSES FOR PERIOD ENDED JULY 31, 1999 (expenses that are
deducted from Fund assets)
Management Fees............................... .50%
Other Expenses*............................... %
- ------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES.......... %
- ------------------------------------------------------------------
FEE WAIVER/EXPENSE REIMBURSEMENT.............. %
NET EXPENSES++................................ [1.50]%
++ The Advisor has contractually agreed to limit the Fund's net annual
operating expenses to the amount shown until December 31, 2001.
* 0.25% of Other Expenses is a shareholder servicing fee.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ITALY INDEX FUND
ANNUAL FUND OPERATING EXPENSES FOR PERIOD ENDED JULY 31, 1999 (expenses that are
deducted from Fund assets)
Management Fees............................... .50%
Other Expenses*............................... %
- ------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES.......... %
- ------------------------------------------------------------------
FEE WAIVER/EXPENSE REIMBURSEMENT.............. %
NET EXPENSES++................................ [1.50]%
++ The Advisor has contractually agreed to limit the Fund's net annual
operating expenses to the amount shown until December 31, 2001.
* 0.25% of Other Expenses is a shareholder servicing fee.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
JAPAN INDEX FUND
ANNUAL FUND OPERATING EXPENSES FOR PERIOD ENDED JULY 31, 1999 (expenses that are
deducted from Fund assets)
Management Fees............................... .50%
Other Expenses*............................... %
- ------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES.......... %
- ------------------------------------------------------------------
FEE WAIVER/EXPENSE REIMBURSEMENT.............. %
NET EXPENSES++................................ [1.50]%
++ The Advisor has contractually agreed to limit the Fund's net annual
operating expenses to the amount shown until December 31, 2001.
* 0.25% of Other Expenses is a shareholder servicing fee.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SPAIN INDEX FUND
ANNUAL FUND OPERATING EXPENSES FOR PERIOD ENDED JULY 31, 1999 (expenses that are
deducted from Fund assets)
Management Fees............................... .50%
Other Expenses*............................... %
- ------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES.......... %
- ------------------------------------------------------------------
FEE WAIVER/EXPENSE REIMBURSEMENT.............. %
NET EXPENSES++................................ [1.50]%
++ The Advisor has contractually agreed to limit the Fund's net annual
operating expenses to the amount shown until December 31, 2001.
* 0.25% of Other Expenses is a shareholder servicing fee.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
UNITED KINGDOM INDEX FUND
ANNUAL FUND OPERATING EXPENSES FOR PERIOD ENDED JULY 31, 1999 (expenses that are
deducted from Fund assets)
Management Fees............................... .50%
Other Expenses*............................... %
- ------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES.......... %
- ------------------------------------------------------------------
FEE WAIVER/EXPENSE REIMBURSEMENT.............. %
NET EXPENSES++................................ [1.50]%
++ The Advisor has contractually agreed to limit the Fund's net annual
operating expenses to the amount shown until December 31, 2001.
* 0.25% of Other Expenses is a shareholder servicing fee.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EUROPE INDEX FUND
ANNUAL FUND OPERATING EXPENSES FOR PERIOD ENDED JULY 31, 1999 (expenses that are
deducted from Fund assets)
Management Fees............................... 0.00%
Other Expenses*............................... %
- ------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES+......... %
- --------------------------------------------------------
FEE WAIVER/EXPENSE REIMBURSEMENT.............. %
NET EXPENSES++................................ 0.00%+
+ Expenses exclude expenses of underlying Country Index Funds.
++ The Advisor has contractually agreed to limit the Fund's net annual
operating expenses to the amount shown until December 31, 2001.
* 0.25% of Other Expenses is a shareholder servicing fee.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
INTERNATIONAL INDEX FUND
ANNUAL FUND OPERATING EXPENSES FOR PERIOD ENDED JULY 31, 1999 (expenses that are
deducted from Fund assets)
Management Fees............................... 0.00%
Other Expenses*............................... %
- ------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES+......... %
- --------------------------------------------------------
FEE WAIVER/EXPENSE REIMBURSEMENT.............. %
NET EXPENSES++................................ 0.00%+
+ Expenses exclude expenses of underlying Country Index Funds.
++ The Advisor has contractually agreed to limit the Fund's net annual
operating expenses to the amount shown until December 31, 2001.
* 0.25% of Other Expenses is a shareholder servicing fee.
</TABLE>
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:
1 Year 3 Years 5 Years 10 Years
Country
Index Funds $[ ] $[ ] $[ ] $[ ]
Funds of
Index Funds** $[ ] $[ ] $[ ] $[ ]
** 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
COUNTRY INDEX FUND LOCAL MARKET INDEX ("LMI")(SM)
France Index Fund CAC-40 ("CAC")
Germany Index Fund Deutsche Aktienindex ("DAX")
Hong Kong Index Fund Hang Seng ("HSI")
Italy Index Fund MIB30 ("MIB30")
Japan Index Fund Nikkei225 ("NKI")
Spain Index Fund IBEX35 ("IBEX")
United Kingdom Index Fund FTSE-100 ("UKX")
COUNTRY INDEX FUND LMI DESCRIPTIONS
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
September 30, 1999, the three stocks representing the highest approximate
percentage of capitalization in the index are ________ (%), ________ (%), and
________ (%).
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 September 30, 1999, the three stocks
representing the highest approximate percentage of capitalization in the index
are ________ (%), ________ (%), and ________ (%).
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
September 30, 1999, the three stocks representing the highest approximate
percentage of capitalization in the index are ________ (%), ________ (%), and
________ (%).
The ITALY INDEX FUND seeks to track the MIB30 ("MIB30") which is a
capitalization-weighted index of the 30 top companies listed on the Milan Stock
Exchange. As of September 30, 1999, the three stocks representing the highest
approximate percentage of capitalization in the index are ________ (%), ________
(%), and ________ (%).
The JAPAN INDEX FUND seeks to track the Nikkei225 ("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 September 30, 1999, the three stocks
representing the highest approximate percentage of capitalization in the index
are ________ (%), ________ (%), and ________ (%).
The SPAIN INDEX FUND seeks to track the IBEX35 ("IBEX") which is a
capitalization-weighted index of the 35 most liquid Spanish stocks traded on the
Continuous Markets. As of September 30, 1999, the three stocks representing the
highest approximate percentage of capitalization in the index are ________ (%),
________ (%), and ________ (%).
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 September 30, 1999, the three stocks
representing the highest approximate percentage of capitalization in the index
are ________ (%), ________ (%), and ________ (%).
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.
FUNDS OF INDEX FUNDS
FUNDS OF UNDERLYING COUNTRY INDEX FUNDS
INDEX FUNDS (and approximate allocation percentage as of September 30, 1999)
----------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
EUROPE - France Index Fund (%) - Spain Index Fund (% )
INDEX FUND - Germany Index Fund (%) - United Kingdom Index Fund (%)
- Italy Index Fund (%)
INTERNATIONAL - France Index Fund (%) - Japan Index Fund (%)
INDEX FUND - Germany Index Fund (%) - Spain Index Fund (%)
- Hong Kong Index Fund (%) - United Kingdom Index Fund (%)
- Italy Index Fund (%)
</TABLE>
ADDITIONAL RISK CONSIDERATIONS
NON-DIVERSIFICATION -- The Country Index Funds, other than the Japan 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.
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.
Certain futures contracts may require a minimum investment by a Fund. The
Funds may borrow money to purchase these contracts. Borrowing money for
investment purposes, also known as leverage, is a speculative technique which
increases a Fund's investment risk. For more information on borrowing, see
"Borrowing" in the SAI.
FOREIGN SECURITIES -- Investing in foreign companies may involve risks not
typically associated with investing in U.S. companies. The value of securities
denominated in foreign currencies, and of dividends from such securities, can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. Dollar. Foreign securities markets generally have less trading volume
and less liquidity than U.S. markets, and prices in some foreign markets can be
extremely volatile. Many foreign countries lack uniform accounting and
disclosure standards comparable to those that apply to U.S. companies, and it
may be more difficult to obtain reliable information regarding a foreign
issuer's financial condition and operations. In addition, the costs of foreign
investing, including withholding taxes, brokerage commissions and custodial
fees, generally are higher than for U.S. investments.
CURRENCY RISK - The performance of investments in securities denominated in
foreign currencies will depend, in part, on the strength of the foreign currency
relative to the U.S. Dollar and the interest rate environment in the country
issuing the currency. Absent other events which could otherwise affect the value
of a foreign security (such as a change in the political climate or an issuer's
credit quality), appreciation in the value of the foreign currency generally
results in an increase in value of a foreign currency-denominated security in
terms of U.S. dollars. Likewise, a decline in the value of the foreign currency
generally results in a decrease in value of a foreign currency-denominated
security in terms of U.S. dollars. Currency exchange rates can also be affected
by the intervention or the failure to intervene by U.S. or foreign governments
or central banks, or by currency controls or political developments in the U.S.
or abroad. 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.
<PAGE>
HOW TO INVEST IN THE FUNDS
CLASSES
The Funds currently offer one class of shares. Shares require a minimum initial
investment of $1,000 for any Fund (including 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.
ABOUT NET ASSET VALUE
The net asset value for one Fund share is the value of that share's portion of
all of the assets of that class of shares of the Fund. In making this
calculation, the Fund generally values securities at market price. If market
prices are unavailable or become unreliable because of events occurring during
or after the close of trading in any of the relevant foreign markets, fair value
prices may be determined 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 shares of each Fund is the net asset value next determined. 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 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 $1,000 for shares of any Fund, including IRAs and Roth IRAs. The
minimum amount for an additional investment is $250 for shares for each account
that you have. If the value of your account falls below the minimum initial
investment amount as a result of share redemptions, and remains below that
minimum for 60 consecutive days, you may be subject to 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 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 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.
You may arrange to purchase 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 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 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 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.
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 4:00 p.m., Eastern Time (1:00 p.m.,
Pacific Time), on any Business Day. The Trust reserves the right to suspend the
right of redemption in accordance with the SAI.
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.
EXCHANGES
You may exchange shares of a Fund for shares of any other Fund. Exchanges will
be based on the respective net asset values of the shares involved. Exchanges
may be made by letter or by telephone subject to the procedures set forth below.
Money Market Fund Option -- You may also exchange shares of any Fund for shares
of a money market fund, the Government Obligations Fund managed by Federated
Management (the "Money Market Fund"). Shares of the Money Market Fund may then
be exchanged for shares of any Fund. formation regarding the Money Market Fund
is found in a separate prospectus which is available from the Distributor. You
should review the Money Market Fund prospectus before making any investment.
Nonetheless, to the extent that this prospectus conflicts with any disclosure in
the Money Market Fund prospectus, this prospectus shall govern.
<PAGE>
Please note that orders for purchases, redemptions and exchanges must be
received by 4:00 p.m. Eastern Time. Purchases of, and exchanges into, shares of
the Money Market Fund are subject to a $1,000 minimum investment limit. When
purchasing shares of the Money Market Fund, federal funds received before 4:00
p.m. Eastern Time will begin earning dividends on the next business day and will
earn dividends through the day of redemption. Proceeds from redemption requests
made before 4:00 p.m. Eastern Time will be wired the next business day. If
shares are purchased by check, funds will not be available for redemptions until
the purchase payment has been collected, which may take up to 10 business days
from the purchase date.
Exchange Procedures -- To exchange your shares, you (or your Financial
Intermediary) need to provide certain information, including the name on the
account, the account number (or your taxpayer identification number), the number
or dollar value of shares (or the percentage of the total value of your account)
you want to exchange, and the names of the Funds involved in the exchange
transaction. Exchanges may be made only between identically registered accounts.
Exchange orders for exchanges into another Fund must be received by 4:00 p.m.,
Eastern Time. The exchange privilege may be modified or discontinued at any
time.
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 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.
If the Country Index Funds elect to "pass through" foreign taxes to
shareholders, the tax credit would not pass through to Funds of Index Funds
shareholders. Because the Funds of Index Funds hold shares of the Country Index
Funds which are U.S. business entities, and do not hold shares of foreign
securities, the Funds of Index Funds cannot pass through the tax credit to
shareholders. The Funds of Index Funds may, however, claim a deduction for any
foreign taxes paid by the underlying Country Index Funds.
STATE TAX CONSIDERATIONS
Distributions by the Funds may be subject to state and local taxation. You
should verify your tax liability with your tax advisor.
<PAGE>
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR
LMI Investment Advisors LLC (the "Advisor"), a Delaware limited liability
company with offices at 1060 East Green Street, Suite 209, Pasadena California
91106, 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 registered investment adviser
organized in [ ] 1998, with no business experience prior to that time. For its
services, the Advisor will receive from each Fund the following management fee:
COUNTRY FUNDS OF
INDEX FUNDS INDEX FUNDS
Management Fee: .50% .0%
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 September 30, 1999, the
Sub-Advisor managed assets of approximately $[ ] billion, including $[ ] billion
of assets in internationally indexed investments.
The Sub-Advisor makes investment decisions for the assets of the Funds and the
Advisor continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish policies
that the Advisor and Sub-Advisor must follow in their day-to-day management
activities. The Advisor bears all of its own costs associated with providing
these advisory services, the fee paid to the Sub-Advisor and the expenses of the
Trustees who are affiliated with the Advisor. The Advisor may make payments from
its own resources to broker-dealers and other financial institutions in
connection with the sale of Fund shares. For its services, the Sub-Advisor will
receive from the Advisor the following sub-advisory fee:
COUNTRY FUNDS OF
INDEX FUNDS INDEX FUNDS
Sub-Advisory Fee: .15% .0%
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights of the Funds for the period
presented and should be read in conjunction with the financial statements and
related notes that appear in the Funds' annual report dated July 31, 1999 (the
"annual report") and which are incorporated by reference into the statement of
additional information. The financial statements and related notes contained in
the annual report have been audited by PricewaterhouseCoopers LLP, independent
accountants. Additional information concerning the performance of the Funds is
included in the annual report, which may be obtained without charge by
contacting the Funds at the address or phone number on the back of this
prospectus.
<PAGE>
[WORLDWIDE INDEX FUNDS LOGO]
<PAGE>
ADDITIONAL FUND INFORMATION
Additional information about the WorldWide Index Funds is included in a
Statement of Additional Information dated December 1, 1999 (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>
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 nine
Funds: France Index Fund, Germany Index Fund, Hong Kong Index Fund, Italy Index
Fund, Japan Index Fund, Spain 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 December 1, 1999. 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 December 1, 1999.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
THE FUNDS AND COUNTRY SPECIFIC ECONOMIC CONSIDERATIONS.....................
ADDITIONAL RISK CONSIDERATIONS..............................................
INVESTMENT POLICIES AND OBJECTIVES.........................................
INVESTMENT TECHNIQUES......................................................
INVESTMENT RESTRICTIONS.....................................................
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................
ORGANIZATION OF THE TRUST AND THE FUNDS....................................
MANAGEMENT OF THE TRUST....................................................
DETERMINATION OF NET ASSET VALUE...........................................
PERFORMANCE INFORMATION....................................................
CALCULATION OF RETURN QUOTATIONS..........................................
INFORMATION ON COMPUTATION OF YIELD........................................
PURCHASE AND REDEMPTION OF SHARES..........................................
DIVIDENDS, DISTRIBUTIONS, AND TAXES........................................
SERVICE PROVIDERS...........................................................
EXPERTS....................................................................
<PAGE>
THE FUNDS AND COUNTRY SPECIFIC ECONOMIC CONSIDERATIONS
THE COUNTRY INDEX FUNDS
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 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 September 30, 1999, the top five stocks represented in the CAC and their
approximate proportional percentages are ________ (%), ________ (%), ________
(%), ________ (%), and ________ (%).
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 September 30, 1999, the total market capitalization of the
French equity markets was approximately US $[ ] 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 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 DAX is a total rate of return index of
30 selected German blue-chip stocks traded on the Frankfurt Stock Exchange. As
of September 30, 1999, the top five stocks represented in the DAX and their
approximate proportional percentages are ________ (%), ________ (%), ________
(%), ________ (%), and ________ (%).
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.
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 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 September 30, 1999, the top five stocks represented
in the HSI and their approximate proportional percentages are ________ (%),
________ (%), ________ (%), ________ (%), and ________ (%).
Trading in equity securities in Hong Kong began in 1891 with the formation of
the Association of Stockbrokers, which was changed in 1914 to the Hong Kong
Stock Exchange. In 1921, a second stock exchange, The Hong Kong Stockbrokers'
Association, was established. In 1947, these two exchanges were merged under the
name The Hong Kong Stock Exchange Limited. Three additional exchanges, the Far
East Exchange Limited (1969), The Kam Ngan Stock Exchange Limited (1971) and The
Kowloon Stock Exchange (1972) also commenced trading activities. These four
exchanges were unified in 1986 to form The Stock Exchange of Hong Kong Limited
(the "SEHK"). Trading on the SEHK is conducted in the post trading method,
matching buyers and sellers through public outcry. Securities are denominated in
the official unit of currency, the Hong Kong Dollar. Foreign investment in Hong
Kong is generally unrestricted. All investors are subject to a small stamp duty
and a stock exchange levy, but capital gains are tax-exempt.
Hong Kong has significantly upgraded the required presentation of financial
information in the past decade. Nevertheless, reporting, accounting and auditing
practices remain significantly less rigorous than U.S. standards. In general,
Hong Kong corporations are not required to provide all of the disclosure
required by U.S. law and accounting practice, and such disclosure may be less
timely and less frequent than that required of U.S. corporations. As of 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 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 MIB30 Index (the "MIB30"). 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 MIB30; (ii) MIB30 futures and Related Securities; (iii)
currency forward contracts and/or currency futures contracts and Related
Securities; and/or (iv) short-term debt instruments. The MIB30 is a
capitalization-weighted index of the 30 top companies listed on the Milan Stock
Exchange. As of September 30, 1999, the top five stocks represented in the MIB30
and their approximate proportional percentages are ________ (%), ________ (%),
________ (%), ________ (%), and ________ (%).
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
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 Nikkei225 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 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 September 30, 1999, the top five
stocks represented in the NKI and their approximate proportional percentages are
________ (%), ________ (%), ________ (%), ________ (%), and ________ (%).
The Japanese stock market has a history of over 100 years beginning with the
establishment of the Tokyo Stock Exchange Company Ltd. in 1878. Stock exchanges
are located in eight cities in Japan (Tokyo, Osaka, Nagoya, Kyoto, Hiroshima,
Fukuoka, Niigata and Sapporo). There is also an over-the-counter market. There
are three distinct sections on the main Japanese stock exchanges. The First
Section trades in over 1,100 of the largest and most active stocks, which
account for over 95% of total market capitalization. The Second Section consists
of over 400 issues with lower turnover than the First Section, which are newly
quoted on the exchange or which are not listed and would otherwise be traded
over-the-counter. The Third Section consists of foreign stocks which are traded
over-the-counter. The main activity of the regular exchange members is the
buying and selling of securities on the floor of an exchange, both for their
customers and for their own account. Japan is second only to the United States
in aggregate stock market capitalization. Securities are denominated in the
official unit of currency, the Japanese Yen. Takeover activity is negligible in
Tokyo, and although foreign investors play a significant role, the trend of the
market is set by the domestic investor. The withholding tax is 20% on dividends.
There also is a transaction tax on share trades and a small stamp duty.
Although some Japanese reporting, accounting and auditing practices are based
substantially on U.S. principles, they are not identical to U.S. standards in
some important respects, particularly with regard to unconsolidated subsidiaries
and related structures. In general, Japanese corporations are not required to
provide all of the disclosure required by U.S. law and accounting practice, and
such disclosure may be less timely and less frequent than that required of U.S.
corporations. As of 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, 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
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 IBEX35 (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 IBEX is a capitalization-weighted
index of the 35 most liquid Spanish stocks traded on the Continuous Markets. As
of September 30, 1999, the top five stocks represented in the IBEX and their
approximate proportional percentages are ________ (%), ________ (%), ________
(%), ________ (%), and ________ (%).
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.
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 UNITED KINGDOM
INDEX FUND seeks long-term capital appreciation in line with local market equity
returns. The Fund seeks to track as closely as possible the performance of
United Kingdom's ("UK") FTSE 100 Index (the "UKX"). The Fund will normally
invest at least 95% of its total assets in a combination of: (i) some or all of
the stocks included in the UKX; (ii) UKX futures and Related Securities; (iii)
currency forward contracts and/or currency futures contracts and Related
Securities; and/or (iv) short-term debt instruments. The UKX is a
capitalization-weighted index of the 100 most highly capitalized companies
traded on the London Stock Exchange. As of September 30, 1999, the top five
stocks represented in the UKX and their approximate proportional percentages are
________ (%), ________ (%), ________ (%), ________ (%), and ________ (%).
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.
THE FUNDS OF INDEX FUNDS
The EUROPE INDEX FUND is a "fund of funds" which invests in shares of the
France, Germany, Italy, Spain 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 INTERNATIONAL INDEX FUND a "fund of funds" which invests in shares of the
five European Country Index Funds and the 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 Fund will be subject to the country-specific economic considerations
and risks associated which each of the underlying Country Index Funds in its
portfolio.
<PAGE>
ADDITIONAL RISK CONSIDERATIONS
YEAR 2000
The Funds depend on the smooth functioning of computer systems in almost every
aspect of their business. Like other mutual funds, businesses and individuals
around the world, the Funds could be adversely affected if the computer systems
used by its service providers do not properly process dates on and after January
1, 2000 and distinguish between the year 2000 and the year 1900. The Funds have
asked their service providers whether they expect to have their computer systems
adjusted for the year 2000 transition, and received assurances from each that
they are devoting significant resources to prevent material adverse consequences
to the Funds. The Funds and their respective shareholders may experience losses
if these assurances prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or third parties,
such as custodians, banks, broker-dealers or others with which the Funds do
business. Furthermore, many foreign countries are not as prepared as the U.S.
for the year 2000 transition. As a result, computer difficulties in foreign
markets and with foreign institutions as a result of the year 2000 may add to
the possibility of losses to the Funds and their respective shareholders.
GLOBAL CUSTODIANS
In making investment decisions for each Fund, the Advisor evaluates the risks
associated with investing Fund assets in a particular country, including risks
stemming from a country's financial infrastructure and settlement practices; the
likelihood of expropriation, nationalization or confiscation of invested assets;
prevailing or developing custodial practices in the country; the country's laws
and regulations regarding the safekeeping, maintenance and recovery of invested
assets, the likelihood of government-imposed exchange control restrictions which
could impair the liquidity of Fund assets maintained with custodians in that
country, as well as risks from political acts of foreign governments ("country
risks"). Of course, the Advisor cannot assure that a Fund will not suffer losses
resulting from investing in foreign countries.
Holding Fund assets in foreign countries through specific foreign custodians
presents additional risks, including but not limited to the risks that a
particular foreign custodian or depository will not exercise proper care with
respect to Fund assets or will not have the financial strength or adequate
practices and procedures to properly safeguard Fund assets.
INVESTMENT POLICIES AND OBJECTIVES
GENERAL
Each Fund's investment objective and permitted investments are described in the
Funds' Prospectus. The following information supplements, and should be read in
conjunction with, the Prospectus.
INVESTMENT POLICIES
The Funds are not managed by traditional methods of "active" investment
management which depend on fundamental financial and market analysis and on
relative valuation investment judgments. Instead, each Fund uses a "passive" or
indexed investment approach and attempts to track as closely as possible the
investment 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:
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), Spain Index Fund ($45 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.
(1) The singular "LMI" should be read as "LMIs" in the context of the Funds of
Index Funds.
<PAGE>
A Fund may not use long futures contracts to leverage the portfolio at the time
of investment in the futures contracts. Rather, long futures positions will be
used to hedge a Fund's Short-Term Debt Instruments and cash reserves. A Fund
will not invest in Short-Term Debt Instruments, futures contracts, options, swap
agreements or cash reserves as part of a defensive strategy to defend against
possible adverse stock market trends. A Fund may enter into forward currency
exchange contracts to facilitate settlements in local markets, and in connection
with LMI futures positions and to protect against currency exposure with regard
to shareholder distributions.
Each Fund 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. For the fiscal period ended July
31, 1999, the portfolio turnover rates for the France, Germany, Hong Kong,
Italy, Japan, Spain, United Kingdom, Europe and International Index Funds were
__%, __%, __%, __%, __%, __%, __%, __% and __%, respectively.
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 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. 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 R 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, Spain and United Kingdom (collectively, the "European
Country Index Funds"). The International Index Fund will invest in the five
European Country Index Funds and the 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 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.
<PAGE>
BORROWING
The Funds may borrow money, including borrowing for investment purposes.
Borrowing for investment is known as leveraging. Leveraging investments by
purchasing securities with borrowed money is a speculative technique which
increases investment risk, but also increases investment opportunity. Since
substantially all of a Fund's assets may fluctuate in value, whereas the
interest obligations on borrowing may be fixed, the net asset value per share of
the Fund will increase more when the Fund's portfolio assets increase in value
and decrease more when the Fund's portfolio assets decrease in value than would
otherwise be the case. Moreover, interest costs on borrowing may fluctuate with
changing market rates of interest and may partially offset or exceed the returns
on the borrowed funds. Under adverse conditions, the Funds might have to sell
portfolio securities to meet interest or principal payments at a time investment
considerations would not favor such sales. The Funds intend to use leverage
during periods when the Advisor believes that the respective Fund's investment
objective would be furthered.
Each Fund may borrow money to facilitate management of the Fund's portfolio by
enabling the Fund to meet redemption requests when the liquidation of portfolio
instruments would be inconvenient or disadvantageous. Such borrowing is not for
investment purposes and will be repaid by the borrowing Fund promptly.
As required by the 1940 Act, a Fund must maintain continuous asset coverage
(total assets, including assets acquired with borrowed funds, less liabilities
exclusive of borrowing) of 300% of all amounts borrowed. If, at any time, the
value of a Fund's assets should fail to meet this 300% coverage test, the Fund,
within three days (not including Sundays and holidays), will reduce the amount
of the Fund's borrowing to the extent necessary to meet this 300% coverage.
Maintenance of this percentage limitation may result in the sale of portfolio
securities at a time when investment considerations otherwise indicate that it
would be disadvantageous to do so.
In addition to the foregoing, the Funds are authorized to borrow money from
banks as a temporary measure for extraordinary or emergency purposes in amounts
not in excess of 5% of the value of a Fund's total assets. This borrowing is not
subject to the foregoing 300% asset coverage requirement The Funds are
authorized to pledge portfolio securities as the Advisor deems appropriate in
connection with any borrowing.
FOREIGN ISSUERS
The Funds will invest in issuers located outside the United States. This may be
achieved by purchasing American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and/or Global Depositary Receipts ("GDRs")
(collectively, "Depositary Receipts"). Depositary Receipts are typically issued
by a financial institution ("depository") and evidence ownership interests in a
security or a pool of securities ("underlying securities") that have been
deposited with the depository. In ADRs, the depository is typically a U.S.
financial institution and the underlying securities are issued by a foreign
issuer. In other Depositary Receipts, the depository may be a foreign or a U.S.
entity, and the underlying securities may have a foreign or a U.S. issuer.
Depositary Receipts will not necessarily be denominated in the same currency as
their underlying securities. Depositary Receipts may be issued pursuant to
sponsored or unsponsored programs. In sponsored programs, an issuer has made
arrangements to have its securities traded in the form of Depositary Receipts.
In unsponsored programs, the issuer may not be directly involved in the creation
of the program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the Depositary Receipts. For purposes of a Fund's investment policies,
investments in Depositary Receipts will be deemed to be investments in the
underlying securities. Thus, a Depositary Receipt representing ownership of
common stock will be treated as common stock. When Depositary Receipts which are
purchased with and sold for U.S. dollars, this protects the Funds from the
foreign settlement risks described below. Note, however, that Depositary
Receipts are also subject to the risks inherent in investing in foreign
securities generally, other than foreign settlement risks, and that purchasing
and selling Depositary Receipts with U.S. Dollars may not protect the Funds from
these types of risks.
Investing in foreign companies may involve risks not typically associated with
investing in United States companies. The value of securities denominated in
foreign currencies, and of dividends from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less trading volume and less
liquidity than United States markets, and prices in some foreign markets can be
very volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those that apply to United States companies, and it may
be more difficult to obtain reliable information regarding a foreign issuer's
financial condition and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions, and custodial fees,
generally are higher than for United States investments.
Investing in companies located abroad carries political and economic risks
distinct from those associated with investing in the United States. Foreign
investment may be affected by actions of foreign governments adverse to the
interests of United States investors, including the possibility of expropriation
or nationalization of assets, confiscatory taxation, restrictions on United
States investment, or on the ability to repatriate assets or to convert currency
into U.S. dollars. There may be a greater possibility of default by foreign
governments or foreign-government sponsored enterprises. Investments in foreign
countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
NON-U.S. EQUITY PORTFOLIOS
An investment in the Funds involves risks similar to those of investing in a
broadly-based portfolio of equity securities traded on exchanges in the
respective countries covered by the individual Funds. These risks include market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in stock prices. Investing in
securities issued by companies domiciled in countries other than the domicile of
the investor and denominated in currencies other than an investor's local
currency entails certain considerations and risks not typically encountered by
the investor making investments in its home country and in that country's
currency. These considerations include favorable or unfavorable changes in
interest rates, currency exchange rates, exchange control regulations and the
costs that may be incurred in connection with conversions between various
currencies. Investing in a Fund whose portfolio contains non-U.S. issuers
involves certain risks and considerations not typically associated with
investing in the securities of U.S. issuers. These risks include generally less
liquid and less efficient securities markets; generally greater price
volatility; less publicly available information about issuers; the imposition of
withholding or other taxes; restrictions on the expatriation of funds or other
assets of a Fund; higher transaction and custody costs; delays attendant in
settlement procedures; difficulties in enforcing contractual obligations; lesser
liquidity and significantly smaller market capitalization of most non-U.S.
securities markets; lesser levels of regulation of the securities markets; more
substantial government 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.
Currency exchange rates may fluctuate significantly over short periods of time
causing, together with other factors, a Fund's net asset value to fluctuate as
well. 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. Currency
exchange rates can be affected unpredictably by the intervention or the failure
to intervene by U.S. or foreign governments or central banks, or by currency
controls or political developments in the U.S. or abroad. To the extent that a
Fund's total assets, adjusted to reflect the Fund's net position after giving
effect to currency transactions, are denominated in the currencies of foreign
countries, the Fund will be more susceptible to the risk of adverse economic and
political developments within those countries.
In addition, through the use of forward currency exchange contracts and with
other instruments, the respective net currency positions of the Funds may expose
them to risks independent of their securities positions. Although the net long
and short foreign currency exposure of the Funds will not exceed their
respective total asset values, to the extent that a Fund is fully invested in
foreign securities while also maintaining currency positions, it may be exposed
to greater risk than it would have if it did not maintain the currency
positions. The Funds are also subject to the possible imposition of exchange
control regulations or freezes on the convertibility of currency. ILLIQUID
SECURITIES
The Funds may purchase illiquid securities, including securities that are not
readily marketable and securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "1933 Act"), but
which can be offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. A Fund will not invest more than 15% of the Fund's net
assets in illiquid securities. The term "illiquid securities" for this purpose
means securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the Fund has valued the
securities. Under the current guidelines of the staff of the Securities and
Exchange Commission (the "Commission"), illiquid securities also are considered
to include, among other securities, purchased over-the-counter options, certain
cover for over-the-counter options, repurchase agreements with maturities in
excess of seven days, and certain securities whose disposition is restricted
under the Federal securities laws. The Fund may not be able to sell illiquid
securities when the Advisor considers it desirable to do so or may have to sell
such securities at a price that is lower than the price that could be obtained
if the securities were more liquid. In addition, the sale of illiquid securities
also may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.
Institutional markets for restricted securities have developed as a result of
Rule 144A, which provides a "safe harbor" from 1933 Act registration
requirements for qualifying sales to institutional investors. When Rule 144A
securities present an attractive investment opportunity and otherwise meet
selection criteria, a Fund may make such investments. Whether or not such
securities are "illiquid" depends on the market that exists for the particular
security. The Commission staff has taken the position that the liquidity of Rule
144A restricted securities is a question of fact for a board of trustees to
determine, such determination to be based on a consideration of the
readily-available trading markets and the review of any contractual
restrictions. The staff also has acknowledged that, while a board of trustees
retains ultimate responsibility, the trustees may delegate this function to an
investment adviser. The trustees of the Trust (the "Trustees") have delegated to
the Advisor the responsibility for determining the liquidity of Rule 144A
restricted securities which may be invested in by a Fund. It is not possible to
predict with assurance exactly how the market for Rule 144A restricted
securities or any other security will develop. A security that may have enjoyed
a fair degree of marketability when purchased may subsequently become illiquid.
Accordingly, a security that was deemed to be liquid at the time of acquisition
may subsequently 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 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 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, 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.
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.
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the Advisor is responsible
for decisions to buy and sell securities for each of the Funds, the selection of
brokers and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. The Advisor expects that the Funds may execute brokerage or
other agency transactions through registered broker-dealers for a commission, in
conformity with the 1940 Act, the Securities Exchange Act of 1934, and the rules
and regulations thereunder.
The Advisor may serve as an investment manager to a number of clients, including
other investment companies. It is the practice of the Advisor to cause purchase
and sale transactions to be allocated among the Funds and others whose assets
the Advisor manages in such manner as the Advisor deems equitable. The main
factors considered by the Advisor in making such allocations among the Funds and
other client accounts of the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the person or persons responsible, if any,
for managing the portfolios of the Funds and the other client accounts.
The policy of each Fund regarding purchases and sales of securities is that
primary consideration will be given to obtaining the most favorable prices and
efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, each Fund's policy is
to pay commissions which are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in all circumstances.
Each Fund believes that a requirement to always seek the lowest possible
commissions could impede effective portfolio management and preclude the Fund
and the Advisor from obtaining high quality brokerage and research services. In
seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Advisor relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
Purchases and sales of U.S. Government securities, if any, are normally
transacted through issuers, underwriters or major dealers in U.S. Government
Securities acting as principals. Such transactions are made on a net basis and
do not involve payment of brokerage commissions. The cost of securities
purchased from an underwriter usually includes a commission paid by the issuer
to the underwriters. Transactions with dealers normally reflect the spread
between bid and asked prices.
In seeking to implement the Funds' policies, the Advisor effects transactions
with those brokers and dealers who the Advisor believes provide the most
favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Funds or the Advisor. Such services may include, but are not
limited to, any one or more of the following: information as to the availability
of securities for purchase or sale; statistical or factual information or
opinions pertaining to investments; wire services; and appraisals or evaluations
of portfolio securities. If the broker-dealer providing these additional
services is acting as a principal for its own account, no commissions would be
payable. If the broker-dealer is not a principal, a higher commission may be
justified at the determination of the Advisor, for the additional services.
The information and services received by the Advisor from brokers and dealers
may be of benefit to the Advisor in the management of accounts of some of the
Advisor's other clients and may not in all cases benefit the Funds directly.
While the receipt of such information and services is useful in varying degrees
and would generally reduce the amount of research or services otherwise
performed by the Advisor and thereby reduce the Advisor's expenses, this
information and these services are of indeterminable value and the management
fee paid to the Advisor is not reduced by any amount that may be attributable to
the value of such information and services.
Consistent with each Fund's investment objectives, the Advisor has the
discretion to select sub-advisers that will determine which securities and the
total amount of securities which are to be bought or sold for each Fund's
account. Each sub-adviser's decision to buy and sell securities is subject to
the overall review of each Fund's Advisor and Trustees. The Advisor selects
sub-advisers whose primary objective in placing orders for the purchase or sale
of securities for a Fund is to obtain the most favorable net results taking into
account such factors as price, commission, size of order, difficulty of
execution and skill required of the broker. The Advisor has ultimate
responsibility for the investment performance of each Fund due to its
responsibility to oversee and direct each sub-adviser and to recommend their
hiring, termination and replacement.
A sub-adviser generally has the authority to select brokers to effect
transactions on a Fund's behalf. When a sub-adviser places orders for the
purchase or sale of portfolio securities for a Fund's account, it uses
reasonable efforts to seek the best combination of price and execution in
selecting brokers. Each sub-adviser selects brokers on the basis of best price
(including commissions) and execution capability. In selecting a broker to
execute a transaction for a Fund, a sub-adviser may consider a variety of
factors, including the following: the broker's capital depth; the broker's
market access; the broker's transaction confirmation and account statement
practices; its knowledge of negotiated commission rates and spreads currently
available; the nature of the security or instrument being traded; the size and
type of the transaction; the nature and character of the markets for the
security or instrument to be purchased or sold; the desired timing of the
transaction; the execution, clearance and settlement capabilities of the broker
selected and others considered; the reputation and perceived soundness of the
broker selected and others considered; the sub-adviser's knowledge of any actual
or apparent operational problems of a broker; and the reasonableness of the
commission or its equivalent for the specific transaction. While each
sub-adviser generally seeks competitive commission rates and dealer spreads, it
will not necessarily pay the lowest commission 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. For the
fiscal period ended July 31, 1999, the France, Germany, Hong Kong, Italy, Japan,
Spain, United Kingdom, Europe and International Index Funds paid brokerage
commissions in the amounts of $____, $____, $____, $____, $____, $____, $____,
$____, and $____, respectively. [None of these commissions were paid to an
affiliate.]
ORGANIZATION OF THE TRUST AND THE FUNDS
The Funds are separate series' of an open-end, management investment company
which was organized on June 9, 1998 as a Trust under the laws of the
Commonwealth of Massachusetts, of a type commonly known as a Massachusetts
business trust.
MANAGEMENT OF THE TRUST
The Trustees of the Trust are responsible for the general supervision of the
Trust's business. The day-to-day operations of the Trust are the
responsibilities of the Trust's officers. The names, addresses and ages of the
Trustees and the officers of the Trust and the officers of the Advisor, together
with information as to their principal business occupations during the past five
years, are set forth below. Fees and expenses for non-interested Trustees will
be paid by the Trust.
<TABLE>
<CAPTION>
<S> <C> <C>
TRUSTEES
PRINCIPAL OCCUPATION(S) DURING
NAME, ADDRESS, AND AGE POSITION(S) HELD WITH FUND PAST 5 YEARS
F. Brian Cerini,* 48 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, 46 Trustee Managing Director, ING (U.S.) Capital Corp., 1995
135 East 57th Street to present; Country Head, Deutsche Bank, Mexico,
New York, NY 10022 1994 to 1995; Director, Duetsche Bank, NY, 1992
to 1994.
Lawrence J. Sheehan, 67 Trustee Of Counsel, O'Melveny & Meyers, 1994 to present;
1999 Avenue of the Stars Partner, O'Melveny & Meyers, 1969 to 1994; Suite 700
Director, FPA Capital Fund, 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, 50 Trustee President, Grey Direct West, 1994 to present;
700 N. Brand #800 Executive V.P., FCB Direct, 1979 to 1994.
Glendale, CA 91203
Alfred E. Osborne, Jr., Ph.D., 54 Trustee Professor, The Anderson School at UCLA, 1978 to present;
110 Westwood Plaza and Director, The Harold Price Center for Entrepreneurial
Suite C305 Studies at UCLA, 1987 to present; Director, Times Mirror
Los Angeles, CA 90095 Company, 1980 to present; Director, Nordstrom, Inc., 1987 to
present; Director, K2, Inc., since 1999; Director, Greyhound
Lines, Inc., 1994 to 1999; Director, United States Filter
Corporation,
1991 to
1999;
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.
<PAGE>
Keith B. Pipes, 43 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.
* This trustee is deemed to be an "interested person" of the Trust under the
1940 Act.
</TABLE>
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 annual compensation paid by the Trust to each of its Trustees is set forth
in the table below1:
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
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
(1)Each Trustee waived 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.
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of [ ], the following shareholders of record owned 5% or more of the
outstanding shares of each Class of each Fund:
[Name of Fund]
Name and Address Percentage Owned
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
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.
Additional investment information sources may include: The Financial Times,
Bloomberg, DRI/McGraw-Hill, the World Bank, the International Monetary Fund,
International Federation of Stock Exchanges, MSCI, Morgan Stanley, PFPC, Inc.,
U.S. government agencies, foreign government agencies, Salomon Brothers, JP
Morgan, The Economist, Morningstar, Ibbottson, Russell, Wall Street Journal, New
York Times, Los Angeles Times, Time, Newsweek, Business Week, Forbes, Fortune,
foreign country stock exchanges, Reuters, Wilshire, Merrill Lynch, Citibank,
Chase Manhattan Bank, Deutsche Bank, Barclays Bank, ING, Bankers Trust, Robert
Fleming, Jardine Fleming, the United Nations, Worldscope, State Street Global
Advisors and State Street Bank.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of a Fund to that of other
mutual funds and to other relevant market indexes in advertisements or in
reports to shareholders, performance for the Fund may be stated in terms of
total return. Under the rules of the SEC ("SEC Rules"), a Fund's advertising
performance must include total return quotes calculated according to the
following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
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.
Based on the foregoing, the average annual returns for the fiscal period ended
July 31, 1999 were as follows:
[Fund Name] [Return]
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.
Based on the foregoing, the average yields for the fiscal period ended July 31,
1999 were as follows:
[Fund Name] [Yield]
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 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 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 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.
<PAGE>
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 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 LLC (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. For the fiscal period ended July 31, 1999,
the France, Germany, Hong Kong, Italy, Japan, Spain, United Kingdom, Europe and
International Index Funds incurred $____, $____, $____, $____, $____, $____,
$____, $____, and $____, respectively, in fees for advisory services. For the
fiscal period ended July 31, 1999, $____, $____, $____, $____, $____, $____,
$____, $____, and $____, respectively, were waived.
ADMINISTRATOR AND TRANSFER AGENT
LMI Capital Administration LLC (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 1060 East Green Street, Suite 209, Pasadena,
California 91106. 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"). 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. For the fiscal period ended July 31,
1999, the France, Germany, Hong Kong, Italy, Japan, Spain, United Kingdom,
Europe and International Index Funds incurred $____, $____, $____, $____, $____,
$____, $____, $____, and $____, respectively, in fees for administration
services. For the fiscal period ended July 31, 1999, $____, $____, $____, $____,
$____, $____, $____, $____, and $____, respectively, were waived.
DISTRIBUTOR
[Provident 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 [1.50]% ("Expense Limit"). 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.
FINANCIAL STATEMENTS
The financial statements for the Funds for the period ended July 31, 1999 are
incorporated herein by reference to the Funds' Annual Report dated July 31,
1999. A copy of the Funds' Annual Report may be obtained without charge by
calling toll-free, 1-877-463-9363.
<PAGE>
PART C: OTHER INFORMATION
Item 23. Exhibits:
(a) Agreement and Declaration of Trust of Worldwide Index Funds is
incorporated by reference to Exhibit (a) of the Initial Registration
Statement, as filed on June 9, 1998.
(b) By-Laws are incorporated by reference to Exhibit (b) of the
Initial Registration Statement, as filed on June 9, 1998.
(c) Not Applicable
(d)(1) Investment Advisory Agreement between Registrant and LMI Investment
Advisors LLC is incorporated by reference to Exhibit (d)(1) of Pre-Effective
Amendment No. 2, as filed on August 26, 1998.
(d)(2) Sub-Advisory Agreement between LMI Investment Advisors LLC and
State Street Global Advisors is incorporated by reference to Exhibit
(d) (2) of Pre-Effective Amendment No. 1, as filed on July 28, 1998.
(e) Distribution Agreement between the registrant and First Data
Distributors, Inc. is incorporated by reference to Exhibit (e) of Pre-Effective
Amendment No. 2, as filed on August 26, 1998.
(f) Not Applicable
(g) Custodian Agreement between the Registrant and State Street Bank and
Trust Company is incorporated by reference to Exhibit (g) of Pre-Effective
Amendment No. 2, as filed on August 26, 1998.
(h)(1) Services Agreement between the Registrant and First Data Investor
Services Group, Inc. is incorporated by reference to Exhibit (h)(1) of
Pre-Effective Amendment No. 2, as filed on August 26, 1998.
(h)(2) Transfer Agency and Services Agreement between the Registrant and
First Data Investor Services Group, Inc. is incorporated by reference to Exhibit
(h)(2) of Pre-Effective Amendment No. 2, as filed on August 26, 1998.
(h)(3) Form of Administration Agreement between the Registrant and LMI
Capital Administration LLC is incorporated by reference to Exhibit (h)(3) of
Pre-Effective Amendment No. 2, as filed on August 26, 1998.
(i) Not Applicable
(j) Not Applicable
(k) Not Applicable
(l) Not Applicable
(m) Not Applicable
(n) Not Applicable
(o) Registrant's Rule 18f-3 Plan is incorporated by reference to Exhibit (o)
of Pre-Effective Amendment No. 2, as filed on August 26, 1998.
(p)(1) Powers of Attorney for Christopher LaBonge, Kunduck Moon, Al Osborne,
Lawrence J. Sheehan, F. Brian Cerini, and Keith B. Pipes are incorporated by
reference to Exhibit (p) of Pre-Effective No. 2, as filed on August 26,
1998.
(p)(2) Powers of Attorney for F. Brian Cerini, Christopher R. LaBonge,
Kunduck Moon, Alfred E. Osborne, Jr. and Lawrence J. Sheehan are filed herein as
Exhibit (p)(2).
(p)(3) Power of Attorney for Keith B. Pipes is filed herein as Exhibit
(p)(3).
<PAGE>
Item 24. Persons Controlled by or under Common Control with the Fund
Not applicable.
Item 25. Indemnification
Article VIII of the Declaration of Trust, filed as Exhibit 1(a) to the
Registration Statement, is incorporated by reference.
Item 26. Business and other Connections of the Investment Adviser:
ADVISER
LMI Investment Advisors LLC (the "Adviser") is the investment adviser for the
Trust. The principal address of the Adviser is 1060 East Green Street, Suite
209, Pasadena, California 91106. The Adviser is an investment adviser registered
under the Advisers Act.
The list required by this Item 26 of officers and directors of the Adviser,
together with information as to any other business profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years is incorporated by reference to Schedules A and D of
Form ADV filed by the Adviser to the Advisers Act (SEC File No. 801-55369).
Item 27. Principal Underwriters
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
the securities of the Registrant also acts as a principal underwriter,
distributor or investment adviser.
First Data Distributors, Inc. (the "Distributor"), a wholly owned
subsidiary of First Data Investor Services Group, Inc. and an indirect
wholly owned subsidiary of First Data Corporation, acts as distributor
for WorldWide Index Funds pursuant to a distribution agreement dated
August 21, 1998. The Distributor also acts as underwriter for ABN AMRO
Funds, Alleghany Funds, BT Insurance Funds Trust, First Choice Funds
Trust, LKCM Funds, The Galaxy Fund, The Galaxy VIP Fund, Galaxy Fund
II, IBJ Funds Trust, ICM Series Trust, Panorama Trust, Undiscovered
Managers Fund, Forward Funds, Inc., Light Index Funds, Inc. Weiss Peck
& Greer Funds Trust, Weiss Peck & Greer International Fund, WPG Growth
Fund, WPG Growth & Income Fund, WPG Tudor Fund, RWB/WPG U.S. Large
Stock Fund, Tomorrow Funds Retirement Trust, The Govett Funds, Inc.,
IAA Trust Growth Fund, Inc., IAA Trust Asset Allocation Fund, Inc., IAA
Trust Tax Exempt Bond Fund, Inc., IAA Trust Taxable Fixed Income Series
Fund, Inc., Matthews International Funds, MCM Funds, Metropolitan West
Funds, Smith Breeden Series Fund, Smith Breeden Trust, Stratton Growth
Fund, Inc., Stratton Monthly Dividend REIT Shares, Inc., The Stratton
Funds, Inc., Trainer, Wortham First Mutual Funds, Wilshire Target
Funds, Inc. and Northern Institutional Funds. The Distributor is
registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities
Dealers, Inc.
(b) The information required by this Item 27 (b) with respect to each
director, officer, or partner of First Data Distributors, Inc. is
incorporated by reference to Schedule A of Form BD filed by First Data
Distributors, Inc. with the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934 (File No. 8-45467.)
(c) Not Applicable
Item 28. Location of Accounts and Records
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3);
(6); (8); (12); and 31a-1(d), the required books and records will be
maintained at the offices of Registrant's Custodian:
State Street Bank &Trust Company Boston, MA 02110
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b),(4); (2)(C) and (D);
(4); and 31a-1(f), the required books and records are maintained at the
offices of Registrant's Sub-Administrator:
First Data Investor Services Group, Inc. 4400 Computer Drive Westboro, MA 01581
(c) With respect to Rules 31a-1(b)(5), (6), (9), (10) and (11)
and 31a-1(f), the required books and records are maintained at
the principal offices of the Registrant's Adviser:
LMI Investment Advisors LLC 1060 East Green Street, Suite
209, Pasadena, CA 91106
Item 29. Management Services
Not applicable
Item 30. Undertakings
"Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue."
<PAGE>
EXHIBIT INDEX
Name Exhibit
Powers of Attorney for F. Brian Cerini, Christopher R. LaBonge,
Kunduck Moon, Alfred E. Osborne, Jr. and Lawrence J. Sheehan P2
Power of Attorney for Keith B. Pipes P3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 1 to the Registration Statement (File No.
811-08805) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and the Commonwealth of Massachusetts on this
30th day of September, 1999.
Worldwide Index Funds
By: *
F. Brian Cerini
President and Trustee
*By: /s/Andrew M. Goldberg
Andrew M. Goldberg
as Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacity and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signatures Title Date
* President and Trustee September 30, 1999
- ------------------------------
F. Brian Cerini
* Treasurer September 30, 1999
- ------------------------------
Keith B. Pipes
* Trustee September 30, 1999
- ------------------------------
Christopher R. LaBonge
* Trustee September 30, 1999
- ------------------------------
Kunduck Moon
* Trustee September 30, 1999
- ------------------------------
Alfred E. Osborne, Jr.
* Trustee September 30, 1999
- ------------------------------
Lawrence J. Sheehan
*By: /s/Andrew M. Goldberg
Andrew M. Goldberg
as Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT P2
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a
Trustee of WorldWide Index Funds, a Massachusetts business trust (the "Trust"),
does hereby make, constitute and appoint Linda J. Hoard, Elizabeth W. Lawrence
and Andrew M. Goldberg, and each of them, attorneys-in-fact and agents of the
undersigned with full power and authority of substitution and resubstitution, in
any and all capacities, to execute for and on behalf of the undersigned any and
all amendments to the Registration Statement on Form N-1A relating to the shares
of the Trust and any other documents and instruments incidental thereto, and to
deliver and file the same, with all exhibits thereto, and all documents and
instruments in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing that
said attorneys-in-fact and agents, and each of them, deem advisable or necessary
to enable the Trust to effectuate the intents and purposes hereof, and the
undersigned hereby fully ratifies and confirms all that said attorneys-in-fact
and agents, or any of them, or their or his or her substitute or substitutes,
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed his name this 9th
day of August, 1999.
/s/F. Brian Cerini /s/Alfred E. Osborne, Jr.
F. Brian Cerini Alfred E. Osborne, Jr.
/s/Christopher R. LaBonge /s/Lawrence J. Sheehan
Christopher R. LaBonge Lawrence J. Sheehan
/s/Kunduck Moon
Kunduck Moon
<PAGE>
EXHIBIT P3
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being an
Officer of WorldWide Index Funds, a Massachusetts business trust (the "Trust"),
does hereby make, constitute and appoint Linda J. Hoard, Elizabeth W. Lawrence
and Andrew M. Goldberg, and each of them, attorneys-in-fact and agents of the
undersigned with full power and authority of substitution and resubstitution, in
any and all capacities, to execute for and on behalf of the undersigned any and
all amendments to the Registration Statement on Form N-1A relating to the shares
of the Trust and any other documents and instruments incidental thereto, and to
deliver and file the same, with all exhibits thereto, and all documents and
instruments in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing that
said attorneys-in-fact and agents, and each of them, deem advisable or necessary
to enable the Trust to effectuate the intents and purposes hereof, and the
undersigned hereby fully ratifies and confirms all that said attorneys-in-fact
and agents, or any of them, or their or his or her substitute or substitutes,
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed his name this 9th
day of August, 1999.
/s/Keith B. Pipes
Keith B. Pipes