<PAGE>
CDC MPT+ FUNDS
U.S. CORE EQUITY FUND
AGGRESSIVE EQUITY FUND
GLOBAL INDEPENDENCE FUND
(COLLECTIVELY, THE "FUNDS")
SUPPLEMENT TO THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
THE FOLLOWING SUPERSEDES CERTAIN INFORMATION RELATING TO THE FUNDS CONTAINED
IN THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION OF CDC MPT+ FUNDS:
Funds Distributor, Inc., the Funds' distributor, will solicit orders to
purchase Institutional shares of the Funds during an initial offering period
from June 21, 1999 until the close of the New York Stock Exchange (usually
4 p.m., Eastern time) on June 30, 1999 (the "Offering Period"). The purchase
price will be each Fund's initial subscription offering price of $10 per
share, and payments for orders received during the Offering Period will be
accepted by a Fund at the end of the Offering Period on June 30, 1999. Until
that time, payments will be held uninvested in a non-interest bearing account
by the Funds' transfer agent. Subscriptions are revocable during the
Offering Period by calling the Funds' transfer agent at 1-800-774-9838.
Shares of the Funds will not be available to the public prior to the Funds'
commencement of investment operations which is scheduled for July 1, 1999.
Orders received after the expiration of the Offering Period will receive the
price next determined after they are received and accepted. After July 1,
1999, the price per share of each Fund may be more or less than $10.
Dated: June 4, 1999
<PAGE>
[LOGO]
- --------------------------------
U.S. CORE EQUITY FUND
- --------------------------------
AGGRESSIVE EQUITY FUND
- --------------------------------
GLOBAL INDEPENDENCE FUND
- --------------------------------
PROSPECTUS
June 4, 1999
The Securities and Exchange
Commission has not approved or
disapproved of these securities or
passed upon the adequacy or accuracy
of this prospectus. Any
representation to the contrary is a
criminal offense.
- -- - - - - - - - - - - - - - - - -
<PAGE>
[LOGO]
CDC MPT+ FUNDS
U.S. CORE EQUITY FUND
AGGRESSIVE EQUITY FUND
GLOBAL INDEPENDENCE FUND
(collectively, the "Funds")
Supplement to the Prospectus and Statement of Additional
Information
The following supersedes certain information relating to the Funds
contained in the Prospectus and Statement of Additional
Information of CDC MPT+ Funds:
Each of the Funds is authorized to offer two no-load classes of
shares: Investor shares and Institutional shares. However, the
Funds are only offering Institutional shares at this time.
Dated: June 4, 1999
<PAGE>
[LOGO]
Contents
- -----------------------------------------------------------------------
<TABLE>
<S> <C>
Risk/Return Summary..................................................................... 1
U.S. Core Equity Fund................................................................... 10
Aggressive Equity Fund.................................................................. 13
Global Independence Fund................................................................ 15
Common Investment Strategies for:
Aggressive Equity and Global Independence Funds......................................... 17
More About Risk......................................................................... 19
Certain Investment Practices............................................................ 23
Management.............................................................................. 24
Account Policies........................................................................ 32
Shareholder Services.................................................................... 34
Distribution Policies and Taxes......................................................... 36
Fund Details............................................................................ 38
Additional Information.................................................................. 39
</TABLE>
<PAGE>
[LOGO]
Risk/Return Summary
- --------------------------------------------------------------------------------
General
CDC MPT+ Funds is a newly organized no-load mutual fund complex with three
separate investment portfolios (each, a "fund"): the U.S. Core Equity Fund, the
Aggressive Equity Fund and the Global Independence Fund.
Multi-Class Structure
Each of the funds offers two no-load classes of shares: Investor shares and
Institutional shares. Investor shares bear a shareholding service and
distribution fee of 0.25% of the shares' net asset value. Institutional shares
do not bear this fee. Whether an investor is eligible to purchase Investor
shares or Institutional shares generally depends on the amount invested in a
particular fund.
Investor Profile
THESE FUNDS ARE DESIGNED FOR INVESTORS WHO:
- are investing for long-term goals that may include college or retirement,
with a time horizon of several years
- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
- are investing for total return greater than that of the S&P 500 Index,
or, in the case of the Global Independence Fund, are investing for total
return, on a risk adjusted basis, consistent with the preservation of
capital
THEY MAY NOT BE APPROPRIATE IF YOU:
- are investing for a shorter time horizon, especially one of less than
several years
- are uncomfortable with an investment that will fluctuate in value
- are primarily looking for income or tax-free income
YOU SHOULD BASE YOUR SELECTION OF A FUND ON YOUR OWN GOALS, RISK PREFERENCES AND
TIME HORIZON.
Investment Goals and Principal Strategies
The U.S. Core Equity Fund is a diversified portfolio that seeks a total return
greater than that of the S&P 500 Index by investing primarily in common stocks
of U.S. issuers. The Aggressive Equity Fund is a non-diversified portfolio that
seeks a total return greater than that of the S&P 500 Index by investing
primarily in equity and equity-related securities and certain derivative
instruments, including U.S. dollar and non-U.S. dollar denominated fixed income
derivative instruments and currencies. The Global Independence Fund is a
non-diversified portfolio that seeks a total return, on a risk adjusted basis,
consistent with the preservation of capital by investing primarily in global
equity, global fixed income and currency markets. Each fund employs its own
strategy and has its own risk/reward profile. Because you can lose money by
investing in these funds, be sure to read all risk disclosures carefully before
investing.
Prospectus Page 1
<PAGE>
[LOGO]
U.S. CORE EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund/Risk Factors Investment Goal Principal Strategies
- --------------------- ------------------------- ------------------------------------
<S> <C> <C>
- - Equity risk Total return greater than - Invests primarily in equity
- - Market risk that of the S&P 500 Index securities of U.S. companies
- - Leverage risk - Looks for companies with
- - Exposure risk attractive characteristics such as
increasing operating profits, low
relative valuation, appropriate
capital structures, disciplined
investment policies and senior
management incentive compensation
plans that align management and
shareholder interests
- Implements both a fundamental and
quantitative approach to construct
a portfolio of securities that
creates shareholder value
</TABLE>
Prospectus Page 2
<PAGE>
[LOGO]
AGGRESSIVE EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund/Risk Factors Investment Goal Principal Strategies
- --------------------- ------------------------- ------------------------------------
<S> <C> <C>
- - Equity risk Total return greater than - Invests primarily in equity and
- - Exposure risk that of the S&P 500 Index equity- related investments,
- - Futures risk including common stocks, options
- - Leverage risk on securities and securities
- - Risks of derivative indices, convertible securities,
instruments rights and warrants, equity swaps,
- - Market risk and S&P 500 index futures and
- - Foreign securities options thereon
risk - To enhance return incrementally
- - Interest rate risk and manage risk, invests in equity
- - Non-diversification index and bond futures contracts and
risk options thereon, currency spot and
forward contracts, currency and
interest rate futures contracts and
options thereon, and equity and
interest rate swap contracts
- Obtains exposure to the global
equity, global fixed income and
currency markets through the use
of currency forward contracts,
options on securities and
securities indices, futures
contracts and options thereon,
swaps and other derivative
instruments
- Uses unencumbered cash to invest
in money market instruments and
short-term obligations of high
quality
- Seeks to replicate the S&P 500
Index and add incremental return by
combining the use of quantitative
tools and risk management
techniques to construct a
portfolio of securities and
derivative instruments that the
Adviser believes will take
advantage of future market shifts
or shifts in market fundamentals,
behavior or patterns while
reducing volatility and mitigating
risk
</TABLE>
Prospectus Page 3
<PAGE>
[LOGO]
GLOBAL INDEPENDENCE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund/Risk Factors Investment Goal Principal Strategies
- --------------------- ------------------------- ------------------------------------
<S> <C> <C>
- - Exposure risk Total return, on a risk - Invests primarily in global equity
- - Futures risk adjusted basis, indices, global fixed income and
- - Leverage risk consistent with the currency markets
- - Risks of derivative preservation of capital - To enhance return incrementally
instruments and manage risk, invests in common
- - Foreign securities stocks, corporate bonds, debentures
risk and notes, convertible securities,
- - Interest rate risk non-convertible debt instruments and
- - Market risk preferred stocks, government, bank
- - Non-diversification and commercial obligations, rights
risk and warrants, depositary receipts,
currency spot and forward contracts,
options on securities and
securities indices, equity and
interest rate swap contracts;
equity index and bond futures and
options thereon, and currency and
interest rate futures contracts
and options thereon
- Uses unencumbered cash to invest
in money market instruments and
short-term obligations of high
quality
- Combines the use of quantitative
tools and risk management techniques
to construct a portfolio of
derivative instruments that the
Adviser believes will take
advantage of future market shifts
or shifts in market fundamentals,
behavior or patterns while
reducing volatility and mitigating
risk
</TABLE>
A Word About Risk
- --------------------------------------------------------------------------------
INVESTMENT IN THE FUNDS INVOLVES SPECIAL RISKS, SOME NOT TYPICALLY ASSOCIATED
WITH MUTUAL FUNDS. INVESTORS SHOULD CAREFULLY REVIEW AND EVALUATE THESE RISKS
WHEN CONSIDERING AN INVESTMENT IN THE FUNDS. NONE OF THE FUNDS CONSTITUTES A
BALANCED INVESTMENT PLAN.
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money and not make money.
The principal risks of investing in the funds are noted above and discussed more
fully in "More About Risk". Before you invest, please make sure you understand
the risks that apply to your fund. As with any mutual fund, there is no
guarantee that you will make money over any period of time and you could lose
money by investing in a fund.
Investments in the funds are not bank deposits. They are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Prospectus Page 4
<PAGE>
Fees and Expenses
[LOGO]
U.S. CORE EQUITY FUND
- --------------------------------------------------------------------------------
The following tables describe the fees and expenses you may pay if you buy and
hold shares of the fund. Please note that the expenses of the fund include the
basic, maximum and minimum management fees payable to the Adviser.
<TABLE>
<CAPTION>
INVESTOR SHARES BASIC MAXIMUM MINIMUM
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Shareholder fees (paid directly from your
investment)
- ----------------------------------------------------------------------------------
Sales charge "load" on purchases None None None
- ----------------------------------------------------------------------------------
Deferred sales charge "load" None None None
- ----------------------------------------------------------------------------------
Sales charge "load" on reinvested None None None
distributions
- ----------------------------------------------------------------------------------
Redemption fees (short-term trading fees)(1) 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------
Annual fund operating expenses (deducted from fund
assets)
- ----------------------------------------------------------------------------------
Management fees(2) 1.00% 2.00% 0.00%
- ----------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 0.25% 0.25%
- ----------------------------------------------------------------------------------
Other expenses(3) 1.37% 1.37% 1.37%
- ----------------------------------------------------------------------------------
Total annual fund operating expenses 2.62% 3.62% 1.62%
- ----------------------------------------------------------------------------------
Less fee waivers and/or expense 1.02% 1.02% 1.02%
reimbursements(4)
- ----------------------------------------------------------------------------------
Total annual fund operating expenses 1.60% 2.60% 0.60%
(after fee waivers and/or expense
reimbursements)
- ----------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL SHARES BASIC MAXIMUM MINIMUM
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Shareholder fees (paid directly from your
investment)
- ----------------------------------------------------------------------------------
Sales charge "load" on purchases None None None
- ----------------------------------------------------------------------------------
Deferred sales charge "load" None None None
- ----------------------------------------------------------------------------------
Sales charge "load" on reinvested None None None
distributions
- ----------------------------------------------------------------------------------
Redemption fees (short-term trading fees)(1) 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------
Annual fund operating expenses (deducted from fund
assets)
- ----------------------------------------------------------------------------------
Management fees(2) 1.00% 2.00% 0.00%
- ----------------------------------------------------------------------------------
Distribution and service (12b-1) fees None None None
- ----------------------------------------------------------------------------------
Other expenses(3) 1.37% 1.37% 1.37%
- ----------------------------------------------------------------------------------
Total annual fund operating expenses 2.37% 3.37% 1.37%
- ----------------------------------------------------------------------------------
Less fee waivers and/or expense 1.02% 1.02% 1.02%
reimbursements(4)
- ----------------------------------------------------------------------------------
Total annual fund operating expenses 1.35% 2.35% 0.35%
(after fee waivers and/or expense
reimbursements)
- ----------------------------------------------------------------------------------
</TABLE>
* See notes on page 8
Prospectus Page 5
<PAGE>
Fees and Expenses
[LOGO]
AGGRESSIVE EQUITY FUND
- --------------------------------------------------------------------------------
The following tables describe the fees and expenses you may pay if you buy and
hold shares of the fund. Please note that the expenses of the fund include the
basic, maximum and minimum management fees payable to the Adviser.
<TABLE>
<CAPTION>
INVESTOR SHARES BASIC MAXIMUM MINIMUM
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Shareholder fees (paid directly from your
investment)
- ----------------------------------------------------------------------------------
Sales charge "load" on purchases None None None
- ----------------------------------------------------------------------------------
Deferred sales charge "load" None None None
- ----------------------------------------------------------------------------------
Sales charge "load" on reinvested None None None
distributions
- ----------------------------------------------------------------------------------
Redemption fees (short-term trading fees)(1) 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------
Annual fund operating expenses (deducted from fund
assets)
- ----------------------------------------------------------------------------------
Management fees(2) 1.50% 3.00% 0.00%
- ----------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 0.25% 0.25%
- ----------------------------------------------------------------------------------
Other expenses(3) 1.36% 1.36% 1.36%
- ----------------------------------------------------------------------------------
Total annual fund operating expenses 3.11% 4.61% 1.61%
- ----------------------------------------------------------------------------------
Less fee waivers and/or expense 1.01% 1.01% 1.01%
reimbursements(4)
- ----------------------------------------------------------------------------------
Total annual fund operating expenses 2.10% 3.60% 0.60%
(after fee waivers and/or expense
reimbursements)
- ----------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL SHARES BASIC MAXIMUM MINIMUM
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Shareholder fees (paid directly from your
investment)
- ----------------------------------------------------------------------------------
Sales charge "load" on purchases None None None
- ----------------------------------------------------------------------------------
Deferred sales charge "load" None None None
- ----------------------------------------------------------------------------------
Sales charge "load" on reinvested None None None
distributions
- ----------------------------------------------------------------------------------
Redemption fees (short-term trading fees)(1) 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------
Annual fund operating expenses (deducted from fund
assets)
- ----------------------------------------------------------------------------------
Management fees(2) 1.50% 3.00% 0.00%
- ----------------------------------------------------------------------------------
Distribution and service (12b-1) fees None None None
- ----------------------------------------------------------------------------------
Other expenses(3) 1.36% 1.36% 1.36%
- ----------------------------------------------------------------------------------
Total annual fund operating expenses 2.86% 4.36% 1.36%
- ----------------------------------------------------------------------------------
Less fee waivers and/or expense 1.01% 1.01% 1.01%
reimbursements(4)
- ----------------------------------------------------------------------------------
Total annual fund operating expenses 1.85% 3.35% 0.35%
(after fee waivers and/or expense
reimbursements)
- ----------------------------------------------------------------------------------
</TABLE>
* See notes on page 8
Prospectus Page 6
<PAGE>
Fees and Expenses
[LOGO]
GLOBAL INDEPENDENCE FUND
- --------------------------------------------------------------------------------
The following tables describe the fees and expenses you may pay if you buy and
hold shares of the fund. Please note that the expenses of the fund include the
basic, maximum and minimum management fees payable to the Adviser.
<TABLE>
<CAPTION>
INVESTOR SHARES BASIC MAXIMUM MINIMUM
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Shareholder fees (paid directly from your
investment)
- ----------------------------------------------------------------------------------
Sales charge "load" on purchases None None None
- ----------------------------------------------------------------------------------
Deferred sales charge "load" None None None
- ----------------------------------------------------------------------------------
Sales charge "load" on reinvested None None None
distributions
- ----------------------------------------------------------------------------------
Redemption fees (short-term trading fees)(1) 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------
Annual fund operating expenses (deducted from fund
assets)
- ----------------------------------------------------------------------------------
Management fees(2) 1.75% 2.00% 1.50%
- ----------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 0.25% 0.25%
- ----------------------------------------------------------------------------------
Other expenses(3) 1.36% 1.36% 1.36%
- ----------------------------------------------------------------------------------
Total annual fund operating expenses 3.36% 3.61% 3.11%
- ----------------------------------------------------------------------------------
Less fee waivers and/or expense 1.01% 1.01% 1.01%
reimbursements(4)
- ----------------------------------------------------------------------------------
Total annual fund operating expenses 2.35% 2.60% 2.10%
(after fee waivers and/or expense
reimbursements)
- ----------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL SHARES BASIC MAXIMUM MINIMUM
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Shareholder fees (paid directly from your
investment)
- ----------------------------------------------------------------------------------
Sales charge "load" on purchases None None None
- ----------------------------------------------------------------------------------
Deferred sales charge "load" None None None
- ----------------------------------------------------------------------------------
Sales charge "load" on reinvested None None None
distributions
- ----------------------------------------------------------------------------------
Redemption fees (short-term trading fees)(1) 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------
Annual fund operating expenses (deducted from fund
assets)
- ----------------------------------------------------------------------------------
Management fees(2) 1.75% 2.00% 1.50%
- ----------------------------------------------------------------------------------
Distribution and service (12b-1) fees None None None
- ----------------------------------------------------------------------------------
Other expenses(3) 1.36% 1.36% 1.36%
- ----------------------------------------------------------------------------------
Total annual fund operating expenses 3.11% 3.36% 2.86%
- ----------------------------------------------------------------------------------
Less fee waivers and/or expense 1.01% 1.01% 1.01%
reimbursements(4)
- ----------------------------------------------------------------------------------
Total annual fund operating expenses 2.10% 2.35% 1.85%
(after fee waivers and/or expense
reimbursements)
- ----------------------------------------------------------------------------------
</TABLE>
* See notes on page 8
Prospectus Page 7
<PAGE>
[LOGO]
INVESTOR EXPENSES NOTES
- --------------------------------------------------------------------------------
1 Each fund will deduct a short-term trading fee equal to 1.00% of the net asset
value of the shares from the redemption amount if you sell your shares after
holding them less than 90 days. This fee is paid to the fund rather than the
Adviser, and is designed to offset the brokerage commissions, market impact
and other costs associated with fluctuations in fund asset levels and cash
flow caused by short-term shareholder trading. The short-term trading fee, if
applicable, is charged on exchanges out of a fund. If you bought shares on
different days, the shares you held longest will be redeemed first for
purposes of determining whether the short-term trading fee applies. The
short-term trading fee does not apply to shares that were acquired through
reinvestment of distributions.
2 The management fee paid to the Adviser for providing advisory services to the
funds consists of a basic fee and a performance adjustment calculated by
comparing the Fund's performance to a target. The basic fee for the U.S. Core
Equity Fund, the Aggressive Equity Fund and the Global Independence Fund is
1.00%, 1.50% and 1.75% of the fund's average net assets, respectively. The
actual fees paid to the Adviser may be higher or lower than the basic fee. The
target for the U.S. Core Equity Fund and the Aggressive Equity Fund is the
investment record of the Standard & Poor's 500 Composite Price Index (the "S&P
500 Index"). The target for the Global Independence Fund is the investment
record of a composite benchmark, 50% of which will be comprised of the Morgan
Stanley Capital International World Equity Index (the "World Equity Index")
and 50% of which will be comprised of the J.P. Morgan Global Bond Index (the
"Global Bond Index"). The S&P 500 Index is an unmanaged index composed of 500
common stocks, most of which are listed on the New York Stock Exchange. The
S&P 500 Index assigns relative percentage weights to the stocks included in
the index, weighted according to each stock's total market value relative to
the total market value of the other stocks in such index. The World Equity
Index is a market capitalization weighted equity index composed of a sample of
companies from twenty countries and includes at least 1,579 companies. The
Global Bond Index is a total return index that tracks the traded sovereign
issues of thirteen international markets. Each market is weighted according to
its traded market capitalization in U.S. dollar terms and all issues included
in the index are liquid with remaining maturities of greater than thirteen
months. See "Management--Management Fees" for additional information about the
fee calculation.
3 Other expenses are based on estimated amounts for each fund's first full
fiscal year since the funds have not yet commenced operations.
4 The Adviser has agreed, for the 12-month period commencing on the date of this
Prospectus, to reimburse expenses to each Fund if necessary so that the Fund's
"Other Expenses" (other than interest, taxes, brokerage and extraordinary
expenses including litigation expenses) do not exceed .35% of the Fund's
average net assets.
Example
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUNDS WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. HOWEVER, IT IS ONLY
HYPOTHETICAL AND YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE
EXAMPLE ALSO ASSUMES THAT YOUR
Prospectus Page 8
<PAGE>
[LOGO]
INVESTOR EXPENSES NOTES
- --------------------------------------------------------------------------------
INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S OPERATING EXPENSES
(OTHER THAN THE MANAGEMENT FEE) REMAIN THE SAME. ALTHOUGH YOUR ACTUAL COSTS
MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COST WOULD BE:
Investor Shares
<TABLE>
<CAPTION>
3
1 YEAR YEARS
BASIC MAXIMUM MINIMUM BASIC MAXIMUM MINIMUM
<S> <C> <C> <C> <C> <C> <C>
U.S. Core Equity Fund $160 $260 $60 $708 $1,006 $404
Aggressive Equity Fund $210 $360 $60 $856 $1,297 $402
Global Independence Fund $235 $260 $210 $930 $1,004 $856
</TABLE>
Institutional Shares
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
BASIC MAXIMUM MINIMUM BASIC MAXIMUM MINIMUM
<S> <C> <C> <C> <C> <C> <C>
U.S. Core Equity Fund $135 $235 $35 $633 $933 $327
Aggressive Equity Fund $185 $335 $35 $781 $1,224 $325
Global Independence Fund $210 $235 $185 $856 $930 $781
</TABLE>
Prospectus Page 9
<PAGE>
[LOGO]
U.S. CORE EQUITY FUND
- --------------------------------------------------------------------------------
Goal and Strategies
The U.S. Core Equity Fund seeks a total return greater than that of the S&P 500
Index by providing investors with a professionally and actively managed
portfolio that aims to provide superior investment returns compared to those
otherwise achievable in the general U.S. equity market. The Fund will use both a
fundamental and quantitative approach to equity portfolio management that
emphasizes modern portfolio theory and other well-tested academic theories of
corporate finance moderated by consideration of the general economic environment
and practical financial market experience. The investment strategy will focus on
companies where management creates shareholder value by:
- increasing operating profits
- designing appropriate capital structures for the business risks being taken
- adopting disciplined new project investment policies as well as acquisition
and divestiture policies that earn expected returns in excess of the
risk-adjusted cost of capital
- designing senior management compensation plans that reward the creation of
shareholder value.
The Fund will use time-tested quantitative systems for identifying overvalued
and undervalued common stocks. These quantitative tools will focus on a number
of analytical topics, including:
- earnings growth, earnings surprises and earnings estimate revisions
- price momentum of stocks
- valuation analysis
- merger and acquisition arbitrage analysis
- seasonal market factors
- analyzing secondary public offerings and stock buy-backs
The Adviser will manage the Fund with a controlled and disciplined approach to
risk-taking with the objective of earning superior returns to the S&P 500 Index
from careful stock selection. The Adviser will use quantitative tools to measure
and limit portfolio risk, including market timing risk and industry risk in
particular, as well as economic risk, financial risk and stock specific risk.
When necessary to conserve the Fund's capital, the Adviser may permit some
market directional risk to protect the Fund against market downturns through the
use of futures, options on futures or short sales.
The Fund does not focus on one source of shareholder value, but seeks a deeper
understanding of the many sources from which shareholder value can be created.
The guiding principles of modern portfolio theory, corporate finance theory and
economic value-added analysis(1) and the disciplined use of quantitative and
risk management tools are intended to produce a diversified and balanced
(1)EVA-Registered Trademark- is a registered trademark of Stern Stewart & Co.
Prospectus Page 10
<PAGE>
[LOGO]
U.S. CORE EQUITY FUND
- --------------------------------------------------------------------------------
portfolio that can earn returns superior to the S&P 500 Index without taking
unnecessary risk. As such, the Fund is a risk-managed portfolio seeking equity
returns from diversified sources and not merely a value or growth fund.
Securities and industry concentration will be limited by the desire to maintain
a reasonable risk level relative to the S&P 500 Index.
S&P Index futures may be used to manage cash flows, invest excess cash, control
risk or incrementally enhance return.
Portfolio Investments
UNDER NORMAL MARKET CONDITIONS, THIS FUND INVESTS AT LEAST 65% OF ITS ASSETS IN
EQUITY SECURITIES, INCLUDING:
- common stocks of U.S. issuers
- securities convertible into common stocks
- securities such as rights and warrants, whose values are based on common
stocks
- dollar-denominated American Depositary Receipts ("ADRs")
THE FUND MAY ALSO INVEST IN PREFERRED STOCKS AND NON-CONVERTIBLE DEBT SECURITIES
SUCH AS BONDS, DEBENTURES AND NOTES. THE CASH PORTION OF THIS FUND WILL HAVE A
DURATION OF LESS THAN 3 YEARS AND WILL CONSIST OF INVESTMENT GRADE FIXED-INCOME
SECURITIES.
THE FUND MAY GAIN EXPOSURE TO STOCKS THROUGH:
- common and convertible shares
- short sales
- purchases on margin
- writing put and call options
- initial public offerings
EXPOSURES TO THE U.S. STOCK MARKET MAY ALSO BE ACQUIRED BY:
- stock market and industry specific index commodity futures contracts
- options contracts
- options on futures contracts
- exchange-traded options on individuals stocks
THE FUND MAY ALSO ENGAGE IN:
- arbitrage activities
- repurchase agreements
- reverse repurchase agreements
Prospectus Page 11
<PAGE>
[LOGO]
U.S. CORE EQUITY FUND
- --------------------------------------------------------------------------------
- forward delivery contracts
FOR LIQUIDITY AND FLEXIBILITY, THE FUND MAY INVEST A PORTION OF ITS ASSETS IN
MONEY MARKET INSTRUMENTS AND SHORT-TERM OBLIGATIONS OF HIGH QUALITY, INCLUDING
U.S. GOVERNMENT SECURITIES, BANK OBLIGATIONS, REPURCHASE AND REVERSE REPURCHASE
AGREEMENTS, COMMERCIAL PAPER AND OTHER INVESTMENT-GRADE DEBT SECURITIES. AS A
DEFENSIVE TACTIC IN UNUSUAL MARKET CONDITIONS, THE FUND MAY TEMPORARILY INVEST
WITHOUT LIMIT IN THESE MONEY MARKET AND SHORT-TERM OBLIGATIONS. THIS COULD
POTENTIALLY KEEP THE FUND FROM ACHIEVING ITS OBJECTIVE.
Risk Factors
This Fund's principal risk factors are:
- equity risk
- market risk
- leverage risk
- exposure risk
- risks of derivative instruments
The value of your investment will fluctuate in response to stock market
movements. To a limited extent, the Fund may also engage in other investment
practices, including the purchase of foreign securities. International investing
is associated with additional risks, including currency, information and
political risks. The Fund may use structured securities and other instruments
(such as swaps) to gain access to the performance of a benchmark asset such as
an index or selected stocks where the Fund's direct investment in the benchmark
asset is restricted. These types of investments carry a number of additional
risks such as access, credit, currency, exposure, information, interest rate,
liquidity, market, political and valuation risks. In addition, the Fund may be
subject to interest rate risk to the extent it invests in fixed-income
securities and engages in futures and options on futures transactions. These
risks are defined in "More About Risk."
Although the Fund may hedge its portfolio to reduce investment risk, the Fund is
not obligated to pursue any hedging strategy. In addition, hedging practices may
not be available, may be too costly to be used effectively or may be unable to
be used for other reasons.
To the extent that it invests in certain securities or other instruments, the
Fund may be affected by additional risks. These risks are defined in "More About
Risk." That section also details other investment practices the Fund may use.
Please read "More About Risk" carefully before you invest.
Prospectus Page 12
<PAGE>
[LOGO]
AGGRESSIVE EQUITY FUND
- --------------------------------------------------------------------------------
Goal and Strategies
The Aggressive Equity Fund seeks a total return greater than that of the S&P 500
Index by investing primarily in the U.S. equity market, as well as the global
equity, global fixed income and currency markets. The Fund's investments outside
the United States will generally be limited to developed countries. The Fund may
use certain derivative instruments to enhance its return incrementally as well
as to manage portfolio risk.
The Fund will apply the Adviser's Global Dynamic Asset Allocation Strategy
("GDAA") which balances the goal of high performance with the appropriate risk.
The GDAA Strategy seeks to control the effect of shifts in market volatility in
the liquid equity and fixed-income markets of developed economies. In addition,
the strategy uses short-term currency forward contracts for sufficiently liquid
currency markets. Furthermore, the GDAA Strategy seeks to exploit consistent
(although evolving) patterns in the relationships of fundamental economic and
financial variables to the underlying equity, bond and currency markets. It uses
a mixture of fundamental judgment and sophisticated quantitative tools, which
simultaneously estimate predictive expected asset returns with asset risks and
correlations to achieve a stream of portfolio returns which effectively balance
a reasonable range of risk against return.
Portfolio Investments
UNDER NORMAL MARKET CONDITIONS, THE FUND WILL INVEST AT LEAST 65% OF ITS ASSETS
IN EQUITY AND EQUITY-RELATED SECURITIES AND DERIVATIVE INSTRUMENTS OF U.S.
ISSUERS INCLUDING:
- common stocks
- options on securities and securities indices
- securities convertible into common stocks
- rights and warrants, whose values are based on common stocks
- equity swap contracts
- S&P 500 index futures contracts and options thereon
TO ENHANCE ITS INVESTMENT RETURNS INCREMENTALLY AND TO MANAGE RISK, THE FUND MAY
ALSO ENTER INTO:
- equity index and bond futures contracts and options thereon
- currency spot and forward contracts
- currency and interest rate futures contracts and options thereon
- equity and interest rate swap contracts
TO A LESSER EXTENT, THE FUND MAY ALSO PURCHASE OR SELL CONTRACTS RELATING TO THE
FUTURE DELIVERY OF PRECIOUS METALS.
The Fund may also invest directly in long-term U.S. and foreign government
securities. For liquidity and flexibility, the Fund intends to place its
remaining assets in money market instruments and short-term obligations of high
quality, including U.S. Government securities, bank obligations,
Prospectus Page 13
<PAGE>
[LOGO]
AGGRESSIVE EQUITY FUND
- --------------------------------------------------------------------------------
repurchase and reverse repurchase agreements, commercial paper and other
investment-grade debt securities. As a defensive tactic in unusual market
conditions, the Fund may temporarily invest without limit in these money market
and short-term obligations. This could potentially keep the Fund from achieving
its goal.
The Fund may also invest in preferred stocks and non-convertible debt securities
such as bonds, debentures and notes.
Although the Fund may hedge its portfolio to reduce investment risk, the Fund is
not obligated to pursue any hedging strategy. In addition, hedging practices may
not be available, may be too costly to be used effectively or may be unable to
be used for other reasons.
Risk Factors
This Fund's principal risk factors are:
- equity risk
- exposure risk
- futures risk
- leverage risk
- risks of derivative instruments
- foreign securities risk
- market risk
- interest rate risk
- non-diversification risk
The value of your investment will fluctuate in response to global stock market
movements, as well as global bond market movements. In addition, because the
Fund invests globally, it will be exposed to currency, information, political
and, possibly, natural event risks. To the extent that the Fund's foreign
investments at any given time are focused in one particular country or target a
single region, the Fund may be more volatile than a more geographically
diversified fund.
The Fund's transactions in leveraged derivative instruments, such as options on
securities and indices, futures contracts and related options, and transactions
in currency contracts, carry additional risks, such as correlation, liquidity,
credit, opportunity and regulatory risks. The Fund may also use structured
securities and other instruments (such as swaps) to gain access to the
performance of a benchmark asset such as an index or selected stocks where the
Fund's direct investment in the benchmark asset is restricted. These types of
investments carry a number of additional risks such as access, credit, currency,
exposure, information, interest rate, liquidity, market, political and valuation
risks. These risks and additional risks that the Fund may be subject to are
defined in "More About Risk." "More About Risk" also details other investment
practices the Fund may use, which, if employed, are associated with further risk
that could adversely affect the Fund's performance. Please read "More About
Risk" carefully before you invest.
Prospectus Page 14
<PAGE>
[LOGO]
GLOBAL INDEPENDENCE FUND
- --------------------------------------------------------------------------------
Goal and Strategies
The Global Independence Fund seeks total return, on a risk adjusted basis,
consistent with the preservation of capital. To achieve its investment
objective, the Fund invests in the global equity, global fixed income and
currency markets. The Fund will pursue a balanced investment approach and the
Adviser does not expect to place particular emphasis on either the equity or
fixed income portion of the portfolio at any time. The Fund seeks to enhance its
return incrementally and manage risk by using currency spot and forward
contracts, financial futures, options on futures and other derivative
instruments. The Fund will seek to provide total return on a risk adjusted basis
by applying the GDAA Strategy described under "Aggressive Equity Fund" and
investing, through the use of the instruments described below, in the global
equity, global fixed income and currency markets. The Fund's investments outside
the United States will generally be limited to developed countries.
Portfolio Investments
- common stocks, corporate bonds, debentures and notes
- securities convertible into common stocks, non-convertible debt instruments
and preferred stocks
- government, bank and commercial obligations
- rights and warrants, whose value is based on common stocks
- depositary receipts relating to equity securities
- currency spot and forward contracts
- options on securities and securities indices
- equity and interest swap contracts
- equity index and bond futures contracts and options thereon
- currency and interest rate futures contracts and options thereon
THE FUND INTENDS TO PLACE A SUBSTANTIAL PORTION OF ITS ASSETS IN SHORT-TERM
OBLIGATIONS OF HIGH QUALITY, INCLUDING:
- U.S. Government securities
- bank obligations
- repurchase and reverse repurchase agreements
- commercial paper and other investment-grade debt securities
As a defensive tactic in unusual market conditions, the Fund may temporarily
invest without limit in these money market and short-term obligations. This
could potentially keep the Fund from achieving its goal.
Prospectus Page 15
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[LOGO]
GLOBAL INDEPENDENCE FUND
- --------------------------------------------------------------------------------
To a lesser extent, the Fund may also purchase or sell contracts relating to the
future delivery of precious metals.
Although the Fund may hedge its portfolio to reduce investment risk, the Fund is
not obligated to pursue any hedging strategy. In addition, hedging practices may
not be available, may be too costly to be used effectively or may be unable to
be used for other reasons.
Risk Factors
This Fund's principal risk factors are:
- exposure risk
- futures risk
- leverage risk
- risks of derivative instruments
- foreign securities risk
- interest rate risk
- market risk
- non-diversification risk
The value of your investment in the Fund will fluctuate in response to stock,
bond and currency market movements.
Because the Fund invests in foreign securities, the Fund may be affected by
additional risks such as currency, information, political and possibly, natural
event risks. To the extent that the Fund's foreign investments at any given time
are focused in one particular country or target a single region, the Fund may be
more volatile than a more geographically diversified fund.
The Fund's transactions in leveraged derivative securities, such as futures
contracts and related options, options on securities and indices and
transactions in currency contracts, carry additional risks, such as correlation,
liquidity, credit, opportunity and regulatory risks.
These risks and other risks which the Fund may be subject to are defined in
"More About Risk." "More About Risk" also details other investment practices the
Fund may use. Please read "More About Risk" carefully before you invest.
Prospectus Page 16
<PAGE>
[LOGO]
AGGRESSIVE EQUITY AND GLOBAL INDEPENDENCE FUNDS
- --------------------------------------------------------------------------------
Common Investment Strategies
To realize the funds' investment objectives, the Adviser will be continuously
developing new strategies to take advantage of future market shifts or shifts in
market fundamentals, behavior or patterns. Broadly, however, the funds will
combine various approaches to modern portfolio theory and risk management with
investment themes such as relative value, market arbitrage and directional
trading. Individual position risk and return potential are estimated in a
consistent framework involving the Adviser's judgment and the use of
sophisticated quantitative tools. At the fund level, risk-return trade-offs are
carefully weighted to keep the fund's expected volatility within reasonable
ranges.
Relative Value: Using a trading strategy, the funds will seek to exploit the
fundamental and persistent patterns of market behavior between interrelated
assets such as yield curve points, credit points, credit spreads and/or
related market spreads. As an example, a long position in a country's bond
market might be held against a short position with a similar maturity in a
bond market of another country. The related currency position could be taken
to mitigate risk, depending on market circumstances and our fundamental and
quantitative analysis. This differs from classic arbitrage positions as
convergence may not be assured or the date of the convergence may be very
distant. The returns on these transactions would be relatively independent of
overall market trends.
Directional Trading: The funds will take positions which will attempt to
capture gains from changes in volatility or the direction of a particular
market. The Adviser's strategies seek to exploit consistent patterns in the
relationships of fundamental economic and financial variables to the
underlying bond and currency markets. The Adviser will monitor the implicit
forecasting relationships using error-learning statistical processes. The
Adviser will use these tools in making decisions regarding the optimal level
of risk to be employed on various positions.
Modern Portfolio Theory: The funds will employ a strategy that uses
theoretical tools in practice which consider risk, return and efficiency. With
the combination of fundamental judgment and quantitative analysis, the Adviser
may select trades not only for these reasons, but for their net
return-enhancing or risk-mitigating properties for the fund as a whole.
Risk Management: The risk management process emphasizes a blending of judgment
with quantitative discipline. The Adviser will monitor and control the
targeted risk-return trade-off throughout the portfolio allocation process and
day-to-day management process. As the basic measure of risk, the Adviser will
focus on the annualized standard deviation of monthly performance. The Adviser
will use daily, weekly and monthly historical data, as well as risk
forecasting systems, to provide measures of the expected standard deviation of
the fund. Stress testing for different economic environments will be performed
as another measure of risk.
The Adviser will seek to target returns for relative value and directional
trading based on the examination of long term themes, short term factors and
relative indicators. To assist in capturing and analyzing these factors, the
Adviser may use a system that has both quantitative and qualitative elements.
The system incorporates a sophisticated and dynamic process which is designed
to forecast the risk and return characteristics of all the assets in a
consistent manner.
Prospectus Page 17
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[LOGO]
AGGRESSIVE EQUITY AND GLOBAL INDEPENDENCE FUNDS
- --------------------------------------------------------------------------------
The Adviser will also, on a regular basis, compare the correlation of
individual risk factors, projected fund returns, measures of relevant indices
and investment strategies to build a portfolio of securities that attempts to
optimize the risk-return objectives of the fund.
In addition, forecasts of targeted asset return and associated risk measures
are generated using financial and economic inputs. These forecasts are examined
and data is analyzed to promote consistency. External information, which the
Adviser deems to be outside the scope of the initial inputs, is integrated in
the forecasting process and new forecasts are generated. These forecasts and
measures of forecasting error, as well as the relationships among those errors,
are all generated in a consistent manner allowing for optimization.
Optimization of the portfolio, given the targeted risk-return trade-off,
suggests potential allocations, which are again examined for inconsistencies.
These inconsistencies, if found, tend to highlight potential errors in the
information input or assumptions about relative market movements that a
non-quantitative system would typically overlook. Inconsistencies are then
dealt with at the point of origin, and the system is once against rerun (if
necessary). New allocations are then overlaid on existing asset class positions
to generate new net exposures. Trading based on the resulting portfolio is then
implemented. Adjustments are made whenever the Adviser deems that the
environment has changed dramatically from that assumed in the current
portfolio's allocations.
The entire investment process is regularly monitored, upgraded and tested to
promote consistency and integrity for the resulting portfolios and each fund's
objective.
Prospectus Page 18
<PAGE>
[LOGO]
MORE ABOUT RISK
- --------------------------------------------------------------------------------
Introduction
A fund's risk profile is largely defined by the fund's investment goal and
principal strategies. You will find a summary of each fund's risk profile in
"Risk/Return Summary - Investment Goals and Principal Strategies." The
fund-by-fund discussions contain more detailed information.
In addition to the risks previously mentioned, the funds may use certain
investment practices that have high risks and opportunities associated with
them. However, each fund has limitations and policies designed to reduce these
risks. To the extent a fund utilizes these securities or practices, its overall
performance may be affected, either positively or negatively. The "Certain
Investment Practices" table in this section briefly describes these practices
and the limitations on their use, as well as the risks associated with them.
Types of Investment Risk
All Funds
Access Risk: The risk that some countries may restrict a fund's access to
investments or offer terms that are less advantageous than those for local
investors. This could limit the attractive investment opportunities available
to a fund.
Correlation Risk: The risk that the relationships between markets are not
contemplated in the investment decision-making process. Incomplete
correlation, or inaccurately forecasted correlation, can result in
unanticipated risks.
Credit Risk: The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
Equity Risk: Investments in equity securities and equity derivatives in
general are subject to market risks that may cause their prices to fluctuate
over time. The value of securities convertible into equity securities, such as
warrants or convertible debt, is also affected by prevailing interest rates,
the credit quality of the issuer and any call provision. Fluctuations in the
value of equity securities in which the funds invest will cause the net asset
value of the funds to fluctuate.
Exposure Risk: The risk associated with techniques that increase a fund's
exposure to a security, index or its investment portfolio. Exposure is the
fund's maximum potential gain or loss from an investment. Certain investments
(such as options and futures) and certain practices (such as short-selling)
may have the effect of magnifying declines as well as increases in a fund's
net asset value. Losses from writing options and entering into futures and
short sales can be unlimited.
Leverage Risk: If a fund borrows or otherwise uses leverage to invest in
securities or derivative instruments, any investment gains made on the
securities or instruments in excess of interest or other amounts paid by the
fund will cause the net asset value of the fund's shares to rise faster than
would otherwise be the case. On the other hand, if the investment performance
of the additional securities or instruments purchased fails to cover their
cost (including any interest paid on borrowed money) to the fund, the net
asset value of the fund's shares will decrease faster than would otherwise be
the case. The use of leverage can lead to substantial losses.
Prospectus Page 19
<PAGE>
[LOGO]
MORE ABOUT RISK
- --------------------------------------------------------------------------------
Liquidity Risk: The risk that certain securities may be difficult or
impossible to sell at the time and the price that the seller would like. The
seller may have to lower the price, sell other securities instead or forego an
investment opportunity. Any of these could have a negative effect on fund
management or performance.
Management and Opportunity Risk: The risk that a strategy used by a fund's
management may fail to produce the intended result. The risk of missing out on
an investment opportunity because the assets necessary to take advantage of it
are tied up in other investments. These risks are common to all mutual funds.
Market Risk: The market value of a security may move up and down, sometimes
rapidly and unpredictably. Stock markets tend to move in cycles, with periods
of rising stock prices and periods of falling stock prices. These fluctuations
may cause a security to be worth less than the price originally paid for it,
or less than it was worth at an earlier time. Market risk may affect a single
issuer, industry, sector of the economy or the market as a whole. Market risk
is common to most investments - including stocks and bonds, and the mutual
funds that invest in them. Bonds and other fixed-income securities may involve
less market risk than stocks, but not always. The risk of bonds can vary
significantly depending upon factors such as issuer and maturity. Bonds of
some companies are riskier than the stocks of others. The risk of bonds
declining in value may be offset in whole or in part by the income they
provide.
Natural Event Risk: The risk of losses attributable to natural disasters, crop
failures and similar events.
Operational Risk: The risk that some countries may have less developed
securities markets (and related transaction, registration and custody
practices).
Prepayment and Extension Risks: The risk that the term of a mortgage or
asset-backed pool of securities in which a fund may invest may be shortened by
unscheduled or early payments of principal on underlying mortgages or assets,
or extended under certain circumstances. Prepayments and extensions may cause
the yield on such securities to differ from the expected yield based on
assumed average life. Reinvestments of prepayments may occur at higher or
lower interest rates than the original investment and affect a fund's yield.
Risks of Derivative Instruments: The use of these instruments requires special
skills, knowledge and investment techniques that differ from those required
for normal portfolio management. The success of the funds in selecting these
instruments for their portfolios depends on the skill of the Adviser in
predicting the movement of interest rates, the value of particular instruments
and other economic variables. There is no assurance that the Adviser will
accurately predict these movements.
Trading Limit and Trading Halt Risk: Exchanges on which options and futures
contracts are traded, such as the Chicago Mercantile Exchange, have
established limits on how much an option or futures contract may decline over
various time periods within a day. If an option or futures contract's price
declines more than the established limits, no trading may occur at prices
outside that limit. If a trading limit is reached before the close of a
trading day, a Fund may not be able to purchase or sell options or futures
contracts at advantageous prices or at all. In such an event, the
Prospectus Page 20
<PAGE>
[LOGO]
MORE ABOUT RISK
- --------------------------------------------------------------------------------
Fund also may be required to use a "fair-value" method to price its
outstanding contracts. In addition, the Chicago Mercantile Exchange imposes
intraday 10 minute trading halts when trades occur at specified limits within
the various time periods.
Valuation Risk: The risk that a fund has valued certain of its securities at a
higher price that it can sell them for.
Year 2000 Processing Risk: The risk that a fund is adversely affected if the
computer systems used by the Adviser or other service providers do not
correctly handle the change from "99" to "00" on January 1, 2000. CDC
Investments is working to avoid such problems and to obtain assurances from
service providers that they are taking similar steps. However, there can be no
assurance that these efforts will be entirely successful. The Year 2000 issue
affects practically all companies, organizations, governments and markets
throughout the world - including companies or governmental entities in which
the funds invest. To the extent that the impact on a fund's holdings or on the
global markets or economies is negative, it could adversely affect a fund's
returns.
Aggressive Equity Fund and Global Independence Fund Only
Futures Risk: These funds will buy and sell commodity futures contracts and
options thereon up to the fullest extent permissible under applicable law.
Futures contracts and options on futures contracts provide for the future sale
by one party and purchase by another party of a specified amount of a specific
security at a specified future time and at a specified price. An option on a
futures contract gives the purchaser the right, in exchange for a premium, to
assume a position in a futures contract at a specified exercise price during
the term of the option. Index futures are futures contracts for various
securities indices that are settled in cash. Applicable law currently permits
unlimited use of futures and related options for bona fide hedging purposes;
however, aggregate initial margin and premiums required to establish
non-hedging positions may not exceed 5% of each fund's net asset value after
taking into account unrealized profits and unrealized losses on any contracts
it has entered into. Unforeseen changes in regulatory provisions relating to
the use of futures and options on futures may adversely affect a fund's
management or performance. Although these funds are limited in the amount of
assets that may be invested in futures transactions, there is no overall limit
on the percentage of a fund's assets that may be at risk with respect to
futures activities.
Interest Rate Risk: Changes in interest rates may cause a decline in an
investment's market value. With bonds and other fixed income securities, a
rise in interest rates typically causes a fall in values, while a fall in
interest rates typically causes a rise in values.
Foreign Securities Risk
Currency Risk: Fluctuations in the exchange rates between the U.S. dollar
and foreign currencies may negatively affect an investment. Adverse changes
in exchange rates may erode or reverse any gains produced by foreign
currency-denominated investments and may widen any losses. If futures are
traded on non-U.S. exchanges, such exchanges may require that margin for
open positions be converted to the home currency of the contract. Whenever
margin is held in a non-U.S. currency, losses may occur if exchange rates
fluctuate. Also, direct currency positions, through currency forward
contracts, may go up or down in price.
Prospectus Page 21
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MORE ABOUT RISK
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Political Risk: Government or political actions of any sort may cause
losses in a fund. These actions may range from changes in tax or trade
statutes to nationalization, expropriation, currency blockage or
governmental collapse and war, among many others.
Information Risk: Key information about an issuer, security or market may
be inaccurate or unavailable.
Non-Diversification Risk: As non-diversified portfolios, these funds are not
limited in the amount of their assets that may be invested in the securities
of a single issuer. Each fund may invest a greater proportion of its assets in
the securities of a smaller number of issuers. Because each fund is
non-diversified, there is a greater chance that the poor performance of a
single position could hurt the total value of the fund.
Prospectus Page 22
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[LOGO]
CERTAIN INVESTMENT PRACTICES
- --------------------------------------------------------------------------------
This table shows each fund's limitations on certain investment practices. In
each case the significant types of risk are listed, which are defined elsewhere
in this prospectus.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
CORE AGGRESSIVE GLOBAL
EQUITY EQUITY INDEPENDENCE
FUND FUND FUND
<S> <C> <C> <C>
Asset-backed securities Interests in pools of
assets such as receivables from credit card and
automobile loans. CREDIT, PREPAYMENT AND [--] [-] [-]
EXTENSION, LIQUIDITY, INTEREST RATE RISKS.
- -------------------------------------------------------------------------------------------
Below investment grade debt securities Debt
securities rated below BBB by Moody's Investors
Service, Inc. or Baa by Standard & Poor's Ratings
Service (or of comparable quality, if unrated) are [--] 10% 10%
considered junk bonds. CREDIT, MARKET, INTEREST
RATE, LIQUIDITY, VALUATION, INFORMATION RISKS.
- -------------------------------------------------------------------------------------------
Borrowing The borrowing of money from banks for
temporary or emergency purposes to meet redemption
requests and to facilitate settlement of 33 1/3% 33 1/3% 33 1/3%
transactions in portfolio securities. EXPOSURE,
LEVERAGE RISKS.
- -------------------------------------------------------------------------------------------
Mortgage-backed securities Debt securities backed
by pools of mortgages, including pass-through
certificates and other senior classes of
collateralized mortgage obligations (CMOs). [--] [-] [-]
CREDIT, PREPAYMENT AND EXTENSION, LIQUIDITY,
INTEREST RATE RISKS.
- -------------------------------------------------------------------------------------------
Restricted and other illiquid securities
Securities with restrictions on trading or those
not actively traded on the open market. LIQUIDITY, 15% 15% 15%
VALUATION, MARKET RISKS.
- -------------------------------------------------------------------------------------------
Securities Lending. Lending portfolio securities
to financial institutions; a fund receives cash,
U.S. government securities or bank letters of 50% [--] [--]
credit as collateral. CREDIT, LIQUIDITY, MARKET,
OPERATIONAL RISKS.
- -------------------------------------------------------------------------------------------
Short Sales and Short Sales Against the Box The
selling of securities that have been borrowed on
the expectation that the market price will drop.
- -Hedged. LEVERAGE, MARKET, CORRELATION, LIQUIDITY, 10% [--] [--]
OPPORTUNITY RISKS.
- -Speculative. LEVERAGE, MARKET, LIQUIDITY RISKS.
- -------------------------------------------------------------------------------------------
Short-term trading Selling a security shortly
after purchase. A fund engaging in short-term
trading will have higher turnover and transaction
expenses. Increased short-term capital gains [ ] [-] [-]
distributions could raise shareholders' income tax
liability. MARKET RISK.
- -------------------------------------------------------------------------------------------
Temporary defensive tactics Placing some or all of
a fund's assets in investments such as money
market obligations and investment-grade debt
securities for defensive purposes. Although [ ] [ ] [ ]
intended to avoid losses in unusual market
conditions, defensive tactics might prevent a fund
from achieving its goal.
- -------------------------------------------------------------------------------------------
Warrants Options issued by a company granting the
holder the right to buy certain securities,
generally common stock, at a specified price and 10% 10% 10%
usually for a limited time. LIQUIDITY, MARKET,
EXPOSURE RISKS.
- -------------------------------------------------------------------------------------------
When-issued securities and forward commitments The
purchase or sale of securities for delivery at a
future date; market value may change before 20% 20% 20%
delivery. MARKET, LIQUIDITY, EXPOSURE,
OPPORTUNITY, LEVERAGE RISKS.
- -------------------------------------------------------------------------------------------
Zero coupon bonds Debt securities that pay no cash
income to holders until maturity and are issued at
a discount from maturity value. At maturity, the
entire return comes from the difference between 20% 20% 20%
purchase price and maturity value. INTEREST RATE
RISK.
</TABLE>
- --------------------------------------------------------------------------------
Key to table:
[ ] No policy limitation on usage [-] Permitted, but not typically used [--]
Not permitted
Numbers shown indicate percentages:
20 ITALIC TYPE represents percent of total assets
20 roman type represents percent of net assets
Prospectus Page 23
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MANAGEMENT
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About the Adviser
The board of trustees of CDC MPT+ Funds supervises each fund's business affairs.
The board has selected CDC Investment Management Corporation, to manage the
funds. It is responsible for:
- investing each fund's assets according to its goal and strategy
- placing buy and sell orders
- managing day-to-day operations and business activities
- providing office space and equipment
CDC Investment Management Corporation was formed as a New York corporation in
1990 and is a registered investment adviser under the Investment Advisers Act of
1940, as amended. CDC Investments is an established leader in providing
alternative investment strategies for institutional clients. CDC Investments
strives to develop products and strategies which will provide its clients with
superior risk-adjusted performance that is not well correlated with traditional
stock and bond market indices. Although the Adviser has not managed U.S.
registered funds in the past, it has substantial experience managing
unregistered portfolios based in Luxembourg that are subject to restrictions
similar to those imposed on U.S. registered investment companies. As of March
31, 1999, CDC Investments has approximately $4 billion in assets under
management, providing asset management services to large European, Asian and
North American financial institutions, family offices, fund of funds, pension
funds and other investors.
CDC Investments is the wholly owned, U.S.-based, asset management subsidiary of
Caisse des Depots et Consignations ("CDC Group"), one of the world's largest
financial institutions with a "AAA" credit rating on its senior long-term debt.
Headquartered in Paris, CDC Group has nearly a 180 year record of providing
financial services. With autonomous subsidiaries in New York, Frankfurt and
Tokyo, the CDC Group specializes in investment management, capital market and
other financial activities, savings and life insurance, fiduciary services and
public finance. CDC Investments was founded as part of a strategic expansion to
provide world-class investment services in the United States and to expand its
asset management expertise and products for the European asset management
subsidiaries.
The Adviser's offices are located at:
9 West 57th Street, 35th Floor
New York, NY 10019
Prospectus Page 24
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MANAGEMENT
- --------------------------------------------------------------------------------
Management Fees
The U.S. Core Equity Fund pays the Adviser a basic fee of 1.00% per annum, the
Aggressive Equity Fund pays the Adviser a basic fee of 1.50% per annum and the
Global Independence Fund pays the Adviser a basic fee of 1.75% per annum, of the
respective fund's average daily net assets. Although the advisory fee charged to
the Global Independence Fund is higher than that paid by most other investment
companies, the Adviser believes that it is comparable to fees charged by other
mutual funds with similar policies and strategies. This basic management fee may
be adjusted upward or downward by applying an adjustment formula (the
"Performance Adjustment"). The Performance Adjustment is calculated monthly by
comparing the Fund's investment performance to a target during the most recent
twelve-month period. The target for the U.S. Core Equity Fund and the Aggressive
Equity Fund is the investment record of the S&P 500 Index. The target for the
Global Independence Fund is the investment record of a composite benchmark, of
which 50% is comprised of the World Equity Index and 50% is comprised of the
Global Bond Index.
In the case of the U.S. Core Equity Fund and the Aggressive Equity Fund, the
difference between the fund's performance compared to the performance of the
relevant target is multiplied by a Performance Adjustment of 25% (as an annual
rate). The Performance Adjustment is then added to or subtracted from the basic
fee, subject to the maximum or minimum fee. The maximum annualized Performance
Adjustment is 1.00% for the U.S. Core Equity Fund and 1.50% for the Aggressive
Equity Fund.
In the case of the Global Independence Fund, the difference between the Fund's
performance compared to the performance of the relevant target is multiplied by
a Performance Adjustment of 5% as an annual rate. The Performance Adjustment is
then added to or subtracted from the basic fee, subject to the maximum or
minimum fee. The maximum Performance Adjustment is 0.25% for the Global
Independence Fund.
Prospectus Page 25
<PAGE>
[LOGO]
MANAGEMENT
- --------------------------------------------------------------------------------
Here are examples of how the Performance Adjustment would work (using annual
rates):
- --------------------------------------------------------------------------------
U.S. Core Equity Fund
<TABLE>
<CAPTION>
TOTAL FUND PERFORMANCE RELEVANT EXCESS BASIC FEE TOTAL
(BEFORE MANAGEMENT FEE) INDEX PERFORMANCE MANAGEMENT FEE ADJUSTMENT MANAGEMENT FEE
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
-10.00% -15.00% 5.00% 1.00% 1.00% 2.00%
- ----------------------------------------------------------------------------------------------
-5.00% 5.00% -10.00% 1.00% -1.00% 0.00%
- ----------------------------------------------------------------------------------------------
4.00% 5.00% -1.00% 1.00% -0.25% 0.75%
- ----------------------------------------------------------------------------------------------
5.00% 5.00% 0.00% 1.00% 0.00% 1.00%
- ----------------------------------------------------------------------------------------------
6.00% 5.00% 1.00% 1.00% 0.25% 1.25%
- ----------------------------------------------------------------------------------------------
10.00% 5.00% 5.00% 1.00% 1.00% 2.00%
- ----------------------------------------------------------------------------------------------
15.00% 5.00% 10.00% 1.00% 1.00% 2.00%
- ----------------------------------------------------------------------------------------------
</TABLE>
Aggressive Equity Fund
<TABLE>
<CAPTION>
TOTAL FUND PERFORMANCE RELEVANT EXCESS BASIC FEE TOTAL
(BEFORE MANAGEMENT FEE) INDEX PERFORMANCE MANAGEMENT FEE ADJUSTMENT MANAGEMENT FEE
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
-10.00% -15.00% 5.00% 1.50% 1.25% 2.75%
- ----------------------------------------------------------------------------------------------
-5.00% 5.00% -10.00% 1.50% -1.50% 0.00%
- ----------------------------------------------------------------------------------------------
2.00% 5.00% -3.00% 1.50% -0.75% 0.75%
- ----------------------------------------------------------------------------------------------
5.00% 5.00% 0.00% 1.50% 0.00% 1.50%
- ----------------------------------------------------------------------------------------------
8.00% 5.00% 3.00% 1.50% 0.75% 2.25%
- ----------------------------------------------------------------------------------------------
12.00% 5.00% 7.00% 1.50% 1.50% 3.00%
- ----------------------------------------------------------------------------------------------
15.00% 5.00% 10.00% 1.50% 1.50% 3.00%
- ----------------------------------------------------------------------------------------------
</TABLE>
Global Independence Fund
<TABLE>
<CAPTION>
TOTAL FUND PERFORMANCE RELEVANT EXCESS BASIC FEE TOTAL
(BEFORE MANAGEMENT FEE) INDEX PERFORMANCE MANAGEMENT FEE ADJUSTMENT MANAGEMENT FEE
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
-10.00% -15.00% 5.00% 1.75% 0.25% 2.00%
- ----------------------------------------------------------------------------------------------
4.00% 10.00% -6.00% 1.75% -0.25% 1.50%
- ----------------------------------------------------------------------------------------------
5.00% 10.00% -5.00% 1.75% -0.25% 1.50%
- ----------------------------------------------------------------------------------------------
6.00% 10.00% -4.00% 1.75% -0.20% 1.55%
- ----------------------------------------------------------------------------------------------
7.00% 10.00% -3.00% 1.75% -0.15% 1.60%
- ----------------------------------------------------------------------------------------------
12.00% 10.00% 2.00% 1.75% 0.10% 1.85%
- ----------------------------------------------------------------------------------------------
15.00% 10.00% 5.00% 1.75% 0.25% 2.00%
- ----------------------------------------------------------------------------------------------
16.00% 10.00% 6.00% 1.75% 0.25% 2.00%
- ----------------------------------------------------------------------------------------------
20.00% 10.00% 10.00% 1.75% 0.25% 2.00%
- ----------------------------------------------------------------------------------------------
</TABLE>
Each fund's performance is calculated based on its net asset value per share
after expenses but before the management fee.
Prospectus Page 26
<PAGE>
[LOGO]
MANAGEMENT
- --------------------------------------------------------------------------------
For purposes of calculating the Performance Adjustment, any dividends or capital
gains distributions paid by a fund are treated as if those distributions were
reinvested by shareholders in fund shares at the net asset value per share as of
the record date for payment. The performance record for the S&P 500 Index, and
the composite of the World Equity Index and the Global Bond Index (each, a
"Benchmark") is based on the change in value of the relevant Benchmark, and is
adjusted for any cash distributions from the companies whose securities comprise
the relevant Benchmark.
Because the adjustment to the basic fee is based on the comparative performance
of the fund and the record of the corresponding index, the controlling factor
(regarding the Performance Adjustment to the basic fee) is not whether the
fund's performance is up or down, but whether it is up or down more or less than
the performance record of the corresponding index. Moreover, the comparative
investment record of the fund is based solely on the relevant performance period
without regard to the cumulative performance over a longer or shorter period.
Meet the Managers
The day-to-day portfolio management of each of the funds is managed by the
following teams of investment professionals. Each person joined CDC Investments
in 1997 and has been a co-portfolio manager of the relevant fund since its
inception. Each portfolio manager's title with CDC Investments appears next to
his name.
U.S. Core Equity Fund
Bluford H. Putnam, PH.D., PRESIDENT AND CHIEF INVESTMENT OFFICER
- Managing Director and Chief Investment Officer for Equities and Asset
Allocation with the Global Investment Management Department of Bankers Trust
Company (NY) from 1994 to 1997
- President of Putnam & Associates, Inc. from 1991 to 1994
- Director and Chief Economist at Kleinwort Benson Ltd. (London) from 1989 to
1991
- Visiting Professor at St. Mary's College, 1988 to 1989
- Principal and Head of the international fixed income strategy team at Morgan
Stanley & Co. from 1984 to 1988
- Partner with Stern Stewart & Co. from 1982 to 1984
- Economist with Chase Manhattan Bank from 1978 to 1982
- Economist with the Federal Reserve Bank of New York from 1976 to 1978
Jose Quintana, PH.D., MANAGING DIRECTOR
- Vice President and Head of Quantitative Research for the Strategic Asset
Allocation team in the Global Investment Management Group of Bankers Trust
Company from 1994 to 1997
Prospectus Page 27
<PAGE>
[LOGO]
MANAGEMENT
- --------------------------------------------------------------------------------
- Vice President in the Global Risk Management Sector of Chase Manhattan Bank
from 1992 to 1994
- Vice President at Chase Investors Management Corporation from 1988 to 1992
- Staff Supervisor for AT&T's Market Analysis and Forecasting Directorate from
1987 to 1988
Jason Wolin, VICE PRESIDENT AND PORTFOLIO MANAGER
- Portfolio Manager at Bankers Trust Company from 1994 to 1997
- Project Manager (Financial Systems Group) at J.P. Morgan & Co. from 1992 to
1994
Frank Hanley, VICE PRESIDENT
- Worked as a proprietary trader with Spear, Leeds & Kellog from 1995 to 1997
- Worked as a head trader for Gabelli & Co. Inc./GAMCO Investors from 1984 to
1995
Aggressive Equity Fund and Global Independence Fund
Bluford H. Putnam, PH.D., PRESIDENT AND CHIEF INVESTMENT OFFICER
- See previous page
Jose Quintana, PH.D., MANAGING DIRECTOR
- See previous page
D. Sykes Wilford, PH.D., MANAGING DIRECTOR
- Chief Investment Officer of Bankers Trust Private Bank and Managing Director
of Bankers Trust Global Investment Management from 1994 to 1997
- Managing Director of Chase Investment Bank, Ltd., London from 1992 to 1994
- Managing Director of Chase Manhattan Bank, responsible for Risk Management
product development and marketing from 1988 to 1992
- Chief International Fixed Income Strategist for Drexel Burnham Lambert
(London) from 1987 to 1988
- Managing Director of Chase Manhattan Bank from 1977 to 1987
- Economist with the Federal Reserve Bank of New York from 1976 to 1977
Andrew Dalton, DIRECTOR
- Vice President at Bankers Trust Company from 1995 to 1997
- Worked on the development and implementation of global asset allocation
models for Chase Manhattan Bank 1992 to 1995
Prospectus Page 28
<PAGE>
[LOGO]
PRIOR PERFORMANCE OF SIMILAR PORTFOLIOS MANAGED BY THE ADVISER
- --------------------------------------------------------------------------------
The statistics below show the performance of three unregistered investment
portfolios managed by CDC Investments. In managing the Funds, CDC Investments
will employ substantially the same investment objectives, policies and
strategies that it employs in managing the corresponding portfolios described
below. However, in managing the Funds, CDC Investments will be subject to
certain rules imposed on registered investment companies (e.g., limits on the
percentage of assets invested in securities of issuers in a single industry,
limits on futures trading and requirements on distributing income to
shareholders) that do not apply to the unregistered portfolios. In addition, the
continuous offering of a Fund's shares and a Fund's obligation to redeem its
shares will likely cause the Fund to experience cash flows different from those
of the corresponding portfolio. Moreover, the way of calculating the performance
of the portfolios, which value their assets at the end of each month, differs
from the method employed by mutual funds, which among other things value their
assets on a daily basis. If the unregistered investment portfolios had been
subject to the same investment restrictions as the Funds, their investment
returns may have been lower.
The performance returns shown below are for the period from the commencement of
the relative portfolio's operations through December 31, 1998, year-to-date
through March 31, 1999, and, in the case of the Global Independence Portfolio
described below, for the full year ended December 31, 1998.
Fees and expenses incurred in the operation of the portfolios differ from and
are lower than the fees and expenses expected to be incurred by the
corresponding Funds. Accordingly, the performance results for each portfolio
have been adjusted to reflect the overall expense ratio expected to be borne by
the corresponding Fund in its first fiscal year and the management fee and
applicable Performance Adjustment that would have been charged given the actual
performance of the relevant index over the period shown.
THE PERFORMANCE DATA REPRESENTS THE PRIOR PERFORMANCE OF THE PORTFOLIOS, NOT THE
PRIOR PERFORMANCE OF THE FUNDS, AND SHOULD NOT BE CONSIDERED AN INDICATION OF OR
A SUBSTITUTE FOR FUTURE PERFORMANCE OF ANY OF THE FUNDS. THE TIME PERIODS
REFERENCED BELOW ARE RELATIVELY SHORT AND MAY NOT BE REPRESENTATIVE OF THE
PERFORMANCE OF THESE PORTFOLIOS OVER THE LONG TERM. THE PERFORMANCE FIGURES ARE
PRESENTED IN ACCORDANCE WITH THE STANDARDS PROMULGATED BY THE ASSOCIATION FOR
INVESTMENT MANAGEMENT AND RESEARCH. THE FIGURES FOR THE YEAR ENDED DECEMBER 31,
1998 (INCLUDED IN THE RETURN SINCE INCEPTION) HAVE BEEN EXAMINED BY AN
INDEPENDENT ACCOUNTING FIRM.
Prospectus Page 29
<PAGE>
[LOGO]
PRIOR PERFORMANCE OF SIMILAR PORTFOLIOS MANAGED BY THE ADVISER
- --------------------------------------------------------------------------------
Set forth below is the performance of an unregistered, privately-offered
investment portfolio (the "U.S. Equity Portfolio"), which commenced operations
on January 5, 1998 and employs substantially the same investment objectives,
policies and strategies as the U.S. Core Equity Fund. Returns of the U.S. Equity
Portfolio are compared to the S&P 500 Index. Unlike the U.S. Equity Portfolio's
net returns, those of the S&P 500 Index, an unmanaged index, do not reflect fees
and expenses. Both the returns of the U.S. Equity Portfolio and the S&P 500
Index reflect the reinvestment of dividends and distributions.
<TABLE>
<CAPTION>
INCEPTION THROUGH DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------
Management Fee
Gross Other Adjusted Plus Performance Net
Return Expenses Return Adjustment Return
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
U.S. EQUITY PORTFOLIO 29.53% 0.35% 29.18% 1.30% 27.88%
S&P 500 INDEX 27.97% n/a n/a n/a n/a
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR-TO-DATE THROUGH MARCH 31, 1999
- --------------------------------------------------------------------------------------------------
Management Fee
Gross Other Adjusted Plus Performance Net
Return Expenses Return Adjustment Return
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
U.S. EQUITY PORTFOLIO 5.15% 0.35% 4.80% 0.95% 3.85%
S&P 500 INDEX 4.98% n/a n/a n/a n/a
- --------------------------------------------------------------------------------------------------
</TABLE>
Set forth below is the performance of a separately managed private account (the
"Aggressive Equity Portfolio"), which commenced operations on July 1, 1998 and
employs substantially the same investment objectives, policies and strategies as
the Aggressive Equity Fund. Returns of the Aggressive Equity Portfolio are
compared to the S&P 500 Index. Unlike the Aggressive Equity Portfolio's net
returns, those of the S&P 500 Index do not reflect fees and expenses. Both the
returns of the Aggressive Equity Portfolio and the S&P 500 Index reflect the
reinvestment of dividends and distributions.
<TABLE>
<CAPTION>
INCEPTION THROUGH DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------
Management Fee
Gross Other Adjusted Plus Performance Net
Return Expenses Return Adjustment Return
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
AGGRESSIVE EQUITY
PORTFOLIO 10.52% 0.35% 10.17% 1.74% 8.43%
S&P 500 INDEX 9.23% n/a n/a n/a n/a
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR-TO-DATE THROUGH MARCH 31, 1999
- --------------------------------------------------------------------------------------------------
Management Fee
Gross Other Adjusted Plus Performance Net
Return Expenses Return Adjustment Return
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
AGGRESSIVE EQUITY
PORTFOLIO 3.94% 0.35% 3.59% 1.15% 2.44%
S&P 500 INDEX 4.98% n/a n/a n/a n/a
- --------------------------------------------------------------------------------------------------
</TABLE>
Prospectus Page 30
<PAGE>
[LOGO]
PRIOR PERFORMANCE OF SIMILAR PORTFOLIOS MANAGED BY THE ADVISER
- --------------------------------------------------------------------------------
Set forth below is the performance of an unregistered, privately-offered
investment portfolio registered under the laws of Luxembourg (the "Global
Independence Portfolio"), which commenced operations on October 1, 1997 and
employs substantially the same investment objectives, policies and strategies as
the Global Independence Fund. Returns of the Global Independence Portfolio are
compared to a composite index, comprised of 50% of the World Equity Index and
50% of the Global Bond Index (the "Composite Index."). Unlike the Global
Independence Portfolio's net returns, those of the Composite Index do not
reflect fees and expenses. Both the returns of the Global Independence Portfolio
and the Composite Index reflect the reinvestment of dividends and distributions,
if any.
<TABLE>
<CAPTION>
INCEPTION THROUGH DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------
Management Fee
Gross Other Adjusted Plus Performance Net
Return Expenses Return Adjustment Return
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
GLOBAL INDEPENDENCE
PORTFOLIO 22.18% 0.35% 21.83% 3.00% 18.83%
COMPOSITE INDEX 14.08% n/a n/a n/a n/a
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR-ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------
Management Fee
Gross Other Adjusted Plus Performance Net
Return Expenses Return Adjustment Return
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
GLOBAL INDEPENDENCE
PORTFOLIO 17.51% 0.35% 17.16% 3.00% 14.16%
COMPOSITE INDEX 12.40% n/a n/a n/a n/a
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR-TO-DATE MARCH 31, 1999
- --------------------------------------------------------------------------------------------------
Management Fee
Gross Other Adjusted Plus Performance Net
Return Expenses Return Adjustment Return
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
GLOBAL INDEPENDENCE
PORTFOLIO 0.99% 0.35% 0.64% 1.80% -1.16%
COMPOSITE INDEX 0.32% n/a n/a n/a n/a
- --------------------------------------------------------------------------------------------------
</TABLE>
Prospectus Page 31
<PAGE>
[LOGO]
ACCOUNT POLICIES
- --------------------------------------------------------------------------------
Pricing of Shares
You pay no sales charges to invest in the funds. When you invest in a fund, you
pay the net asset value (NAV) per Institutional share or Investor share, as
appropriate. Your purchase or redemption order will be priced at the next NAV
calculated after your order is received by the Fund.
The NAV is determined at the close of regular trading on the New York Stock
Exchange (typically 4 p.m. Eastern time) each day the Exchange is open for
business. It is calculated by dividing total assets of the fund's relevant class
of shares, less all liabilities, by the number of the relevant class of shares
outstanding.
Each fund's assets are valued primarily on the basis of market quotations.
Short-term securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued on the basis of amortized cost.
This method minimizes the effect of changes in a security's market value.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates. Options are generally valued at the last
sale price or, in the absence of a last sale price, the last bid price. The
value of a futures contract equals the unrealized gain or loss on the contract
that is determined by marking it to the current settlement price for a like
contract acquired on the day on which the futures contract is being valued. A
settlement price may not be used if the market makes a limit move with respect
to a particular commodity. In addition, if quotations are not readily available,
or if the values have been materially affected by events occurring after the
closing of a foreign market, assets may be valued by another method that the
Board of Trustees believes accurately reflects fair value.
Buying and Selling Shares
Each fund is open on those days when the New York Stock Exchange is open,
typically Monday through Friday. Fund shares will not be priced on major
national holidays recognized in New York and other days when the Exchange is
closed for trading.
If we receive your purchase or redemption request in correct form by 4 p.m. ET,
your transaction will be priced at that day's NAV. If we receive it after 4
p.m., it will be priced at the next business day's NAV.
You can also purchase fund shares through financial services firms such as
banks, brokers and investment advisers. Where authorized, your order will be
priced at the NAV next computed after your financial services firm has accepted
it.
All investments must be in U.S. dollars. Third-party checks cannot be accepted.
You may be charged a fee for any check that does not clear.
When selling shares, your order will be processed promptly and you will
generally receive the proceeds within a week.
Prospectus Page 32
<PAGE>
[LOGO]
ACCOUNT POLICIES
- --------------------------------------------------------------------------------
Some circumstances require written sell orders, along with signature guarantees.
These include:
- amounts of $100,000 or more
- amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days
- requests to send the proceeds to a different payee or address
A signature guarantee helps protect against fraud. You can obtain one from most
banks or securities dealers, but not from a notary public. Please call us to
ensure that your signature guarantee will be processed correctly.
Minimum Initial and Subsequent Investments:
INVESTOR SHARES: $2,500
INSTITUTIONAL SHARES: $1,000,000
In its discretion, subject to review by the board of trustees, the Adviser may
waive these minimum investment requirements. Without limiting this discretion,
the Adviser intends to waive the minimum on investments in Institutional shares
for employees of the Adviser and its affiliates, and for the spouse, parents,
children, siblings, grandparents or grandchildren of these employees.
Account Statements
In general, you will receive account statements as follows:
- after every transaction that affects your account balance (except for
distribution reinvestments and automatic purchases)
- after any changes of name or address of the registered owner(s)
- otherwise, every month
You will receive annual and semiannual financial reports. Every year you also
should receive, if applicable, a Form 1099 tax information statement mailed by
January 31.
Prospectus Page 33
<PAGE>
[LOGO]
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Automatic Services
Buying or selling shares automatically is easy with the services described
below. With each service, you select a schedule and amount, subject to certain
restrictions. You can set up most of these services with your application or by
calling 1-800-774-9838.
<TABLE>
<S> <C>
FOR BUYING SHARES:
Automatic Investment Plan For making automatic investments from a
designated bank account.
Payroll Deduction Plan For making automatic investments through a
payroll deduction.
Government Direct Deposit Privilege For making automatic investments from your
federal employment, Social Security or other
regular federal government check.
FOR BUYING AND FOR SELLING SHARES:
Automatic Exchange Privilege For making regular exchanges from one fund
into another.
FOR SELLING SHARES:
Automatic Withdrawal Plan For making regular withdrawals from the
funds.
</TABLE>
Exchange Privilege
You can exchange $2,500 or more of the Investor shares and $1,000,000 or more of
the Institutional shares from one fund into the same class of shares of another
fund (no minimum for retirement accounts). You can request your exchange in
writing or by phone. Be sure to read the fund description in the current
prospectus for any fund into which you are exchanging. Any new account
established through an exchange will have the same privileges as your original
account (as long as they are available). No fee is currently charged on
exchanges.
Telephone Privilege
To move money between your bank account and your fund account with a phone call,
use the telephone privilege. You can set up this privilege on your account by
providing bank account information and following the instructions on your
application.
Unless you decline telephone privileges on your application, you may be
responsible for any fraudulent telephone order as long as the fund takes
reasonable measures to verify the order.
General Policies
If your account falls below $500, the fund may ask you to increase your balance.
If it is still below $500 after 45 days, the fund may close your account and
send you the proceeds.
Prospectus Page 34
<PAGE>
[LOGO]
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Each fund reserves the right to:
- refuse any purchase or exchange request that could adversely affect the
fund or its operations, including those from any individual or group who,
in the fund's view, is likely to engage in excessive trading (usually
defined as more than four exchanges out of the fund within a calendar
year)
- refuse any purchase or exchange request in excess of 1% of the fund's
total assets
- change or discontinue its exchange privilege, or temporarily suspend this
privilege during unusual market conditions
- change its minimum investment amounts
- delay sending out redemption proceeds for up to seven days if doing so
sooner would adversely affect the fund (generally applies only in cases
of very large redemptions, excessive trading or during unusual market
conditions)
- make a "redemption in kind" - payment in portfolio securities rather than
cash - if the amount you are redeeming is large enough to affect fund
operations
Investment Through Intermediaries
If you invest through a third party (rather than directly through the funds'
distributor), the policies and fees may be different than those described here.
Banks, brokers, 401(k) plans, financial advisers and financial supermarkets may
charge transaction fees and may set different minimum investments or limitations
on buying or selling shares. Consult a representative of your plan or financial
institution if in doubt.
Financial services firms selling significant amounts of fund shares may receive
extra compensation. This compensation, which the Adviser will pay out of its own
resources, may include non-cash promotional incentives as well as reimbursement
for marketing costs. From time to time, we may provide opportunities for you or
your financial representative to attend business meetings, conferences, training
programs or other events. Travel, meals and lodging may be included. To find out
more about promotional events in your area, please contact your financial
representative.
Prospectus Page 35
<PAGE>
[LOGO]
DISTRIBUTION POLICIES AND TAXES
- --------------------------------------------------------------------------------
Distributions
As a fund investor, you are entitled to your share of the fund's net income and
gains on its investments. The fund passes these earnings along to its
shareholders as distributions.
Each fund earns dividends from stocks and interest from bond, money market and
other investments. These are passed along as dividend distributions. A fund
realizes capital gains whenever it sells securities for a higher price than it
paid for them. These are passed along as capital gain distributions, a portion
of which may be taxable to you as ordinary income.
Each fund distributes its net income at least annually. All of the funds
distribute capital gains annually, usually in November or December.
Distribution Options
When you open an account, specify on your application how you want to receive
your distributions. Each fund offers the following options:
- Reinvestment option: Your dividend and capital gain distributions will
be automatically reinvested in additional shares of the fund. You will
be assigned this option unless you indicate a different choice.
- Income-earned option: Your capital gain distributions will be
automatically reinvested, but you will receive dividend distributions
by check or electronic transfer.
- Capital gains option: Your dividend distributions will be
automatically reinvested, but you will receive capital gain
distributions by check or electronic transfer.
- Cash option: You will receive your dividend and capital gain
distributions by check or electronic transfer.
For retirement accounts, all distributions are automatically reinvested. When
you are over 59 1/2 years old, you can receive distributions in cash.
Taxes
As with any investment, you should consider how your investment in a fund will
be taxed. Unless your account is an IRA or other tax-advantaged account, you
should be aware of the potential tax implications. Please consult your tax
professional concerning your own tax situation.
Taxes on Distributions
As long as a fund continues to meet the requirements for being a tax-qualified
regulated investment company, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, distributions you receive from a fund, whether reinvested or taken
in cash, are generally considered taxable. Distributions from a fund's long-term
capital gains are taxed as capital gains; distributions from other sources are
generally taxed as ordinary income.
Prospectus Page 36
<PAGE>
[LOGO]
DISTRIBUTION POLICIES AND TAXES
- --------------------------------------------------------------------------------
If you buy shares shortly before or on the "record date" - the date that
establishes you as the person to receive the upcoming distribution - you will
receive a portion of the money you just invested in the form of a taxable
distribution. Some dividends paid in January may be taxable as if they had been
paid the previous December.
If you fail to provide your correct taxpayer identification number on your
application, or you have been notified by the IRS that you are subject to backup
withholding, the funds may withhold 31% of all distributions to you for federal
taxes. In the case of an individual, your taxpayer identification number is your
social security number.
The form 1099 that is mailed to you every January details your distributions and
their federal tax category.
Taxes on Transactions
Any time you sell or exchange shares, it is considered a taxable event for you.
Depending on the purchase price and the sale price of the shares you sell or
exchange, you may have a gain or loss on the transaction. You are responsible
for any tax liabilities generated by your transactions.
Prospectus Page 37
<PAGE>
[LOGO]
FUND DETAILS
- --------------------------------------------------------------------------------
Multi-Class Structure
Each fund offers two no-load classes of shares, called Institutional and
Investor.
Institutional shares are sold directly by the funds' distributor. They may be
purchased by endowments, foundations and plan sponsors of 401(a), 401(k), 457
and 403(b) plans and by individuals.
Investor shares may be purchased by intermediary financial institutions
(including broker-dealers, investment advisers, financial planners, banks and
insurance companies), and certain individual retirement accounts and
individuals. Investment professionals may purchase Investor shares for
discretionary or non-discretionary accounts maintained by individuals.
Shares of each class represent equal pro rata interests in the funds. Each class
accrues dividends and calculates its net asset value and performance the same
way. But because of their higher fees, Investor shares will generally have a
lower total return than Institutional shares.
Shareholder Servicing and Distribution
As part of its business strategy, each fund has adopted a Rule 12b-1 shareholder
servicing and distribution plan with respect to Investor shares for the payment
of certain distribution-related services. Under the plan, the distributor
receives fees at an annual rate of 0.25% of the average daily net assets of the
fund's Investor shares, which the distributor may use to pay third-party broker-
dealers who sell shares of the fund or other distribution-related services.
Rule 12b-1 is the federal securities regulation authorizing fees of this type.
Because the fees are paid out of a fund's assets on an ongoing basis, over time
they will increase the cost of an investment in Investor shares and may cost you
more than paying other types of sales charges.
No compensation is paid by the funds for distribution services with respect to
sales of Institutional shares. Shareholder and distribution services to these
shareholders will be provided at no charge to fund shareholders.
Prospectus Page 38
<PAGE>
[LOGO]
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Additional documents will be available that offer further information about the
funds:
Annual/Semiannual Report to Shareholders
Includes financial statements, portfolio investments, detailed performance
information, a statement from portfolio management and the independent
accountants' report.
The annual report also provides a discussion of the market conditions and
investment strategies that significantly affected fund performance during the
last fiscal year.
Statement of Additional Information (SAI)
Provides more details about the funds and their investments. A current SAI has
been filed with the Securities and Exchange Commission and is incorporated by
reference. You may visit the Commission's Internet Website (www.sec.gov) to view
the SAI, other material incorporated by reference, and other information. You
can also get copies of this information by writing to the Commission and paying
a duplicating fee. Write to:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20540-6009.
You may review and copy information about the funds, including the SAI, at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
To find out more about the public reference room, call the Commission at
1-800-SEC-0330.
Please contact CDC MPT+ Funds to obtain more information about the funds,
inquire about your account or request a free copy of the current
annual/semi-annual report or SAI:
By mail:
CDC MPT+ Funds
P.O. Box 8122
Boston, MA 02266-8122
By overnight or courier service:
Boston Financial Data Services
Attn: CDC MPT+ Funds
2 Heritage Drive
North Quincy, MA 02171
By telephone: 1-800-774-9838
SEC File No. 811-09083
Prospectus Page 39
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CDC MPT+ FUNDS
P.O. BOX 8122, Boston, MA 02266-8122
Phone: (800) 774-9838, Fax: (781) 796-2939
-- - - - - - - - - - - - - - - - - - - -
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STATEMENT OF ADDITIONAL INFORMATION
June 4, 1999
CDC MPT+ FUNDS
U.S. CORE EQUITY FUND
AGGRESSIVE EQUITY FUND
GLOBAL INDEPENDENCE FUND
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus for the Institutional shares and the Investor
shares of CDC MPT+ Funds (the "Trust"), dated June 4, 1999 as amended or
supplemented from time to time (the "Prospectus"), and is incorporated by
reference in its entirety into the Prospectus. The Trust currently offers three
separately managed portfolios: U.S. Core Equity Fund, Aggressive Equity Fund and
Global Independence Fund (together the "Funds" and each a "Fund"). Because this
Statement of Additional Information is not itself a prospectus, no investment in
shares of a Fund should be made solely upon the information contained herein.
Copies of the Funds' Prospectus and information regarding the Funds' current
performance and the status of shareholder accounts may be obtained by calling
the Funds at (800) 774-9838 or by writing to the Funds at P.O. Box 8122, Boston,
Massachusetts, 02266-8122.
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Page
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Organization of the Funds..........................................................................1
Investment Objectives and Policies.................................................................1
Options, Futures, Currency Exchange Transactions and Swaps..................................1
Securities Options...................................................................2
Securities Index Options.............................................................5
OTC Options..........................................................................5
Futures Activities...................................................................6
Futures Contracts...........................................................6
Options on Futures Contracts................................................7
Currency Exchange Transactions.......................................................8
Forward Currency Contracts..................................................8
Currency Options............................................................9
Hedging.....................................................................9
Swaps...............................................................................11
Asset Coverage for Forward Contracts, Options, Futures and Options on
Futures and Swaps.................................................................11
U.S. Government Securities.................................................................12
Money Market Obligations...................................................................12
Bank Obligations....................................................................13
Commercial Paper....................................................................13
Other Short-Term Corporate Obligations..............................................13
Foreign Investments........................................................................14
Foreign Currency Exchange...........................................................14
Information.........................................................................15
Foreign Markets.....................................................................15
Political Instability...............................................................15
Increased Expenses..................................................................15
Foreign Debt Securities.............................................................15
Emerging Markets....................................................................16
Depositary Receipts.................................................................16
Euro Conversion.....................................................................17
Fixed Income Securities....................................................................17
Securities of Other Investment Companies...................................................17
Standard & Poor's Depositary Receipts ("SPDRS")............................................18
When-Issued Securities, Delayed-Delivery Transactions and Forward Commitments..............18
Repurchase Agreements......................................................................19
Reverse Repurchase Agreements and Dollar Rolls.............................................19
Loan Participations and Assignments........................................................20
Zero Coupon Securities.....................................................................20
Convertible Securities.....................................................................21
Mortgage-Backed Securities..........................................................22
Asset-Backed Securities.............................................................23
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Structured Notes....................................................................24
Non-Publicly Traded and Illiquid Securities.........................................24
Rule 144A Securities..........................................................25
Rights Offerings and Purchase Warrants..............................................26
Borrowing...........................................................................26
U.S. Core Equity Fund Only.................................................................27
Short Selling.......................................................................27
Short Sales "Against the Box".......................................................27
Lending of Portfolio Securities.....................................................28
Aggressive Equity Fund and Global Independence Fund Only...................................29
Non-Diversified Status..............................................................29
Below Investment Grade Securities...................................................29
Investment Restrictions...........................................................................30
Portfolio Valuation...............................................................................32
Portfolio Transactions............................................................................34
Portfolio Turnover................................................................................36
Management of the Funds...........................................................................36
Officers and Trustees......................................................................36
Control Persons and Principal Stockholders.................................................39
Investment Adviser and Administrator.......................................................40
Management Fees............................................................................40
Choice of Performance Benchmark.....................................................40
Distribution and Shareholder Servicing.....................................................43
Investor Shares.....................................................................43
Institutional Shares................................................................44
General.............................................................................44
Custodian and Transfer Agent...............................................................44
Capital Stock..............................................................................45
Additional Purchase and Redemption Information....................................................46
Exchange Privilege................................................................................47
Additional Information Concerning Taxes...........................................................47
The Funds and Their Investments............................................................48
Taxation of United States Shareholders.....................................................50
Other Taxation.............................................................................52
Determination of Performance......................................................................53
Independent Auditors and Counsel..................................................................54
Financial Statements..............................................................................54
Fund..............................................................................................56
Appendix -- Description of Ratings................................................................A-1
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ORGANIZATION OF THE FUNDS
The Trust is an open-end management investment company that was
organized on October 13, 1998 under the laws of the State of Delaware and is a
business entity commonly known as "Delaware business trust." The Trust currently
offers three separately managed series each comprised of both Investor and
Institutional shares: U.S. Core Equity Fund, Aggressive Equity Fund and Global
Independence Fund. Unless otherwise indicated, references to a "Fund" apply to
all classes of shares of that Fund as a group.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each
Fund's investment objectives and policies in the Prospectus. There are no
assurances that a Fund will achieve its investment objectives.
The U.S. Core Equity Fund is a diversified portfolio that seeks
total return greater than that of the S&P 500 Index by investing primarily in
equity securities of U.S. companies.
The Aggressive Equity Fund is a non-diversified portfolio that
seeks total return greater than that of the S&P 500 Index by investing primarily
in equity and equity related securities and certain derivative instruments.
The Global Independence Fund is a non-diversified portfolio that
seeks total return, on a risk adjusted basis, consistent with the preservation
of capital by investing primarily in the global equity, global fixed income and
currency markets.
CDC Investment Management Corporation ("CDC Investments" or the
"Adviser") serves as the investment adviser to each Fund. Both the Aggressive
Equity Fund and the Global Independence Fund apply CDC Investments' Global
Dynamic Asset Allocation Strategy ("GDAA Strategy"), which focuses on building a
risk-return balanced portfolio which seeks to control the effect of shifts in
market volatility through the use of certain investment strategies. The GDAA
Strategy seeks to exploit patterns in the relationships of fundamental economic
and financial variables to the underlying equity, bond and currency markets and
uses a mix of fundamental judgment and sophisticated quantitative tools to
achieve that objective.
OPTIONS, FUTURES, CURRENCY EXCHANGE TRANSACTIONS AND SWAPS
At the discretion of CDC Investments, each Fund may engage in a
number of strategies involving options, futures, forward currency contracts and
swaps. These instruments, commonly referred to as "derivatives," may be used (i)
for the purpose of hedging against a decline in value of a Fund's current or
anticipated portfolio holdings, (ii) as a substitute for purchasing or selling
portfolio securities or (iii) in an attempt to generate income to offset
expenses or increase return. Transactions that are not considered hedging should
be considered speculative and may serve to increase a Fund's investment risk.
Transaction costs and any premiums associated with these strategies, and any
losses incurred,
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will affect a Fund's net asset value and performance. Therefore, an investment
in a Fund may involve a greater risk than an investment in other mutual funds
that do not use these strategies. The Funds' use of these strategies may be
limited by position and exercise limits established by securities and
commodities exchanges and other applicable regulatory authorities.
To the extent a Fund engages in the strategies described below,
a Fund may experience losses greater than if these strategies had not been
utilized. In addition to the risks described below, these instruments may be
illiquid and/or subject to trading limits, and a Fund may be unable to close out
positions without incurring substantial losses, if at all. A Fund is also
subject to the risk of a default by a counterparty to an off-exchange
transaction.
SECURITIES OPTIONS. Each Fund may write covered call options on
stock and debt securities and may purchase U.S. and foreign exchange-traded and
over-the-counter ("OTC") put and call options.
A Fund realizes fees (referred to as "premiums") for granting
the rights evidenced by the options it has written. A put option embodies the
right of its purchaser to compel the writer of the option to purchase from the
option holder an underlying security at a specified price for a specified time
period or at a specified time. In contrast, a call option embodies the right of
its purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified time.
The principal reason for writing covered options on a security
is to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a Fund that
writes a covered call option forfeits the right to any appreciation in the value
of the underlying security above the strike price for the life of the option (or
until a closing purchase transaction can be effected). A Fund that writes a call
option retains the risk of an increase in the price of the underlying security.
The size of the premiums that a Fund may receive may be adversely affected as
new or existing institutions, including other investment companies, engage in or
increase their option-writing activities.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices decline, the put writer would expect to suffer a
loss. This loss may be less than the loss from purchasing the underlying
instrument directly to the extent that the premium received offsets the effects
of the decline.
In the case of options written by a Fund that are deemed covered
by virtue of a Fund holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which a Fund has written
options may exceed the time within which a Fund must make delivery in accordance
with an exercise notice. In these instances, a Fund may purchase or temporarily
borrow the underlying securities for purposes of physical delivery. By so doing,
a Fund will not bear any market risk, since a Fund will have the absolute right
to
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receive from the issuer of the underlying security an equal number of shares to
replace the borrowed securities, but a Fund may incur additional transaction
costs or interest expenses in connection with any such purchase or borrowing.
The potential loss associated with purchasing an option is
limited to the premium paid, and the premium would partially offset any gains
achieved by its use. However, for an option writer the exposure to adverse price
movements in the underlying security or index is potentially unlimited during
the exercise period. Writing securities options may result in substantial losses
to a Fund, force the sale of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation a Fund could realize
on its investments or require a Fund to hold securities it would otherwise sell.
Additional risks exist with respect to certain securities for
which a Fund may write covered call options. For example, if a Fund writes
covered call options on mortgage-backed securities, the mortgage-backed
securities that it holds as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. If this occurs, a Fund
will compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.
Options written by a Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. Each Fund may write (i) in-the-money call
options when CDC Investments expects that the price of the underlying security
will remain flat or decline moderately during the option period, (ii)
at-the-money call options when CDC Investments expects that the price of the
underlying security will remain flat or advance moderately during the option
period and (iii) out-of-the-money call options when CDC Investments expects that
the premiums received from writing the call option plus the appreciation in
market price of the underlying security up to the exercise price will be greater
than the appreciation in the price of the underlying security alone. In any of
the preceding situations, if the market price of the underlying security
declines and the security is sold at this lower price, the amount of any
realized loss will be offset wholly or in part by the premium received. To
secure its obligation to deliver the underlying security when it writes a call
option, each Fund will be required to deposit in escrow the underlying security
or other assets in accordance with the rules of the Options Clearing Corporation
(the "Clearing Corporation") and of the securities exchange on which the option
is written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by a Fund prior to the
exercise of options that it has purchased or written, respectively, of options
of the same series) in which a Fund may realize a profit or loss from the sale.
An option position may be closed out only where there exists a secondary market
for an option of the same series on a recognized securities exchange or in the
OTC market. When a Fund has purchased an option and engages in a closing sale
transaction, whether a Fund realizes a profit or loss will depend upon whether
the amount
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received in the closing sale transaction is more or less than the premium a Fund
initially paid for the original option plus the related transaction costs.
Similarly, in cases where a Fund has written an option, it will realize a profit
if the cost of the closing purchase transaction is less than the premium
received upon writing the original option and will incur a loss if the cost of
the closing purchase transaction exceeds the premium received upon writing the
original option. Each Fund may engage in a closing purchase transaction to
realize a profit, to prevent an underlying security with respect to which it has
written an option from being called or put or, in the case of a call option, to
unfreeze an underlying security (thereby permitting its sale or the writing of a
new option on the security prior to the outstanding option's expiration). The
obligation of a Fund under an option it has written would be terminated by a
closing purchase transaction, but a Fund would not be deemed to own an option as
a result of the transaction. So long as the obligation of a Fund as the writer
of an option continues, a Fund may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring a Fund to deliver the
underlying security against payment of the exercise price. This obligation
terminates when the option expires or a Fund effects a closing purchase
transaction. A Fund cannot effect a closing purchase transaction with respect to
an option once it has been assigned an exercise notice.
There is no assurance that sufficient trading interest will
exist to create a liquid secondary market on a securities exchange for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market for an option may cease to
exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. Moreover,
each Fund's ability to terminate options positions established in the OTC market
may be more limited than for exchange-traded options and may also involve the
risk that securities dealers participating in OTC transactions would fail to
meet their obligations to a Fund. Each Fund, however, intends to purchase OTC
options only from dealers whose debt securities, as determined by CDC
Investments, are considered to be investment grade. If, as a covered call option
writer, a Fund is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise. In either case, a
Fund would continue to have market risk on the security and could face higher
transaction costs, including brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts for each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held, written or exercised in
one or more accounts or through one or more brokers). It is possible that each
Fund and other clients of CDC Investments and certain of its affiliates may be
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considered to be such a group. A securities exchange may order the liquidation
of positions found to be in violation of these limits and it may impose certain
other sanctions. These limits may restrict the number of options a Fund will be
able to purchase on a particular security.
SECURITIES INDEX OPTIONS. Each Fund may purchase and write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities index options are based on a broad market index, such as the NYSE
Composite Index, or a narrower market index such as the Standard & Poor's 100
Index. Indexes may also be based on a particular industry or market segment.
Options on securities indexes are similar to options on stock,
except that (i) the expiration cycles of securities index options are monthly,
while those of stock options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a securities index gives the holder
the right to receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the securities index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
index and the exercise price of the option times a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Securities index options may be offset by entering into
closing transactions as described above for stock options.
OTC OPTIONS. Each Fund may purchase OTC or dealer options or
sell covered OTC options. Unlike exchange-listed options where an intermediary
or clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If a Fund were to
purchase a dealer option, however, it would rely on the dealer from whom it
purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by a Fund, a Fund would lose the
premium it paid for the option and the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid
market while OTC or dealer options do not. Consequently, a Fund will generally
be able to realize the value of a dealer option it has purchased only by
exercising it or reselling it to the dealer who issued it. Similarly, when a
Fund writes a dealer option, it generally will be able to close out the option
prior to its expiration only by entering into a closing purchase transaction
with the dealer to which a Fund originally wrote the option. Although each Fund
will seek to enter into dealer options only with dealers who will agree to and
that are expected to be capable of entering into
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closing transactions with a Fund, there can be no assurance that a Fund will be
able to liquidate a dealer option at a favorable price at any time prior to
expiration. The inability to enter into a closing transaction may result in a
material loss to the Fund. Until a Fund, as a covered OTC call option writer, is
able to effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used to cover the written option until the option
expires or is exercised. This requirement may impair a Fund's ability to sell
portfolio securities or, with respect to currency options, currencies at a time
when such sale might be advantageous
FUTURES ACTIVITIES. Each Fund may enter into foreign currency,
interest rate and stock index futures contracts and purchase and write (sell)
related options traded on exchanges designated by the Commodity Futures Trading
Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. The Aggressive Equity and Global Independence Funds may also enter
into futures contracts on precious metals and purchase and sell related options
on precious metals. These futures contracts are standardized contracts for the
future delivery of a foreign currency, precious metal, an interest rate
sensitive security or, in the case of index futures contracts or certain other
futures contracts, are settled in cash with reference to a specified multiplier
times the change in the specified index. An option on a futures contract gives
the purchaser the right, in return for the premium paid, to assume a position in
a futures contract. These transactions may be entered into for "bona fide
hedging" purposes as defined in CFTC regulations and other permissible purposes
including (i) for the purpose of hedging against a decline in value of a Fund's
current or anticipated portfolio holdings, (ii) as a substitute for purchasing
or selling portfolio securities or (iii) in an attempt to generate income to
offset expenses or increase return. Aggregate initial margin and premiums
(discussed below) required to establish positions other than those considered to
be "bona fide hedging" by the CFTC will not exceed 5% of the Fund's net asset
value after taking into account unrealized profits and unrealized losses on any
such contracts it has entered into. The Funds reserve the right to engage in
transactions involving futures contracts and options on futures contracts to the
extent allowed by CFTC regulations in effect from time to time and in accordance
with a Fund's policies. There is no overall limit on the percentage of Fund
assets that may be at risk with respect to futures activities.
FUTURES CONTRACTS. A foreign currency futures contract provides
for the future sale by one party and the purchase by the other party of a
certain amount of a specified non-U.S. currency at a specified price, date, time
and place. A precious metals futures contract provides for the future sale by
one party and the purchase by the other party of a certain amount of a precious
metal at a specified price, date, time and place. An interest rate futures
contract provides for the future sale by one party and the purchase by the other
party of a certain amount of a specific interest rate sensitive financial
instrument (debt security) at a specified price, date, time and place.
Securities indexes are capitalization weighted indexes which reflect the market
value of the securities represented in the indexes. A securities index futures
contract is an agreement to be settled by delivery of an amount of cash equal to
a specified multiplier times the difference between the value of the index at
the close of the last trading day on the contract and the price at which the
contract is made.
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No consideration is paid or received by a Fund upon entering
into a futures contract. Instead, a Fund is required to segregate with its
custodian an amount of cash or securities acceptable to the broker, equal to
approximately 1% to 10% of the contract amount (this amount is subject to change
by the exchange on which the contract is traded, and brokers may charge a higher
amount). This amount is known as "initial margin" and is in the nature of a
performance bond or good faith deposit on the contract which is returned to a
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. The broker will have access to amounts in the
margin account if a Fund fails to meet its contractual obligations. Subsequent
payments, known as "variation margin," to and from the broker, will be made
daily as the currency, precious metal, financial instrument or stock index
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as
"marking-to-market." A Fund will also incur brokerage costs in connection with
entering into futures transactions.
At any time prior to the expiration of a futures contract, a
Fund may elect to close the position by taking an opposite position, which will
operate to terminate a Fund's existing position in the contract. Positions in
futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although each
Fund intends to enter into futures contracts only if there is an active market
for such contracts, there is no assurance that an active market will exist at
any particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting a Fund to substantial losses. In such event, and in the
event of adverse price movements, a Fund would be required to make daily cash
payments of variation margin. In such situations, if a Fund had insufficient
cash, it might have to sell securities to meet daily variation margin
requirements at a time when it would be disadvantageous to do so. In addition,
if the transaction is entered into for hedging purposes, in such circumstances a
Fund may realize a loss on a futures contract or option that is not offset by an
increase in the value of the hedged position. Losses incurred in futures
transactions and the costs of these transactions will affect a Fund's
performance.
OPTIONS ON FUTURES CONTRACTS. Each Fund may purchase and write
put and call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. The Aggressive Equity Fund and the Global
Independence Fund may also purchase and write put and call options on precious
metals futures contracts and may enter into closing transactions with respect to
such options to terminate existing positions. There is no guarantee that such
closing transactions can be effected; the ability to establish and close out
positions on such options will be subject to the existence of a liquid market.
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An option on a currency, precious metal, interest rate or stock
index futures contract, as contrasted with the direct investment in such a
contract, gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract at a specified exercise price at any
time prior to the expiration date of the option. The writer of the option is
required upon exercise to assume an offsetting futures position (a short
position if the option is a call and a long position if the option is a put).
Upon exercise of an option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the futures contract. The potential loss related to the purchase of an option
on futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of each
Fund. The CFTC has recently adopted rules that will permit exchanges to use
futures-style margining with respect to options on futures upon approval by the
CFTC.
CURRENCY EXCHANGE TRANSACTIONS. The value in U.S. dollars of the
assets of a Fund that are invested in foreign securities may be affected
favorably or unfavorably by a variety of factors not applicable to investment in
U.S. securities, and a Fund may incur costs in connection with conversion
between various currencies. Currency exchange transactions may be from any
non-U.S. currency into U.S. dollars or into other appropriate currencies. Each
Fund will conduct its currency exchange transactions (i) on a spot (I.E., cash)
basis at the rate prevailing in the currency exchange market, (ii) through
entering into futures contracts or options on such contracts (as described
above), (iii) through entering into forward contracts to purchase or sell
currency, (iv) by purchasing exchange-traded currency options or (v) by engaging
in currency swaps. Risk associated with currency forward contracts and
purchasing currency options are similar to those described herein for futures
contracts and securities and stock index options. In addition, the use of
currency transactions could result in losses from the imposition of foreign
exchange controls, suspension of settlement or other governmental actions or
unexpected events.
FORWARD CURRENCY CONTRACTS. A forward currency contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract as agreed upon by
the parties, at a price set at the time of the contract. These contracts are
entered into in the interbank market conducted directly between currency traders
(usually large commercial banks and brokers) and their customers. Forward
currency contracts are similar to currency futures contracts, except that
futures contracts are traded on commodities exchanges and are standardized as to
contract size and delivery date.
At or before the maturity of a forward contract, a Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading
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partner to enter into an offsetting transaction. If a Fund retains the portfolio
security and engages in an offsetting transaction, a Fund, at the time of
execution of the offsetting transaction, will incur a gain or a loss to the
extent that movement has occurred in forward contract prices.
The OTC market in forward foreign currency exchange contracts
offers less protection against defaults by the other party to such instruments
than is available for currency instruments traded on an exchange. Such contracts
are subject to the risk that the counterparty to the contract will default on
its obligations. Since these contracts are not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive a Fund of unrealized
profits, transaction costs or the benefits of a currency hedge or force a Fund
to cover its purchase or sale commitments, if any, at the current market price.
Currency exchange rates may fluctuate significantly over short periods of time.
They generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries,
actual or perceived changes in interest rates and other complex factors as seen
from an international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central banks,
or the failure to intervene, or by currency controls or political developments
in the U.S. or abroad.
CURRENCY OPTIONS. Each Fund may purchase exchange-traded put and
call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
HEDGING. In addition to entering into options, futures and
currency exchange transactions for other purposes, including generating current
income to offset expenses or increase return, each Fund may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position or to mitigate against non-diversification risks; at the same
time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedged position. As a result,
the use of options, futures, contracts and currency exchange transactions for
hedging purposes could limit any potential gain from an increase in the value of
the position hedged. In addition, the movement in the portfolio position hedged
may not be of the same magnitude as movement in the hedge. With respect to
futures contracts, since the value of portfolio securities will far exceed the
value of short futures contracts entered into by a Fund, an increase in the
value of the futures contracts could only mitigate, but not totally offset, the
decline in the value of a Fund's assets.
In hedging transactions based on an index, whether a Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. The risk of
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imperfect correlation increases as the composition of a Fund's portfolio varies
from the composition of the index. In an effort to compensate for imperfect
correlation of relative movements in the hedged position and the hedge, a Fund's
hedge positions may be in a greater or lesser dollar amount than the dollar
amount of the hedged position. Such "over hedging" or "under hedging" may
adversely affect a Fund's net investment results if market movements are not as
anticipated when the hedge is established. Stock index futures transactions may
be subject to additional correlation risks. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which would distort the normal
relationship between the stock index and futures markets. Second, from the point
of view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by CDC Investments still may not result in a successful
hedging transaction.
A Fund will engage in hedging transactions only when deemed
advisable by CDC Investments, and successful use by a Fund of hedging
transactions will be subject to CDC Investments' ability to predict trends in
currency, interest rate or securities markets, as the case may be, and to
correctly predict movements in the directions of the hedge and the hedged
position and the correlation between them, which predictions could prove to be
inaccurate. This requires different skills and techniques than predicting
changes in the price of individual securities, and there can be no assurance
that the use of these strategies will be successful. Even a well-conceived hedge
may be unsuccessful to some degree because of unexpected market behavior or
trends. Losses incurred in hedging transactions and the costs of these
transactions will affect a Fund's performance.
To the extent that a Fund engages in the strategies described
above, the Fund may experience losses greater than if these strategies had not
been utilized. In addition to the risks described above, these instruments may
be illiquid and/or subject to trading limits, and the Fund may be unable to
close out a position without incurring substantial losses, if at all. The Fund
is also subject to the risk of a default by a counterparty to an off-exchange
transaction.
SWAPS. Each Fund may enter into swaps relating to indexes,
currencies and equity interests of issuers without limit. A swap transaction is
an agreement between a Fund and a counterparty to act in accordance with the
terms of the swap contract. Index swaps involve the exchange by a Fund with
another party of the respective amounts payable with respect to a notional
principal amount related to one or more indexes. Currency swaps involve the
exchange of cash flows on a notional amount of two or more currencies based on
their relative future values. An equity swap is an agreement to exchange streams
of payments computed by reference to a notional amount based on the performance
of a basket of stocks or a single stock. Each Fund may enter into these
transactions to preserve a return or spread on
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a particular investment or portion of its assets, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities a Fund anticipates purchasing at a later
date. Each Fund may also use these transactions for speculative purposes, such
as to obtain the price performance of a security without actually purchasing the
security in circumstances, for example, the subject security is illiquid, is
unavailable for direct investment or available only on less attractive terms.
Swaps have risks associated with them including possible default by the
counterparty to the transaction, illiquidity and, where swaps are used as
hedges, the risk that the use of a swap could result in losses greater than if
the swap had not been employed. The Funds may only enter into swaps with
counterparties that are "eligible swap participants" as defined in CFTC
Regulation Section. 35.1(b)(2).
Each Fund will usually enter into swaps on a net basis (I.E.,
the two payment streams are netted out in a cash settlement on the payment date
or dates specified in the agreement, with a Fund receiving or paying, as the
case may be, only the net amount of the two payments). Swaps do not involve the
delivery of securities, other underlying assets or principal. Accordingly, the
risk of loss with respect to swaps is limited to the net amount of payments that
a Fund is contractually obligated to make. If the counterparty to a swap
defaults, a Fund's risk of loss consists of the net amount of payments that a
Fund is contractually entitled to receive. Where swaps are entered into for good
faith hedging purposes, CDC Investments believes such obligations do not
constitute senior securities under the Investment Company Act of 1940, as
amended (the "1940 Act") and, accordingly, will not treat them as being subject
to a Fund's borrowing restrictions. Where swaps are entered into for other than
hedging purposes, a Fund will segregate an amount of cash or liquid securities
having a value equal to the accrued excess of its obligations over entitlements
with respect to each swap on a daily basis.
ASSET COVERAGE FOR FORWARD CONTRACTS, OPTIONS, FUTURES AND
OPTIONS ON FUTURES AND SWAPS. The Funds will comply with guidelines established
by the U.S. Securities and Exchange Commission (the "SEC") and other applicable
regulatory bodies with respect to coverage of forward currency contracts;
options written by the Funds on currencies, securities and securities indexes
and swaps; and currency, interest rate and index futures contracts and options
on these futures contracts. These guidelines may, in certain instances, require
segregation by a Fund of cash or liquid securities with its custodian or
designated sub-custodian to the extent the Fund's obligations with respect to
these strategies are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency or by other portfolio positions or by
other means consistent with applicable regulatory policies. Segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to separate them. As a result, there is a
possibility that segregation of a large percentage of a Fund's assets could
impede portfolio management or a Fund's ability to meet redemption requests or
other current obligations.
For example, a call option written by a Fund on securities may
require a Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and
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deliver the securities if the call is exercised. A call option written by a Fund
on an index may require a Fund to own portfolio securities that correlate with
the index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. A Fund could purchase a
put option if the strike price of that option is the same or higher than the
strike price of a put option sold by a Fund. If a Fund holds a futures or
forward contract, a Fund could purchase a put option on the same futures or
forward contract with a strike price as high or higher than the price of the
contract held. A Fund may enter into fully or partially offsetting transactions
so that its net position, coupled with any segregated assets (equal to any
remaining obligation), equals its net obligation. Asset coverage may be achieved
by other means when consistent with applicable regulatory policies.
U.S. GOVERNMENT SECURITIES.
Each Fund may invest in debt obligations of varying maturities
issued or guaranteed by the U.S. government, its agencies or instrumentalities
("U.S. Government Securities"). Direct obligations of the U.S. Treasury include
a variety of securities that differ in their interest rates, maturities and
dates of issuance. U.S. Government Securities also include securities issued or
guaranteed by the Federal Housing Administration, Farmers Home Loan
Administration, Export-Import Bank of the U.S., Small Business Administration,
Government National Mortgage Association ("GNMA"), General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation ("FHLMC"),
Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association ("FNMA"), Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board and Student Loan Marketing Association. The
Funds may also invest in instruments that are supported by the right of the
issuer to borrow from the U.S. Treasury and instruments that are supported by
the credit of the instrumentality. Because the U.S. government is not obligated
by law to provide support to an instrumentality it sponsors, a Fund will invest
in obligations issued by such an instrumentality only if CDC Investments
determines that the credit risk with respect to the instrumentality does not
make its securities unsuitable for investment by a Fund.
MONEY MARKET OBLIGATIONS.
Each Fund is authorized to invest in short-term money market
obligations having remaining maturities of less than one year at the time of
purchase. These short-term instruments consist of U.S. Government Securities;
bank obligations (including certificates of deposit, time deposits and bankers'
acceptances of domestic or foreign banks, domestic savings and loans and similar
institutions) that are high quality investments or, if unrated, deemed by CDC
Investments to be high quality investments; commercial paper rated no lower than
A-2 by S&P or Prime-2 by Moody's or the equivalent from another major rating
service or, if unrated, of an issuer having an outstanding, unsecured debt issue
then rated within the three highest rating categories; and repurchase agreements
with respect to portfolio securities.
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BANK OBLIGATIONS. The Funds may purchase certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations
issued by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Funds may be subject to
additional investment risks, including future and political and economic
developments, the possible imposition of withholding taxes on interest income,
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations.
Certificates of deposit are negotiable certificates evidencing
the obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time (in no event longer than
seven days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and the drawer to pay the face amount of
the instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term,
unsecured promissory notes issued to finance short-term credit needs. The
commercial paper purchased by each Fund will consist only of direct obligations
which, at the time of their purchase, are (a) rated not lower than Prime-1 by
Moody's or A-1 by S&P, (b) issued by companies having an outstanding unsecured
debt issue currently rated at least A3 by Moody's or A- by S&P, or (c) if
unrated, determined by CDC Investments to be of comparable quality to those
rated obligations which may be purchased by the Fund.
OTHER SHORT-TERM CORPORATE OBLIGATIONS. These instruments
include variable amount master demand notes, which are obligations that permit a
Fund to invest fluctuating amounts at varying rates of interest pursuant to
direct arrangements between a Fund, as lender, and the borrower. These notes
permit daily changes in the amounts borrowed. Because these obligations are
direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value, plus accrued interest, at any time. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, a Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies, and a Fund may invest in them only if
at the time of an investment CDC Investments determines that such investment is
of comparable quality to those rated obligations which may be purchased by each
Fund.
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If CDC Investments determines that market conditions temporarily
warrant a defensive investment policy, each Fund may invest up to 100% of its
assets in money market instruments. The yield on such securities may be lower
than the yield on lower-rated, fixed-income securities.
FOREIGN INVESTMENTS. Investors should recognize that investing
in foreign companies involves certain risks, including those discussed below,
which are not typically associated with investing in U.S. issuers. Individual
foreign economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments positions. A
Fund may invest in securities of foreign governments (or agencies or
instrumentalities thereof), and many, if not all, of the foregoing
considerations apply to such investments as well.
FOREIGN CURRENCY EXCHANGE. Since the Funds may invest in
securities denominated in currencies other than the U.S. dollar, and since the
Funds may temporarily hold funds in bank deposits or other money market
investments denominated in foreign currencies, the Funds may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. A change in the value of a
foreign currency relative to the U.S. dollar will result in a corresponding
change in the dollar value of Fund assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Funds. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the U.S. and a particular foreign country, including
economic and political developments in other countries. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies. The Funds may, but are not
required to, use hedging techniques with the objective of protecting against
loss through the fluctuation of the value of foreign currencies against the U.S.
dollar, particularly the forward market in foreign exchange, currency options
and currency futures.
INFORMATION. Many of the foreign securities held by the Funds
will not be registered with, nor the issuers thereof be subject to reporting
requirements of, the SEC. Accordingly, there may be less publicly available
information about the securities and about the foreign company or government
issuing them than is available about a domestic company or government entity.
Foreign companies are generally subject to financial reporting standards,
practices and requirements that are either not uniform or less rigorous than
those applicable to U.S. companies.
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FOREIGN MARKETS. Securities of some foreign companies are less
liquid and their prices are more volatile than securities of comparable U.S.
companies. Certain foreign countries are known to experience long delays between
the trade and settlement dates of securities purchased or sold, which may result
in increased exposure to market and foreign exchange fluctuations and increased
liquidity.
POLITICAL INSTABILITY. With respect to some foreign countries,
there is the possibility of expropriation, nationalization, or confiscatory
taxation and limitations on the use or removal of funds or other assets of a
Fund, including the withholding of dividends. Political or social instability,
or domestic developments could affect U.S. investments in those and neighboring
countries.
INCREASED EXPENSES. The operating expenses of a Fund, to the
extent it invests in foreign securities, may be higher than that of an
investment company investing exclusively in U.S. securities, since the expenses
of the Fund, such as the cost of converting foreign currency into U.S. dollars,
the payment of fixed brokerage commissions on foreign exchanges, custodial
costs, valuation costs and communication costs, may be higher than those costs
incurred by investment companies not investing in foreign securities. In
addition, foreign securities may be subject to foreign government taxes that
would reduce the net yield in such securities.
FOREIGN DEBT SECURITIES. Each of the Funds may invest in debt
securities (other than money market obligations) and preferred stocks that are
not convertible into common stock for the purpose of seeking capital
appreciation. Each Fund's holdings of debt securities will be considered
investment grade at the time of purchase, except that the Aggressive Equity Fund
and the Global Independence Fund may purchase a certain amount of below
investment grade securities (see "Below Investment Grade Securities"). A
security will be deemed to be investment grade if it is rated within the four
highest grades by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Service ("S&P") or, if unrated, is determined to be of comparable
quality by CDC Investments. The returns on foreign debt securities reflect
interest rates and other market conditions prevailing in those countries and the
effect of gains and losses in the denominated currencies against the U.S.
dollar, which have had a substantial impact on investment in foreign
fixed-income securities. The relative performance of various countries'
fixed-income markets historically has reflected wide variations relating to the
unique characteristics of each country's economy. Year-to-year fluctuations in
certain markets have been significant, and negative returns have been
experienced in various markets from time to time.
The foreign government securities in which the Funds may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the
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European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank.
Foreign government securities also include debt securities of
quasi-governmental agencies and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Union to reflect changes in relative values of the
underlying currencies.
EMERGING MARKETS. Investing in securities of issuers located in
"emerging markets" (less developed countries located outside of the U.S.)
involves not only the risks described above with respect to investing in foreign
securities, but also other risks, including exposure to economic structures that
are generally less diverse and mature than, and to political systems that can be
expected to have less stability than, those of developed countries. For example,
many investments in emerging markets have recently experienced significant
declines in value due to political and currency volatility in emerging markets
countries. Other characteristics of emerging markets that may affect investment
include certain national policies that may restrict investment by foreigners in
issuers or industries deemed sensitive to relevant national interests and the
absence of developed structures governing private and foreign investments and
private property. The typically small size of the markets for securities of
issuers located in emerging markets and the possibility of a low or nonexistent
volume of trading in those securities may also result in a lack of liquidity and
in price volatility of those securities.
DEPOSITARY RECEIPTS. The assets of each Fund may be invested in
the securities of foreign issuers in the form of American Depositary Receipts
("ADRs") and European Depositary Receipts ("EDRs") and certain of the above
risks of investing in foreign securities may be involved in investing in such
securities. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in
Europe typically by non-U.S. banks and trust companies that evidence ownership
of either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in U.S. securities markets and EDRs and CDRs in bearer form are
designed for use in European securities markets.
EURO CONVERSION. The introduction of a single European currency,
the euro, on January 1, 1999 for participating European nations in the Economic
and Monetary Union presents unique risks and uncertainties for investors in
those countries, including (i) the functioning of the payment and operational
systems of banks and other financial institutions;
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(ii) the creation of suitable clearing and settlement payment schemes for the
euro; (iii) the fluctuation of the euro relative to non-euro currencies during
the transition period from January 1, 1999 to December 31, 2000 and beyond; and
(iv) whether the interest rate, tax and labor regimes of the European countries
participating in the euro will converge over time. Further, the conversion of
the currencies of other Economic Monetary Union countries, such as the United
Kingdom, and the admission of other countries to the Economic and Monetary Union
could adversely affect the euro. These or other factors may cause market
disruptions and could adversely affect the value of foreign securities and
currencies held by the Funds.
FIXED INCOME SECURITIES. The value of the securities held by a
Fund, and thus the net asset value of the shares of a Fund, generally will vary
inversely in relation to changes in prevailing interest rates. Thus, if interest
rates have increased from the time a debt or other fixed income security was
purchased, such security, if sold, might be sold at a price less than its cost.
Conversely, if interest rates have declined from the time such a security was
purchased, such security, if sold, might be sold at a price greater than its
cost. Also, the value of such securities may be affected by changes in real or
perceived creditworthiness of the issuers. Thus, if creditworthiness is
enhanced, the price may rise. Conversely, if creditworthiness declines, the
price may decline. A Fund is not restricted to any maximum or minimum time to
maturity in purchasing portfolio securities, and the average maturity of a
Fund's assets will vary based on CDC Investments' assessment of economic and
market conditions.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each Fund may invest
in securities of other investment companies to the extent permitted under the
1940 Act. Presently, under the 1940 Act, each Fund may hold securities of
another investment company in amounts which (i) do not exceed 3% of the total
outstanding voting stock of such company, (ii) do not exceed 5% of the value of
each Fund's total assets and (iii) when added to all other investment company
securities held by each Fund, do not exceed 10% of the value of each Fund's
total assets.
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRs"). Each Fund may
purchase interests in a unit investment trust holding a portfolio of securities
linked to the S&P 500 Index. SPDRs closely track the underlying portfolio of
securities, trade like a share of common stock and pay periodic dividends
proportionate to those paid by the portfolio of stocks that comprise the S&P 500
Index. SPDRs trade on the American Stock Exchange like shares of common stock.
As a holder of interests in a unit investment trust, a Fund would indirectly
bear its ratable share of that unit investment trust's expenses. At the same
time, a Fund would continue to pay its own management and advisory fees and
other expenses, as a result of which a Fund and its shareholders in effect will
be absorbing duplicate levels of fees with respect to investments in such unit
investment trusts. The liquidity of small holdings of SPDRs will depend upon the
existence and liquidity of a secondary market. The price of SPDRs is derived
from and based upon the securities held by the unit investment trust.
Accordingly, the level of risk involved in the purchase or sale of a SPDR is
similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the
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pricing mechanism for SPDRs is based on a basket of stock. Disruptions in the
markets for the securities underlying SPDRs purchased or sold by a Fund could
result in losses on SPDRs.
WHEN-ISSUED SECURITIES, DELAYED-DELIVERY TRANSACTIONS AND
FORWARD COMMITMENTS. Each Fund may purchase securities on a "when-issued" basis,
for delayed delivery (I.E., payment or delivery occur beyond the normal
settlement date at a stated price and yield) or on a forward commitment basis in
an amount up to 20% of its total assets. Each Fund does not intend to engage in
these transactions for speculative purposes, but only in furtherance of its
investment objectives. These transactions occur when securities are purchased or
sold by a Fund with payment and delivery taking place in the future to secure
what is considered an advantageous yield and price to a Fund at the time of
entering into the transaction. The payment obligation and the interest rate that
will be received on when-issued securities are fixed at the time the buyer
enters into the commitment. Due to fluctuations in the value of securities
purchased or sold on a when-issued, delayed-delivery basis or forward commitment
basis, the prices obtained on such securities may be higher or lower than the
prices available in the market on the dates when the investments are actually
delivered to the buyers. When-issued securities may include securities purchased
on a "when, as and if issued" basis under which the issuance of the security
depends on the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring.
When a Fund agrees to purchase when-issued, delayed-delivery
securities or securities on a forward commitment basis, its custodian will set
aside cash or liquid securities equal to the amount of the commitment in a
segregated account. Normally, the custodian will set aside portfolio securities
to satisfy a purchase commitment, and in such a case a Fund may be required
subsequently to place additional assets in the segregated account in order to
ensure that the value of the account remains equal to the amount of a Fund's
commitment. The assets contained in the segregated account will be
marked-to-market daily. It may be expected that a Fund's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. When a Fund engages in
when-issued, delayed-delivery or forward commitment transactions, it relies on
the other party to consummate the trade. Failure of the seller to do so may
result in a Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
REPURCHASE AGREEMENTS. Each Fund may agree to purchase
securities from a bank or recognized securities dealer and simultaneously commit
to resell the securities to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or maturity of
the purchased securities ("repurchase agreements"). Such Fund would maintain
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to would be, in effect, secured by such securities. If the value of such
securities were less than the repurchase price, plus interest, the other party
to the agreement would be required to provide additional collateral so that at
all times the collateral is at least 102% of the repurchase price plus accrued
interest. Default by or bankruptcy of a seller would expose a Fund to possible
loss because of adverse market action, expenses and/or delays in connection with
the disposition of
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the underlying obligations. The financial institutions with which a Fund may
enter into repurchase agreements will be banks and non-bank dealers of U.S.
Government securities that are listed on the Federal Reserve Bank of New York's
list of reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by CDC Investments. CDC Investments will continue to monitor
creditworthiness of the seller under a repurchase agreement, and will require
the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least 102% of the repurchase
price (including accrued interest). In addition, CDC Investments will require
that the value of this collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a default, be equal to 102% or
greater than the repurchase price (including accrued premium) provided in the
repurchase agreement or the daily amortization of the difference between the
purchase price and the repurchase price specified in the repurchase agreement.
CDC Investments will mark-to-market daily the value of the securities. There are
no percentage limits on a Fund's ability to enter into repurchase agreements.
Repurchase agreements are considered to be loans by the Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Each Fund may
enter into reverse repurchase agreements with the same parties with whom it may
enter into repurchase agreements. Reverse repurchase agreements involve the sale
of securities held by a Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time a Fund enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with an approved custodian containing cash or liquid securities having a
value not less than the repurchase price (including accrued interest). The
assets contained in the segregated account will be marked-to-market daily and
additional assets will be placed in such account on any day in which the assets
fall below the repurchase price (plus accrued interest). A Fund's liquidity and
ability to manage its assets might be affected when it sets aside cash or
portfolio securities to cover such commitments. Reverse repurchase agreements
involve the risk that the market value of the securities retained in lieu of
sale may decline below the price of the securities a Fund has sold but is
obligated to repurchase. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce a Fund's obligation to repurchase the securities, and a Fund's use of
the proceeds of the reverse repurchase agreement may effectively be restricted
pending such decision.
Each Fund also may enter into "dollar rolls," in which a Fund
sells fixed-income securities for delivery in the current month and
simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, a Fund would forego principal and interest paid on such securities. A
Fund would be compensated by the difference between the current sales price and
the forward price for the future purchase, as well as by the interest earned on
the cash proceeds of the initial sale. At the time a Fund enters into a dollar
roll transaction, it will segregate with an approved custodian, cash or liquid
securities having a value not less than the repurchase price (including accrued
interest) and will subsequently monitor the segregated assets to ensure that
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their value is maintained. Reverse repurchase agreements and dollar rolls that
are accounted for as financings are considered to be borrowings under the 1940
Act.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Each Fund may invest in
fixed and floating rate loans ("Loans") arranged through private negotiations
between a foreign government and one or more financial institutions ("Lenders").
The majority of the Funds' investments in Loans are expected to be in the form
of participations in Loans ("Participations") and assignments of portions of
Loans from third parties ("Assignments"). Participations typically will result
in a Fund having a contractual relationship only with the Lender, not with the
borrower. A participating Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, a Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan ("Loan Agreement"), nor any
rights of set-off against the borrower, and a Fund may not directly benefit from
any collateral supporting the Loan in which it has purchased the Participation.
As a result, participating Funds will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, a Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. The Funds will acquire Participations only if the
Lender interpositioned between the Funds and the borrower is determined by CDC
Investments to be creditworthy.
ZERO COUPON SECURITIES. Each Fund may invest up to 20% of its
total assets in "zero coupon" U.S. Treasury, foreign government and U.S. and
foreign corporate debt securities, which are bills, notes and bonds that have
been stripped of their unmatured interest coupons and custodial receipts or
certificates of participation representing interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest to its holder
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities that make current distributions of interest and may be
more, speculative than such other securities. Accordingly, the values of these
securities may be highly volatile as interest rates rise or fail. Redemption of
shares of a Fund that require it to sell zero coupon securities prior to
maturity may result in capital gains or losses that are substantial. Each Fund
anticipates that it will not normally hold zero coupon securities to maturity.
Federal tax law requires that a holder of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year,
even though the holder receives no interest payment on the security during the
year. Such accrued discount will be included in determining the amount of
dividends a Fund must pay each year and, in order to generate cash necessary to
pay such dividends, a Fund may liquidate portfolio securities at a time when it
would not otherwise have done so.
CONVERTIBLE SECURITIES. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at
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a specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible debt securities in that they ordinarily provide a stable stream
of income with generally higher yields than those of common stocks of the same
or similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. While no securities investment is completely without
risk, investments in convertible securities generally entail less risk than the
corporation's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed-income security. Convertible securities have unique
investment characteristics in that they generally (1) have higher yields than
common stocks, but lower yields than comparable non-convertible securities, (2)
are less subject to fluctuation in value than the underlying stock since they
have fixed-income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. Most
convertible securities currently are issued by U.S. companies, although a
substantial Eurodollar convertible securities market has developed, and the
markets for convertible securities denominated in local currencies are
increasing. Subsequent to purchase by a Fund, convertible securities may cease
to be rated or a rating may be reduced below the minimum required for purchase
by a Fund. Neither event will require sale of such securities, although CDC
Investments will consider such event in its determination of whether a Fund
should continue to hold the securities.
The value of a convertible security is a function of its
"investment value" (determined by its yield in comparison with the yields of
other securities of comparable maturity and quality that do not have a
conversion privilege) and its "conversion value" (the security's worth, at
market value, if converted into the underlying common stock). The investment
value of a convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as interest
rates decline. The credit standing of the issuer and other factors also may have
an effect on the convertible security's investment value. The conversion value
of a convertible security is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible security is governed principally by its investment
value. Generally the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. A convertible
security generally will sell at a premium over its conversion value by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed-income security.
A convertible security might be subject to redemption at the
option of the issuer at a price established in the convertible security's
governing instrument. If a convertible security held by a Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party. The Funds will invest in convertible securities without regard to their
credit rating.
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MORTGAGE-BACKED SECURITIES. Each Fund may invest in
mortgage-backed securities issued by U.S. government entities, such as GNMA,
FNMA or FHLMC. In addition, a Fund may invest in mortgage-backed securities
sponsored by U.S. issuers as well as non-governmental issuers. The Aggressive
Equity Fund and the Global Independence Fund may also invest in mortgage-backed
securities of foreign issuers. Non-government issued mortgage-backed securities
may offer higher yields than those issued by government entities, but may be
subject to greater price fluctuations. Mortgage-backed securities represent
direct or indirect participations in, or are secured by and payable from,
mortgage loans secured by real property. The mortgages backing these securities
include, among other mortgage instruments, conventional 30-year fixed-rate
mortgages, 15-year fixed-rate mortgages, graduated payment mortgages and
adjustable rate mortgages. Although there may be government or private
guarantees on the payment of interest and principal of these securities, the
guarantees do not extend to the securities' yield or value, which are likely to
vary inversely with fluctuations in interest rates, nor do the guarantees extend
to the yield or value of a Fund's shares. These securities generally are
"pass-through" instruments, through which the holders receive a share of all
interest and principal payments from the mortgages underlying the securities,
net of certain fees. Some mortgage-backed securities, such as collateralized
mortgage obligations ("CMOs"), make payments of both principal and interest at a
variety of intervals; others make semiannual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the underlying
instruments and the associated average life assumption. The average life of
pass-through pools varies with the maturities of the underlying mortgage loans.
A pool's term may be shortened by unscheduled or early payments of principal on
the underlying mortgages. The occurrence of mortgage prepayments is affected by
various factors, including the level of interest rates, general economic
conditions, the location, scheduled maturity and age of the mortgage and other
social and demographic conditions. Because prepayment rates of individual pools
vary widely, it is not possible to predict accurately the average life of a
particular pool. At present, pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-backed securities. Conversely, in periods of rising rates the
rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates or
other special payment terms, such as a prepayment charge. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting a Fund's
yield.
The rate of interest on mortgage-backed securities is lower than
the interest rates paid on the mortgages included in the underlying pool due to
the annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to
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the holder may vary from the coupon rate, even if adjustable, if the
mortgage-backed securities are purchased or traded in the secondary market at a
premium or discount. In addition, there is normally some delay between the time
the issuer receives mortgage payments from the servicer and the time the issuer
makes the payments on the mortgage-backed securities, and this delay reduces the
effective yield to the holder of such securities.
ASSET-BACKED SECURITIES. Each Fund may also invest in
asset-backed securities, which represent participations in, or are secured by
and payable from, pools of consumer loans on assets such as motor vehicle
installment sales, installment loan contracts, leases of various types of real
and personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest
ultimately depend on payments in respect of the underlying loans by individuals
and may be guaranteed up to certain amounts and for a certain time period by a
letter of credit or a pool insurance policy issued by a financial institution
unaffiliated with the trust or corporation.
Asset-backed securities present certain risks that are not
presented by other securities in which a Fund may invest. Automobile receivables
generally are secured by automobiles. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in the underlying automobiles. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities. Credit card receivables are
generally unsecured, and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. In addition, there is no assurance that the security interest in
the collateral can be realized. The remaining maturity of any asset-backed
security a Fund invests in will be 397 days or less. A Fund may purchase
asset-backed securities that are unrated.
STRUCTURED NOTES. The Funds may invest in structured notes. The
distinguishing feature of a structured note is that the amount of interest
and/or principal payable on the notes is based on the performance of a benchmark
asset or market other than fixed-income securities or interest rates. Examples
of a benchmark include stock prices, currency exchange rates and physical
commodity prices. Investing in a structured note allows a Fund to gain exposure
to the benchmark asset or market, such as investments in certain emerging
markets that restrict investment by foreigners. The structured note fixes the
maximum loss that a Fund may experience in the event that the market does not
perform as expected. The performance tie can be a straight relationship or
leveraged, although CDC Investments generally will not use leverage in its
structured note strategies. Depending on the terms of the note, a Fund may
forego all or part of the interest and principal that would be payable on a
comparable conventional note; a Fund's loss cannot exceed this foregone interest
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and/or principal. An investment in a structured note involves risks similar to
those associated with a direct investment in the benchmark asset. Structured
notes will be treated as illiquid securities for investment limitation purposes.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. Each Fund may not
invest more than 15% of its net assets in non-publicly traded and illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market, repurchase agreements which have a maturity of longer
than seven days, certain Rule 144A Securities (as described below) and time
deposits maturing in more than seven days. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
considered illiquid for purposes of this limitation. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Companies whose securities
are not publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. Limitations on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to dispose of restricted
or other illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions within seven days without
borrowing. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
RULE 144A SECURITIES. Each Fund may purchase securities that are
not registered under the Securities Act, but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act
adopted by the SEC. Rule 144A allows for a broader institutional trading market
for securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. CDC Investments anticipates that the market for certain restricted
securities such as
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institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered
illiquid and therefore subject to each Fund's limit on the purchase of illiquid
securities unless the Trustees or their delegates determines that the Rule 144A
Securities are liquid. In reaching liquidity decisions, the Trustees and its
delegates may consider, INTER ALIA, the following factors: (i) the unregistered
nature of the security; (ii) the frequency of trades and quotes for the
security; (iii) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (iv) dealer undertakings to make a
market in the security and (v) the nature of the security and the nature of the
marketplace trades (E.G., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer). This investment
practice could have the effect of increasing the level of illiquidity in the
Funds to the extent that qualified institutional buyers become uninterested for
a time in purchasing Rule 144A Securities. The Trustees of each Fund will
carefully monitor any investments by a Fund in Rule 144A Securities. The
Trustees may adopt guidelines and delegate to CDC Investments the daily function
of determining and monitoring the liquidity of Rule 144A Securities, although
the Trustees will retain ultimate responsibility for any determination regarding
liquidity.
Rule 144A Securities may involve a high degree of business and
financial risk and may result in substantial losses. These securities may be
less liquid than publicly traded securities, and a Fund may take longer to
liquidate these positions than would be the case for publicly traded securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized on such sales could be less than those originally paid by a
Fund. Further, companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements applicable
to companies whose securities are publicly traded. A Fund's investment in
illiquid securities is subject to the risk that should a Fund desire to sell any
of these securities when a ready buyer is not available at a price that is
deemed to be representative of their value, the value of a Fund's net assets
could be adversely affected.
RIGHTS OFFERINGS AND PURCHASE WARRANTS. Each Fund may invest up
to 10% of its net assets in rights and warrants to purchase newly created equity
securities consisting of common and preferred stock. The equity security
underlying a right or warrant is authorized at the time the right or warrant is
issued or is issued together with the right or warrant.
Investing in rights and warrants can provide a greater potential
for profit or loss than an equivalent investment in the underlying security,
and, thus, can be a speculative investment. At the time of issue, the cost of a
warrant is substantially less than the cost of the underlying security itself,
and price movements on the underlying security are generally magnified in the
price movements of the warrant. The value of a right or warrant may decline
because of a decline in the value of the underlying security, the passage of
time, changes in
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interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. An investor's risk
increases in the event of a decline in the value of the underlying security and
can result in a complete loss of the amount invested in a warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant with generally expire without value. Rights and warrants
generally pay no dividends and confer no voting or other rights other than to
purchase the underlying security.
BORROWING. Each Fund may borrow up to 33 1/3% of its total
assets (including the amount borrowed) for temporary or emergency purposes,
including to meet portfolio redemption requests so as to permit the orderly
disposition of portfolio securities or to facilitate settlement transactions on
portfolio securities. Investments (including roll-overs) will not be made when
borrowings exceed 5% of a Fund's total assets. Although the principal of such
borrowings will be fixed, a Fund's assets may change in value during the time
the borrowing is outstanding. The Funds expect that some of their borrowings may
be made on a secured basis. In such situations, either the custodian will
segregate the pledged assets for the benefit of the lender or arrangements will
be made with a suitable subcustodian, which may include the lender.
U.S. CORE EQUITY FUND ONLY
SHORT SELLING. The Fund may from time to time sell securities
short. A short sale is a transaction in which the Fund sells borrowed securities
it does not own in anticipation of a decline in the market price of the
securities. The current market value of the securities sold short (excluding
short sales "against the box") will not exceed 10% of the Fund's total assets.
To deliver the securities to the buyer, the Fund must arrange
through a broker to borrow the securities and, in so doing, the Fund becomes
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. The Fund will make a profit or incur
a loss as a result of a short sale depending on whether the price of the
securities decreases or increases between the date of the short sale and the
date on which the Fund purchases the security to replace the borrowed securities
that have been sold. The amount of any loss would be increased (and any gain
decreased) by any premium or interest the Fund is required to pay in connection
with a short sale. The Fund may have to pay a premium to borrow the securities
and must pay any dividends or interest payable on the securities until they are
replaced.
The Fund's obligation to replace the securities borrowed in
connection with a short sale will be secured by cash or liquid securities
deposited as collateral with the broker. In addition, the Fund will segregate
with its custodian or a qualified subcustodian an amount of cash or liquid
securities equal to the difference, if any, between (i) the market value of the
securities sold at the time they were sold short and (ii) any cash or liquid
securities deposited
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as collateral with the broker in connection with the short sale (not including
the proceeds of the short sale). Until it replaces the borrowed securities, the
Fund will maintain the segregated account daily at a level so that (a) the
amount deposited in the account plus the amount deposited with the broker (not
including the proceeds form the short sale) will equal the current market value
of the securities sold short and (b) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will not be less than the market value of the securities at the time they
were sold short.
SHORT SALES "AGAINST THE BOX". The Fund may enter into a short
sale of securities such that when the short position is open a fund owns an
equal amount of the securities sold short or owns preferred stocks or debt
securities, convertible or exchangeable without payment of further
consideration, into an equal number of securities sold short. This kind of short
sale, which is referred to as one "against the box," may be entered into by the
Fund to, for example, lock in a sale price for the security a Fund does not wish
to sell immediately. The Fund will segregate with its custodian or a qualified
subcustodian, the securities sold short or convertible or exchangeable preferred
stocks or debt securities in connection with short sales against the box.
The Fund may make a short sale as a hedge, when it believes that
the price of a security may decline in the value of a security owned by the Fund
(or a security convertible or exchangeable for such security). In such case, any
future losses in the Fund's long position should be offset by a gain in the
short position and, conversely, any gain in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold relative to the amount the Fund owns. There will be certain
additional transaction costs associated with short sales against the box, but
the Fund will endeavor to offset these costs with the income from the investment
of the cash proceeds of short sales.
If the Fund effects a short sale of securities at a time when it
has an unrealized gain in the securities, it may be required to recognize that
gain as if it had actually sold the securities (as a "constructive sale") on the
date it effects the short sale. However, such constructive sale treatment may
not apply if the Fund closes out the short sale with securities other than
appreciated securities held at the time of the short sale and if certain other
conditions are satisfied. Uncertainty regarding the tax consequences of
effecting short sales may limit the extent to which the Fund may effect short
sales.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Fund's Trustees. These loans, if and when made, may not exceed 50% of the Fund's
total assets (including the loan collateral) taken at value. The Fund will not
lend portfolio securities to affiliates of CDC Investments unless it has applied
for and received specific authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash or liquid securities, which are
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. Any gain or loss in the market price of
the securities loaned that might occur during the term of the loan would be for
the account of the Fund. From time to time, the Fund may return a part of
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the interest earned from the investment of collateral received for securities
loaned to the borrower and/or a third party that is unaffiliated with the Fund
and that is acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as collateral. The Fund will
adhere to the following conditions whenever its portfolio securities are loaned:
(i) the Fund must receive at least 100% cash collateral or equivalent securities
of the type discussed in the preceding paragraph from the borrower; (ii) the
borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (iii) the Fund must be able
to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other distributions
on the loaned securities and any increase in market value; (v) the Fund may pay
only reasonable custodian fees in connection with the loan; and (vi) voting
rights on the loaned securities may pass to the borrower, provided, however,
that if a material event adversely affecting the investment occurs, the Trustees
must terminate the loan and regain the right to vote the securities. Loan
agreements involve certain risks in the event of default or insolvency of the
other party including possible delays or restrictions upon the Fund's ability to
recover the loaned securities or dispose of the collateral for the loan.
AGGRESSIVE EQUITY FUND AND GLOBAL INDEPENDENCE FUND ONLY
NON-DIVERSIFIED STATUS. The Aggressive Equity and Global
Independence Funds are classified as non-diversified investment companies under
the 1940 Act, which means that a Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in the obligations of a single
issuer. Each Fund will, however, comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. As a non-diversified investment
company, a Fund may invest a greater proportion of its assets in the obligations
of a small number of issuers and, as a result, may be subject to greater risk
with respect to portfolio securities. To the extent that a Fund assumes large
positions in the securities of a small number of issuers, its return may
fluctuate to a greater extent than that of a diversified company as a result of
changes in the financial condition or in the market's assessment of the issuers.
BELOW INVESTMENT GRADE SECURITIES. Each of these Funds may
invest its assets in non-investment grade securities (securities that are rated
below the fourth highest grade at the time of purchase by Moody's or S&P, or, if
unrated, deemed by CDC Investments to be of comparable quality). Subsequent to
its purchase by a Fund, an issue of securities may cease to be rated or its
rating may be reduced. Neither event will require a sale of such securities by a
Fund, although CDC Investments will consider such event in its determination of
whether a Fund should continue to hold the securities. The widespread expansion
of government, consumer and corporate debt within the economy has made the
corporate sector, especially cyclically sensitive industries, more vulnerable to
economic downturns or increased interest rates. Because lower-rated securities
involve issuers with weaker credit fundamentals (such as
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debt-to-equity ratios, interest charge coverage, earnings history and the like),
an economic downturn, or increases in interest rates, could severely disrupt the
market for lower-rated securities and adversely affect the value of outstanding
securities and the ability of issuers to repay principal and interest.
The market values of below investment grade securities and
unrated securities of comparable quality tend to react less to fluctuations in
interest rate levels than do those of investment grade securities and the market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, these securities generally present a
higher degree of credit risk. Issuers of these securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
The risk of loss due to default by such issuers is significantly greater because
below investment grade securities generally are unsecured and frequently are
subordinated to prior payment of senior indebtedness. If the issuer of a
security owned by a Fund defaulted, a Fund could incur additional expenses in
seeking recovery with no guarantee of recovery. Also, a recession could disrupt
severely the market for such securities and may adversely affect the value of
such securities and the ability of the issuers of such securities to repay
principal and pay interest thereon. Lower-rated securities also present risks
based on payment expectations. For example, lower-rated securities may contain
redemption or call provisions. If an issuer exercises these provisions in a
declining interest rate market, a Fund would have to replace the security with a
lower yielding security, resulting in a decreased return for investors.
An economic recession could disrupt severely the market for such
securities and may adversely affect the value of such securities to repay
principal and pay interest thereon. The Funds may have difficulty disposing of
certain of these securities because there may be a thin trading market. Because
there is no established retail secondary market for many of these securities,
the Funds anticipate that these securities could be sold only to a limited
number of dealers or institutional investors. To the extent a secondary trading
market for these securities does exist, it generally is not as liquid as the
secondary market for investment grade securities. The lack of a liquid secondary
market, as well as adverse publicity and investor perception with respect to
these securities, may have an adverse impact on market price and a Fund's
ability to dispose of particular issues when necessary to meet liquidity needs
or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for the Funds to obtain
accurate market quotations for purposes of valuing the Funds and calculating net
asset value.
The market value of securities rated below investment grade is
more volatile than that of investment grade securities. Factors adversely
impacting the market value of these securities will adversely impact a Fund's
net asset value. The Funds will rely on the judgment, analysis and experience of
CDC Investments in evaluating the creditworthiness of an issuer. In this
evaluation, CDC Investments will consider, among other things, the issuer's
29
<PAGE>
financial resources, its sensitivity to economic conditions and trends, its
operating history, the quality of the issuer's management and regulatory
matters. Normally, below investment grade securities and comparable unrated
securities are not intended for short-term investment. A Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in the payment of principal or interest on its portfolio holdings of such
securities.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 8 may not be
changed without the affirmative vote of the holders of a majority of each Fund's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more of
the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of a Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares. Investment limitations 9 through 14 may be
changed by a vote of the Trustees at any time.
Each Fund may not:
1. Borrow money except that a Fund may (a) borrow from
banks for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by a Fund may not exceed 33-1/3% of the value of a Fund's
total assets (including the amount borrowed) at the time of such borrowing. For
purposes of this restriction, short sales and the entry into currency
transactions, options, futures contracts, options on futures contracts, forward
commitment transactions and dollar roll transactions that are not accounted for
as financings (and the segregation of assets in connection with any of the
foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more
of a value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that to the extent the Fund's benchmark is concentrated
in a particular industry, the Fund will be concentrated in that industry. This
limitation does not apply to the purchase of U.S. Government Securities.
3. With respect to the U.S. Core Equity Fund only,
purchase the securities of any issuer if as a result more than 5% of the value
of a Fund's total assets would be invested in the securities of such issuer,
except that this 5% limitation does not apply to U.S. Government Securities and
except that up to 25% of the value of a Fund's total assets may be invested
without regard to this 5% limitation.
4. Make loans, except that a Fund may purchase or hold
fixed-income securities, including structured securities, and enter into
repurchase agreements. The U.S. Core Equity Fund may also lend its portfolio
securities in an amount not to exceed 50% of its total assets.
30
<PAGE>
5. Underwrite any securities issued by others except to
the extent that the investment in restricted securities and the sale of
securities in accordance with a Fund's investment objective, policies and
limitations may be deemed to be underwriting.
6. Purchase or sell real estate or invest in oil, gas or
mineral exploration or development programs, except that a Fund may invest in
(a) securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
7. Invest in commodities, except that the Funds may
purchase and sell futures contracts, including those relating to securities,
currencies and indices, and options on futures contracts, securities, currencies
or indices, and purchase and sell currencies on a forward commitment or
delayed-delivery basis and enter into stand-by commitments, and, in the case of
the Aggressive Equity and Global Independence Funds, purchase or sell contracts
relating to the future delivery of precious metals.
8. Issue any senior security except as permitted in a
Fund's investment limitations.
9. Purchase securities on margin, except that a Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
10. Purchase securities of other investment companies
except in connection with a merger, consolidation, acquisition, reorganization
or offer of exchange, or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to
the extent necessary to secure permitted borrowings and to the extent related to
the deposit of assets in escrow and in connection with the writing of covered
put and call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
12. Invest more than 15% of a Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
13. Invest in rights or warrants (other than rights or
warrants acquired by a Fund as part of a unit or attached to securities at the
time of purchase) if, as a result, the investments (valued at the lower of cost
or market) would exceed 10% of the value of a Fund's net assets.
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<PAGE>
14. Make additional investments (including roll-overs) if a
Fund's borrowings exceed 5% of its net assets.
If a percentage restriction (other than the percentage
limitation set forth in No. 1 and No. 12) is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of a Fund's
assets will not constitute a violation of such restriction.
PORTFOLIO VALUATION
The Prospectus discusses the time at which the net asset value
of each Fund is determined for purposes of sales and redemptions. The following
is a description of the procedures used by each Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the NASDAQ National Market System) or foreign
securities exchange or traded in an over-the-counter market will be valued at
the most recent sale as of the time the valuation is made or, in the absence of
sales, at the mean between the bid and asked quotations. If there are no such
quotations, the value of the securities will be taken to be the highest bid
quotation on the exchange or market. Options are generally valued at the last
sale price or, in the absence of a last sale price, the last bid price. The
value of a futures contract equals the unrealized gain or loss on the contract
that is determined by marking it to the current settlement price for a like
contract acquired on the day on which the futures contract is being valued. A
settlement price may not be used if the market makes a limit move with respect
to a particular commodity. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the primary
market for such security. Short-Term obligations with maturities of 60 days or
less are valued at amortized cost, which constitutes fair value as determined by
the Trustees. Amortized cost involves valuing a portfolio instrument at its
initial cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. The amortized cost method of valuation may
also be used with respect to other debt obligations with 60 days or less
remaining to maturity. Notwithstanding the foregoing, in determining the market
value of portfolio investments, a Fund may employ outside organizations (a
"Price Service") which may use a matrix, formula or other objective method that
takes into consideration market indexes, matrices, yield curves and other
specific adjustments. The procedures of Pricing Services are reviewed
periodically by the officers of each Fund under the general supervision and
responsibility of the Trustees, which may replace a Pricing Service at any time.
Securities, options and futures contracts for which market quotations are not
available and certain other assets of a Fund will be valued at their fair value
as determined in good faith pursuant to consistently applied procedures
established by the Trustees. In addition, the Trustees or their delegates may
value a security at fair value if they determine that such security's value
determined by the methodology set forth above does not reflect its fair value.
32
<PAGE>
Trading in securities in certain foreign countries is completed
at various times prior to the close of business on each business day in New York
(I.E., a day on which the New York Stock Exchange (the "NYSE") is open for
trading). In addition, securities trading in a particular country or countries
may not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which a Fund's net asset value is not calculated. As a result,
calculation of a Fund's net asset value may not take place contemporaneously
with the determination of the prices of certain foreign portfolio securities
used in such calculation. Events affecting the values of portfolio securities
that occur between the time their prices are determined and the close of regular
trading on the NYSE will not be reflected in a Fund's calculation of net asset
value unless the Trustees or their delegates deem that the particular event
would materially affect net asset value, in which case an adjustment may be
made. All assets and liabilities initially expressed in foreign currency values
will be converted into U.S. dollar values at the prevailing rate as quoted by a
Pricing Service. If such quotations are not available, the rate of exchange will
be determined in good faith pursuant to consistently applied procedures
established by the Trustees.
PORTFOLIO TRANSACTIONS
CDC Investments is responsible for establishing, reviewing and,
where necessary, modifying each Fund's investment program to achieve its
investment objective. Purchases and sales of newly issued portfolio securities
are usually principal transactions without brokerage commissions effected
directly with the issuer or with an underwriter acting as principal. Other
purchases and sales may be effected on a securities exchange or
over-the-counter, depending on where it appears that the best price or execution
will be obtained. The purchase price paid by a Fund to underwriters of newly
issued securities usually includes a concession paid by the issuer to the
underwriter, and purchases of securities from dealers, acting as either
principals or agents in the after market, are normally executed at a price
between the bid and asked price, which includes a dealer's mark-up or mark-down.
Transactions on U.S. stock exchanges and some foreign stock exchanges involve
the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. There is
generally no stated commission in the case of securities traded in domestic or
foreign over-the-counter markets, but the price of securities traded in
over-the-counter markets includes an undisclosed commission or mark-up. U.S.
Government Securities are generally purchased from underwriters or dealers,
although certain newly issued U.S. Government Securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.
CDC Investments will select specific portfolio investments and
effect transactions for each Fund and in doing so seeks to obtain the overall
best execution of portfolio transactions. In evaluating prices and executions,
CDC Investments will consider the factors it deems relevant, which may include
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of a broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing
33
<PAGE>
basis. CDC Investments may, in its discretion, effect transactions in
portfolio securities with dealers who provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to each Fund and/or other accounts over which CDC Investments exercises
investment discretion. CDC Investments may place portfolio transactions with a
broker or dealer with whom it has negotiated a commission that is in excess of
the commission another broker or dealer would have charged for effecting the
transaction if CDC Investments determines in good faith that such amount of
commission was reasonable in relation to the value of such brokerage and
research services provided by such broker or dealer viewed in terms of either
that particular transaction or of the overall responsibilities of CDC
Investments. Research and other services received may be useful to CDC
Investments in serving both a Fund and its other clients and, conversely,
research or other services obtained by the placement of business of other
clients may be useful to CDC Investments in carrying out its obligations to each
Fund. Research may include furnishing advice, either directly or through
publications or writings, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities or
purchasers or sellers of securities; furnishing seminars, information, analyses
and reports concerning issuers, industries, securities, trading markets and
methods, legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts, economists and government
officials; comparative performance evaluation and technical measurement services
and quotation services; and products and other services (such as third party
publications, reports and analyses, and computer and electronic access,
equipment, software, information and accessories that deliver, process or
otherwise utilize information, including the research described above) that
assist CDC Investments in carrying out its responsibilities. Research received
from brokers or dealers is supplemental to CDC Investments' own research
program. The fees to CDC Investments under its advisory agreement with each Fund
are not reduced by reason of its receiving any brokerage and research services.
Investment decisions for each Fund concerning specific portfolio
securities are made independently from those for other clients advised by CDC
Investments. Such other investment clients may invest in the same securities as
the Funds. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which CDC Investments believes to be equitable to each client, including
the Funds. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained or sold
for the Funds. To the extent permitted by law, CDC Investments may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for such other investment clients in order to obtain best execution.
In no instance will portfolio securities be purchased from or
sold to CDC Investments or its affiliates. In addition, a Fund will not give
preference to any institutions with whom it enters into distribution or
shareholder servicing agreements concerning the provision of distribution
services or support services.
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<PAGE>
Transactions for a Fund may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, a Fund will deal directly with the dealers who make a
market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.
Each Fund may participate, if and when practicable, in bidding
for the purchase of securities for its portfolio directly from an issuer in
order to take advantage of the lower purchase price available to members of such
a group. A Fund will engage in this practice, however, only when CDC
Investments, in its sole discretion, believes such practice to be otherwise in a
Fund's interest.
PORTFOLIO TURNOVER
Each Fund does not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when a Fund
deems it desirable to sell or purchase securities. Each Fund's portfolio
turnover rate is calculated by the value of the securities purchased or sold,
excluding all securities whose maturities at the time of acquisition were one
year or less, divided by the average monthly value of such securities owned
during the year. Based on this calculation, instruments, including options and
futures contracts, with remaining maturities of less than one year are excluded
from the portfolio turnover rate.
Certain practices that may be employed by each Fund could result
in high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. To the extent that its portfolio is
traded for the short-term, a Fund will be engaged essentially in trading
activities based on short-term considerations affecting the value of an issuer's
stock instead of long-term investments based on fundamental valuation of
securities. Because of this policy, portfolio securities may be sold without
regard to length of time for which they have been held. Consequently, the annual
portfolio turnover rate of a Fund may be higher than mutual funds having a
similar objective that do not use these strategies.
While it is not possible to predict the Funds' portfolio
turnover rates, the U.S. Core Equity Fund expects its turnover rate for its
first year of operation to total approximately 120% and each of the Aggressive
Equity Fund and the Global Independence Fund expects its first year turnover
rate to total approximately 100%. High portfolio turnover rates (100% or more)
may result in dealer markups or underwriting commissions as well as other
transaction costs, including correspondingly higher brokerage commissions. In
addition, short-term gains realized from portfolio turnover may be taxable to
shareholders as ordinary income.
35
<PAGE>
MANAGEMENT OF THE FUNDS
OFFICERS AND TRUSTEES
Each Fund's business and affairs is managed by its Trustees in
accordance with the law of the State of Delaware. The Trustees elect officers
who are responsible for the day-to-day operations of each Fund and who execute
policies formulated by the Trustees.
The names (and ages) of the Trustees and officers of the Trust,
their addresses, present positions and principal occupations during the past
five years and other affiliations are set forth below. Unless otherwise
indicated, the address of each officer is 9 West 57th Street, New York, New York
10019.
<TABLE>
<CAPTION>
<S> <C>
Bluford H. Putnam, Ph.D.* (49) PRESIDENT, CHIEF INVESTMENT OFFICER
AND TRUSTEE.
President of CDC Investments since
1997; Managing Director and Chief
Investment Officer for Equities and
Asset Allocation with the Global
Investment Management Department
of Bankers Trust Company in New
York from 1994 to 1997; President of
Putnam & Associates, Inc. from 1991
to 1994.
Mike West (42) TRUSTEE.
Institute of Statistics and Decision The Arts and Sciences Professor
Sciences Duke University of Statistics and Decision Sciences and
Durham, NC 27708-0251 Director of the Institute of Statistics
and Decision Sciences, Duke
University.
Arnold Zellner (73) TRUSTEE.
The University of Chicago H.G.B. Alexander Distinguished
Graduate School of Business Service Professor Emeritus of
1101 East 58th Street Economics and Statistics - Graduate
Chicago, IL 60637 School of Business, University of
Chicago; From 1984 to 1996, H.G.B.
Alexander Distinguished Service
Professor - Graduate School of
Business, University of Chicago.
36
<PAGE>
D. Sykes Wilford, Ph.D (50) VICE PRESIDENT AND INVESTMENT OFFICER.
Managing Director of CDC Investments
since 1997; Chief Investment Officer of
Bankers Trust Private Bank and Managing
Director of Bankers Trust Global
Investment Management from 1994 to 1997;
Managing Director of Chase Investment
Bank, Ltd., London from 1992 to 1994;
Managing Director of Chase Manhattan Bank
from 1988 to 1992.
Jose Quintana (49) VICE PRESIDENT AND INVESTMENT OFFICER.
Managing Director of CDC Investments
since 1997; Vice President and Head of
Quantitative Research for the Strategic
Asset Allocation team in the Global
Investment Management Group of Bankers
Trust Company from 1994 to 1997; Vice
President in the Global Risk Management
Sector of Chase Manhattan Bank from 1992
to 1994. Vice President at Chase
Investors Management Corporation from
1988 to 1992; Staff Supervisor for AT&T's
Market Analysis and Forecasting Directorate
from 1987 to 1988.
37
<PAGE>
C. Peter Paterno (36) TREASURER.
Vice President of CDC Investments since
1997; Financial Consultant from 1995 to
1997; Managing Director and Head of
Trading, Putnam & Associates from 1993 to
1994; Director, Panther Capital Advisers,
Ltd. in 1992; Vice President, Proprietary
Fixed Income Trading, Merrill Lynch
International Ltd. from 1991 to 1992;
Manager, International Arbitrage,
Kleinwort Benson Ltd. from 1989 to 1991;
Research Analyst in the International
Fixed Income Strategy and Economics Group
at Morgan Stanley & Co., Incorporated
from 1986 to 1989.
Rachel D. Manney (32) SECRETARY.
Vice President of CDC Investments; Vice
President, BEA Associates from 1992 to
1997; Senior Associate, Coopers &
Lybrand, LLP from 1989 to 1992.
Charles Rosenberg (29) ASSISTANT SECRETARY.
Fund Administrator of CDC Investments
since 1998; Supervisor of Fund
Administration, OFFITBANK from 1995 to
1998; Fund Accounting Supervisor, The
Bank of New York from 1993 to 1995.
</TABLE>
The Trust pays Trustees who are not "affiliated persons" (as defined in the 1940
Act) of CDC Investments, its administrator or distributor an annual fee of
$10,000 and $3,000 for each meeting attended by the Trustee for services as
Trustee, and each such Trustee is reimbursed for expenses incurred with the
Trustee's attendance at meetings.
38
<PAGE>
<TABLE>
<CAPTION>
TRUSTEES' TOTAL COMPENSATION:
NAME OF TRUSTEE FROM THE TRUST+
<S> <C>
Bluford H. Putnam* None
Mike West $19,000
Arnold Zellner $19,000
</TABLE>
- --------
+ Amounts shown are estimates of payments to be made for the Trust's first
fiscal year ending October 31, 1999 pursuant to existing arrangements.
* Mr. Putnam receives compensation as an affiliate of CDC Investments and,
accordingly, receive no compensation from the Trust.
CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS.
CDC Investments will hold all of the shares of each Fund on the
date the Trust's Registration Statement becomes effective. The shares were
issued to CDC Investments for providing the initial seed capital to the Trust.
It is anticipated that shortly after the Trust's Registration Statement becomes
effective, CIMCO Holdings LLC ("CIMCO"), a Delaware limited liability company,
will invest approximately $25 million in each Fund. Master Holdings, a Cayman
Islands corporation, is the majority shareholder of CIMCO and CDC Investments is
a minority shareholder of CIMCO. CDC Group, Paris is the majority shareholder of
Master Holdings. CDC Investments is a wholly-owned subsidiary of CDC Group,
Paris. So long as CDC Investments or CIMCO owns more than 25% of the outstanding
voting securities of a Fund, it may be deemed to control the Fund.
INVESTMENT ADVISER AND ADMINISTRATOR
CDC Investments, located at 9 West 57th Street, 35th Floor, New
York, New York 10019, serves as investment adviser to each Fund pursuant to
separate written agreements (the "Advisory Agreements"). The Adviser is doing
business in New York under the name "CDC Investments".
MANAGEMENT FEES
As described in the Prospectus, the U.S. Core Equity Fund pays
the Adviser a basic fee of 1.00%, the Aggressive Equity Fund pays the Adviser a
basic fee of 1.50% and the Global Independence Fund pays the Adviser a basic fee
of 1.75%, of the respective Fund's average daily net assets. This basic
management fee may be adjusted upward or downward by applying an adjustment
formula (the "Performance Adjustment"). The Performance Adjustment is calculated
monthly by comparing the Fund's investment performance to a target during the
most recent twelve-month period. The target for the U.S. Core Equity Fund and
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<PAGE>
the Aggressive Equity Fund is the investment record of the S&P 500 Index. The
target for the Global Independence Fund is the investment record of a composite
benchmark, 50% of which is comprised of the Morgan Stanley Capital International
World Equity Index (the "World Equity Index") and 50% of which is comprised of
the J.P. Morgan Global Bond Index (the "Global Bond Index").
In the case of the U.S. Core Equity Fund and the Aggressive
Equity Fund, the difference between the Fund's performance compared to the
performance of the relevant target is multiplied by a Performance Adjustment of
25% (as an annual rate). The Performance Adjustment is then added or subtracted
from the basic fee, subject to the maximum or minimum fee. The maximum
annualized Performance Adjustment is 1.00% for the U.S. Core Equity Fund and
1.50% for the Aggressive Equity Fund.
In the case of the Global Independence Fund, the difference
between the Fund's performance compared to the performance of the relevant
target is multiplied by a Performance Adjustment of 5% (as an annual rate). The
Performance Adjustment is then added to or subtracted from the basic fee,
subject to the maximum or minimum fee. The maximum annualized Performance
Adjustment is 0.25% for the Global Independence Fund.
CHOICE OF PERFORMANCE BENCHMARK
In the case of most equity strategies, the performance benchmark
may contain much of the risk to the investor, depending on how tightly or
loosely the adviser attempts to either track the benchmark or provide excess
returns above the return provided by the benchmark. The risks taken in a given
portfolio strategy will need to be measured in terms of the total risk of the
whole fund, as well as the risks taken in the attempt to earn excess returns
above the benchmark. In this latter case, one is conceptually separating the
fund into two portfolios, in which one matches the benchmark and the other
provides the excess return above the benchmark (noting that the excess return
can be negative if the strategy does not work as planned). The adviser will need
to measure and understand how the expected returns and risks in the strategy
designed to produce excess returns are correlated, if at all, to the expected
returns and risks inherent in the performance benchmark. All of these concerns
will have a bearing on the total risk being accepted by the investor in a fund,
and they are driven in part by the choice of the benchmark and in part by the
choice of strategies to out-perform the benchmark.
In the case of mutual funds using "fulcrum" fee formulas to
raise or lower the base management fee depending on fund performance, such as
the Funds, the choice of benchmark is a critical factor to be considered by the
investor. With incentive fees using the fulcrum fee approach, the total
management fee paid to the adviser will depend on a base fee as a percentage of
assets under management as well as a performance adjustment that will add to or
subtract from the base management fee depending explicitly on the magnitude of
positive excess returns above the benchmark or the magnitude of negative excess
returns below the benchmark. The design of the "fulcrum" around which the
incentive fees either add to or subtract from the base management fees hinges on
the choice of the benchmark. The investor,
40
<PAGE>
by buying shares of a fund utilizing fulcrum fees, is providing incentives to
the adviser to strive for higher excess returns and to take additional risks.
The adviser, when taking additional risks in order to attempt to gain excess
returns above the benchmark, knows that the total management fees can rise or
fall depending on performance. To a limited extent, then, the adviser will
benefit when the investor benefits, and the adviser will suffer a detriment when
the investor suffers a below-benchmark performance.
The formula used in the Funds for calculating the fulcrum fees
is discussed in more detail, with examples, in the Prospectus. Basically, the
total management fee can range from 0.00% (zero) to 2.00% of assets under
management in the case of the U.S. Core Equity Fund, from 0.00% to 3.00% in the
case of the Aggressive Equity Fund, and from 1.50% to 2.00% in the case of the
Global Independence Fund. In the case of the U.S. Core Equity Fund, if the Fund
underperforms its benchmark by four percentage points, over a 12-month period,
the minimum management fee of 0.00% (zero) will apply. Correspondingly, if the
Fund overperforms its benchmark by four percentage points, the maximum total
management fee of 2.00% will apply. In the case of the Aggressive Equity Fund,
if the Fund underperforms its benchmark by six percentage points, over a
12-month period, the minimum management fee of 0.00% (zero) will apply.
Correspondingly, if the Fund overperforms its benchmark by six percentage
points, the maximum total management fee of 3.00% will apply. In the case of the
Global Independence Fund, if the Fund underperforms its benchmark by five
percentage points or more, over a 12-month period, the minimum management fee of
1.50% will apply. Correspondingly, if the Fund overperforms its benchmark by
five percentage points or more, the maximum total management fee of 2.00% will
apply.
Therefore, investors in the Funds should pay special attention
to the choice of benchmark since it plays a critical role in determining the
total risk of the Fund as well as the management fees charged by the Fund. The
choice of the benchmark for each Fund depends on a number of factors, including
the objectives of the Fund, the universe of securities and other investments
which the Adviser plans to utilize, the level of risks expected to be taken, and
the ability of the portfolio to develop strategies that attempt to out-perform
the benchmark.
In the case of the U.S. Core Equity Fund and the Aggressive
Equity Fund, the performance benchmark is the S&P 500 Index. Both of these Funds
are designed to give the investor a basic exposure to the U.S. equity market.
The S&P 500 Index is one of several established indexes that provide a good
measure of the core U.S. equity market. Other indexes cover the stocks of more
companies, but these additional company stocks are often very small and trade in
a relatively less liquid manner. In most market conditions, the S&P 500 Index
has a capitalization that includes 70% or more of other broad-based U.S. equity
indexes. In addition, the S&P 500 Index has a deep and liquid futures market
associated with it, giving the Adviser an effective tool for hedging the risks
of cash inflows and outflows in the funds, as well as managing other portfolio
risks or designing efficient strategies to enhance returns.
In the case of the Global Independence Fund, the performance
benchmark is a composite of the World Equity Index and the Global Bond Index as
described above. The
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Fund will invest in the global equity, global fixed income and currency markets
through the use of a variety of equity and fixed income instruments. The Fund
will pursue a balanced investment approach and does not expect to place
particular emphasis on either the equity or fixed income portion of the Fund's
portfolio at any given time. The Adviser believes that the overall risk profile
of the composite benchmark will be comparable to the targeted risk level of the
Fund. From a risk and return perspective, the total expected risk associated
with the composite benchmark, as measured in a value-at-risk framework using
annualized standard deviations, will be approximately 15% for the equity
component and 5% for the bond component. When combined in the 50/50 composite
benchmark under normal market conditions this will provide a total expected risk
of approximately 10% (annualized standard deviation), or less given the moderate
correlation between equities and bonds. The value-at-risk framework provides a
statistical estimate of the volatility of a given portfolio on average and over
time. The Adviser seeks to earn returns in relation to risks being taken, such
that long run average return to risk ratio of the Fund will equal or exceed the
long run average return to risk ratio of the composite benchmark.
Under the Advisory Agreements, CDC Investments will not be
liable for any error of judgment or mistake of law or for any loss suffered by a
Fund in connection with the matters to which the Advisory Agreements relate. The
Advisory Agreements for the U.S. Core Equity and Aggressive Equity Funds were
approved on January 7, 1999, and the Advisory Agreement for the Global
Independence Fund was approved on June 3, 1999, each by a vote of the Trustees,
including a majority of those Trustees who are not parties to the Advisory
Agreements or interested persons (as defined in the 1940 Act) of such parties.
The Advisory Agreements were also approved by each Fund's initial shareholder.
The Advisory Agreements are terminable by vote of the Trustees or by the holders
of a majority of the outstanding voting securities of the relevant Fund, and at
any time without penalty, on 60 days' written notice to CDC Investments. The
Advisory Agreements may also be terminated by CDC Investments on 90 days'
written notice to a Fund. The Advisory Agreements terminate automatically in the
event of an assignment.
State Street Bank and Trust Company located at 222 Franklin
Street, Boston, Massachusetts 02110, serves as administrator (the
"Administrator") to each Fund pursuant to separate written agreements. The
Administrator provides shareholder liaison services to each Fund, including
responding to shareholder inquiries and providing information on shareholder
investments. The Administrator also performs a variety of other services,
including furnishing certain executive and administrative services, acting as
liaison between the Funds and their various service providers, furnishing
certain corporate secretarial services, which include preparing materials for
meetings of the Trustees, assisting with proxy statements and annual and
semiannual reports, assisting in the preparation of tax returns and monitoring
and developing certain compliance procedures for the Funds. The Administrator
also calculates each Fund's net asset value, provides all accounting services
for each Fund and assists in related aspects of each Fund's operations. As
compensation, each Fund will pay the Administrator a fee calculated at an annual
rate of 0.05% of its average daily net assets, subject to a minimum annual fee
of $75,000 per Fund and an additional annual fee of $3,500 per Class if more
than one Class of shares is operational in a Fund.
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Each class of shares of a Fund bears its proportionate share of
fees payable to CDC Investments and the Administrator in the proportion that its
assets bear to the aggregate assets of a Fund at the time of calculation. These
fees are calculated at an annual rate based on a percentage of a Fund's average
daily net assets. CDC Investments or the Administrator may voluntarily waive a
portion of their fees from time to time and temporarily limit the expenses to be
borne by a Fund.
DISTRIBUTION AND SHAREHOLDER SERVICING
Funds Distributor, Inc., located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109 (the "Distributor") serves as the distributor of the
shares of each Fund under a Distribution Agreement. Pursuant to the Distribution
Agreement, the Distributor receives no compensation for services as the
distributor.
INVESTOR SHARES. Each Fund has entered into a Shareholder
Servicing and Distribution Plan (the "12b-1 Plan") pursuant to Rule 12b-1 under
the 1940 Act, under which each Fund will pay the Distributor, in consideration
for Services (as defined below), a fee calculated at an annual rate of 0.25% of
the average daily net assets of each Fund's Investor shares for certain Services
(as defined below) that pertain only to Investor shares. Services include: (i)
the sale of the Investor shares, as set forth in the 12b-1 Plan ("Selling
Services"), (ii) ongoing servicing and/or maintenance of the accounts of the
Investor shares, as set forth in the 12b-1 Plan ("Shareholder Services"), and
(iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the Investor shares, as set forth in the 12b-1
Plan ("Administrative Services" and collectively with Selling Services and
Administrative Services, "Services") including, without limitation, (a) payments
reflecting an allocation of overhead and other office expenses of the
Distributor related to providing Services; (b) payments made to, and
reimbursement of expenses of, persons who provide support services in connection
with the distribution of the Investor shares including, but not limited to,
office space and equipment, telephone facilities, answering routine inquiries
regarding a Fund, and providing any other Shareholder Services; (c) payments
made to compensate selected dealers or other authorized persons for providing
any Services; (d) costs relating to the formulation and implementation of
marketing and promotional activities for the Investor shares, including, but not
limited to, direct mail promotions and television, radio, newspaper, magazine
and other mass media advertising, and related travel and entertainment expenses;
(e) costs of printing and distributing prospectuses, statements of additional
information and reports of the Funds to prospective shareholders of the Funds;
and (f) costs involved in obtaining whatever information, analyses and reports
with respect to marketing and promotional activities that the Funds may, from
time to time, deem advisable.
Pursuant to the 12b-1 Plan, the Distributor will provide each
Fund's Trustees with periodic reports of amounts expended under the 12b-1 Plan
and the purpose for which the expenditures were made.
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INSTITUTIONAL SHARES. A 12b-1 Plan has not been adopted with
respect to the Institutional shares of each Fund. Accordingly, the Institutional
shares will not pay any 12b-1 fees to the Distributor.
GENERAL. The 12b-1 Plan will continue in effect for so long as
its continuance is specifically approved at least annually by the Trustees,
including a majority of the Trustees who are not interested persons of each Fund
and who have no direct or indirect financial interest in the operation of the
Distribution Plan ("Independent Trustees"). Any material amendment of the
Distribution Plan would require the approval of the Trustees in the manner
described above. The Distribution Plan may not be amended to increase materially
the amount to be spent under it without shareholder approval of the Investor
shares. The Distribution Plan may be terminated at any time, without penalty, by
vote of a majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Investor shares of each Fund.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company (the "Custodian") acts as
custodian for each Fund and also acts as the custodian for each Fund's foreign
securities pursuant to written Custodian Agreements (the "Custodian Agreement").
The Custodian will (i) maintain a separate account or accounts in the name of
each Fund, (ii) hold and transfer portfolio securities on account of each Fund,
(iii) accept receipts and disbursements of money on behalf of each Fund, (iv)
collect and receive all income and other payments and distributions for the
account of each Fund's portfolio securities and (v) make periodic reports to the
Trustees concerning each Fund's custodial arrangements. The Custodian is
authorized to select one or more foreign banking institutions and foreign
securities depositories to serve as sub-custodian on behalf of the Funds,
provided that the Custodian remains responsible for the performance of all its
duties under the Custodian Agreement and holds the Funds harmless from the
negligent acts and omissions of any sub-custodian. For its services to the Funds
under the Custodian Agreement, the Custodian receives a fee which is calculated
based upon each Fund's average daily gross assets, exclusive of transaction
charges and out-of-pocket expenses, which are also charged to the Funds.
State Street Bank and Trust Company (the "Transfer Agent") also
serves as each Fund's shareholder servicing, transfer and dividend disbursing
agent pursuant to written Transfer Agency and Service Agreements, under which
the Transfer Agent (i) issues and redeems shares of the Funds, (ii) addresses
and mails all communications by the Funds to record owners of each Fund's
shares, including reports to shareholders, dividend and distribution notices and
proxy material for meetings of shareholders, (iii) maintains shareholder
accounts and, if requested, sub-accounts and (iv) makes periodic reports to the
Trustees concerning the Transfer Agent's operations with respect to the Funds.
CAPITAL STOCK
The Trust Instrument authorizes the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest of which
an unlimited number are designated
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Investor shares and an unlimited number are designated Institutional shares. The
Trust Instrument currently has three separate series: U.S. Core Equity Fund,
Aggressive Equity Fund, and Global Independence Fund. Each Fund will be
comprised of both Institutional shares and Investor shares. Institutional shares
are sold directly by the Funds' distributor and may be purchased by endowments,
foundations and plan sponsors of 401(a), 401(k), 457 and 403(b) plans and by
individuals. Investor shares may be purchased by intermediary financial
institutions (including broker-dealers, investment advisers, financial planners,
banks and insurance companies), and certain individual retirement accounts and
individuals. Investment professionals may purchase Investor shares for
discretionary or non-discretionary accounts maintained by individuals.
Under the Trust Instrument, the Trustees have the power (without
shareholder approval) to classify or reclassify any unissued shares of the Trust
into one or more additional classes by setting or changing in any one or more
respects their relative rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption. The Trustees
may similarly classify or reclassify any class of the Trust's shares into one or
more series and, without shareholder approval, may increase the number of
authorized shares of the Trust.
All shareholders of a Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Trustees can elect all Trustees. Shares are transferable but
have no preemptive, conversion or subscription rights.
Investors in each Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of each
Fund will vote in the aggregate except where otherwise required by law and
except that the Investor Class will vote separately on certain matters
pertaining to its distribution and shareholder servicing arrangements. There
will normally be no meetings of investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. Investors of record of no less than
two-thirds of the outstanding shares of the Trust may remove a Trustee through a
declaration in writing or by vote cast in person or by proxy at a meeting called
for the purpose. A meeting will be called for the purpose of voting on the
removal of a Trustee at the written request of holders of 10% of the outstanding
shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of each Fund's shares is equal to the per
share net asset value of the relevant class of shares of each Fund.
Under the 1940 Act, each Fund may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE is restricted, or during which (as determined
by the SEC) an emergency exists as a result of which disposal or fair valuation
of portfolio securities is not reasonably practicable,
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or for such other periods as the SEC may permit. (Each Fund may also suspend or
postpone the recordation of an exchange of its shares upon the occurrence of any
of the foregoing conditions.)
If a shareholder's account falls below $500, a Fund may ask the
shareholder to increase its balance. If the balance remains below $500 after 45
days, a Fund may close a shareholder's account and redeem the proceeds to the
shareholder.
If the Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, a Fund may
make payment wholly or partly in securities or other investment instruments
which may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or other
property, a shareholder would incur transaction costs in disposing of the
redemption proceeds. Each Fund intends to comply with Rule 18f-1 promulgated
under the 1940 Act with respect to redemptions in kind.
AUTOMATIC CASH WITHDRAWAL PLAN. An automatic cash withdrawal
plan (the "Plan") is available to shareholders who wish to receive specific
amounts of cash periodically. Withdrawals may be made under the Plan by
redeeming as many shares of each Fund as may be necessary to cover the
stipulated withdrawal payment. To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a Fund, there
will be a reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in a Fund. All dividends and distributions on shares in the Plan are
automatically reinvested at net asset value in additional shares of a Fund.
EXCHANGE PRIVILEGE
An exchange privilege among the Funds is available to investors.
Investors can exchange their Investor and Institutional shares for Investor and
Institutional shares of other funds advised by CDC Investments.
This exchange privilege enables shareholders to acquire shares
in a fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. This privilege is available
to shareholders residing in any state in which the Investor shares or
Institutional shares being acquired, as relevant, may legally be sold.
Shareholders may exchange $1,000,000 or more of the Institutional shares and
$2,500 or more of the Investor shares from one fund into the same class of
shares of another fund. There is no minimum for retirement accounts. Prior to
any exchange, shareholders should obtain and review a copy of the current
prospectus of the relevant class of each fund into which an exchange is being
considered.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value of the relevant class and the proceeds are invested on the same day,
at a price as described above, in shares of
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the relevant class of the fund being acquired. Each Fund may refuse any purchase
or exchange request that could adversely affect a Fund or its operations,
including those from any individual or group who, in a Fund's view, is likely to
engage in excessive trading (usually defined as more than four exchange out of a
Fund within a calendar year), and any purchase or exchange request in excess of
1% of a Fund's total assets. Each Fund may also (i) change or discontinue its
exchange privilege or temporarily suspend this privilege during unusual market
conditions; (ii) change its minimum investment amounts; (iii) delay sending out
redemption proceeds for up to seven days if doing so sooner would adversely
affect a Fund (this generally applies only in cases of very large redemptions,
excessive trading or during unusual market conditions); and (iv) make a
"redemption in kind" -- payment in portfolio securities rather than cash -- if
the amount an investor is redeeming is large enough to affect a Fund's
operations. The exchange privilege may be modified or terminated at any time
upon 60 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material U.S. federal income
tax considerations regarding the purchase, ownership and disposition of shares
in each Fund. Each prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local and foreign tax
consequences of investing in a Fund. The summary is based on the laws in effect
on the date of this Statement of Additional Information, which are subject to
change.
THE FUNDS AND THEIR INVESTMENTS
Each Fund intends to qualify to be treated as a regulated
investment company each taxable year under the Code. To so qualify, a Fund must,
among other things: (a) derive at least 90% of its gross income in each taxable
year from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of stock or securities or foreign
currencies, or other income (including, but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) diversify its holdings so that,
at the end of each quarter of a Fund's taxable year, (i) at least 50% of the
market value of a Fund's assets is represented by cash, securities of other
regulated investment companies, U.S. government securities and other securities,
with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of a Fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii) not more than 25% of the
value of its assets is invested in the securities (other than U.S. government
securities or securities of other regulated investment companies) of any one
issuer or any two or more issuers that a Fund controls and are determined to be
engaged in the same or similar trades or businesses or related trades or
businesses.
As a regulated investment company, each Fund will not be subject
to U.S. federal income tax on its net investment income (I.E., income other than
its net realized long- and short-term capital gains) and its net realized long-
and short-term capital gains, if any, that
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it distributes to its shareholders, provided that an amount equal to at least
90% of the sum of its investment company taxable income (I.E., 90% of its
taxable income minus the excess, if any, of its net realized long-term capital
gains over its net realized short-term capital losses (including any capital
loss carryovers), plus or minus certain other adjustments as specified in the
Code) and its net tax-exempt income for the taxable year is distributed, but
will be subject to tax at regular corporate rates on any taxable income or gains
that it does not distribute. No more than 10% of each Fund's gross income may be
from nonqualifying sources, including income from investments in physical
commodities and related options in the case of the Aggressive Equity and Global
Independence Funds. A Fund may therefore need to limit the extent to which it
makes such investments in order to qualify as a regulated investment company.
Furthermore, each Fund will be subject to a U.S. corporate income tax with
respect to such distributed amounts in any year that it fails to qualify as a
regulated investment company or fails to meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on each Fund to
the extent a Fund does not distribute by the end of any calendar year at least
98% of its net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this purpose, however, any income
or gain retained by a Fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the minimum
amounts that must be distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or overdistribution, as
the case may be, from the previous year. Each Fund anticipates that it will pay
such dividends and will make such distributions as are necessary in order to
avoid the application of this tax.
With regard to a Fund's investments in foreign securities,
exchange control regulations may restrict repatriations of investment income and
capital or the proceeds of securities sales by foreign investors such as a Fund
and may limit a Fund's ability to pay sufficient dividends and to make
sufficient distributions to satisfy the 90% and excise tax distribution
requirements.
If, in any taxable year, a Fund fails to qualify as a regulated
investment company under the Code, it would be taxed in the same manner as an
ordinary corporation and distributions to its shareholders would not be
deductible by a Fund in computing its taxable income. In addition, in the event
of a failure to qualify, a Fund's distributions, to the extent derived from a
Fund's current or accumulated earnings and profits, would constitute dividends
(eligible for the corporate dividends-received deduction) which are taxable to
shareholders as ordinary income, even though those distributions might otherwise
(at least in part) have been treated in the shareholders' hands as long-term
capital gains. If a Fund fails to qualify as a regulated investment company in
any year, it must pay out its earnings and profits accumulated in that year in
order to qualify again as a regulated investment company. In addition, if a Fund
failed to qualify as a regulated investment company for a period greater than
one taxable year, a Fund may be required to recognize any net built-in gains
(the excess of the aggregate gains, including items of income, over aggregate
losses that would have been realized if it had been liquidated) in order to
qualify as a regulated investment company in a subsequent year.
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Each Fund's short sales against the box, if any, and
transactions in foreign currencies, forward contracts, options and futures
contracts (including options and futures contracts on foreign currencies) will
be subject to special provisions of the Code that, among other things, may
affect the character of gains and losses realized by a Fund (I.E., may affect
whether gains or losses are ordinary or capital), accelerate recognition of
income to a Fund and defer Fund losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also (a) will require a Fund to mark-to-market certain types of the positions in
its portfolio (I.E., treat them as if they were closed out) and (b) may cause a
Fund to recognize income without receiving cash with which to pay dividends or
make distributions in amounts necessary to satisfy the distribution requirements
for avoiding income and excise taxes. Each Fund will monitor its transactions,
will make the appropriate tax elections and will make the appropriate entries in
its books and records when it engages in a short sale against the box or
acquires any foreign currency, forward contract, option, futures contract or
hedged investment in order to mitigate the effect of these rules and prevent
disqualification of a Fund as a regulated investment company.
Each Fund's investments in zero coupon securities, if any, may
create special tax consequences. Zero coupon securities do not make interest
payments, although a portion of the difference between a zero coupon security's
face value and its purchase price is imputed as income to a Fund each year even
though a Fund receives no cash distribution until maturity. Under the U.S.
federal tax laws, a Fund will not be subject to tax on this income if it pays
dividends to its shareholders substantially equal to all the income received
from, or imputed with respect to, its investments during the year, including its
zero coupon securities. These dividends ordinarily will constitute taxable
income to the shareholders of each Fund.
PASSIVE FOREIGN INVESTMENT COMPANIES. If a Fund purchases shares
in certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to U.S. federal income tax on a portion
of any "excess distribution" or gain from the disposition of such shares even if
such income is distributed as a taxable dividend by a Fund to its shareholders.
Additional charges in the nature of interest may be imposed on a Fund in respect
of deferred taxes arising from such distributions or gains. If a Fund were to
invest in a PFIC and elected to treat the PFIC as a "qualified electing fund"
under the Code, in lieu of the foregoing requirements, a Fund might be required
to include in income each year a portion of the ordinary earnings and net
capital gains of the qualified electing fund, even if not distributed to a Fund,
and such amounts would be subject to the 90% and excise tax distribution
requirements described above. In order to make this election, a Fund would be
required to obtain certain annual information from the passive foreign
investment companies in which it invests, which may be difficult or not possible
to obtain.
Recently, legislation was enacted that provides a mark-to-market
election for regulated investment companies effective for taxable years
beginning after December 31, 1997. This election would result in a Fund being
treated as if it had sold and repurchased all of the PFIC stock at the end of
each year. In this case, a Fund would report gains as ordinary income and would
deduct losses as ordinary losses to the extent of previously recognized gains.
The election, once made, would be effective for all subsequent taxable years of
a Fund,
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unless revoked with the consent of the Internal Revenue Service (the "IRS"). By
making the election, a Fund could potentially ameliorate the adverse tax
consequences with respect to its ownership of shares in a PFIC, but in any
particular year may be required to recognize income in excess of the
distributions it receives from PFICs and its proceeds from dispositions of PFIC
company stock. A Fund may have to distribute this "phantom" income and gain to
satisfy its distribution requirement and to avoid imposition of the 4% excise
tax. Each Fund will make the appropriate tax elections, if possible, and take
any additional steps that are necessary to mitigate the effect of these rules.
TAXATION OF UNITED STATES SHAREHOLDERS
DIVIDENDS AND DISTRIBUTIONS. Each Fund intends to distribute
annually to its shareholders substantially all of its investment company taxable
income, and any net realized long-term capital gains in excess of net realized
short-term capital losses (including any capital loss carryovers). Each Fund
currently expects to distribute any excess annually to its shareholders.
However, if a Fund retains for investment an amount equal to all or a portion of
its net long-term capital gains in excess of its net short-term capital losses
and capital loss carryovers, it will be subject to a corporate tax (currently at
a rate of 35%) on the amount retained. In that event, a Fund intends to
designate such retained amounts as undistributed capital gains in a notice to
its shareholders who (a) will be required to include in income for United States
federal income tax purposes, as long-term capital gains, their proportionate
shares of the undistributed amount, (b) will be entitled to credit their
proportionate shares of the 35% tax paid by the Fund on the undistributed amount
against their United States federal income tax liabilities, if any, and to claim
refunds to the extent their credits exceed their liabilities, if any, and (c)
will be entitled to increase their tax basis, for United States federal income
tax purposes, in their shares by an amount equal to 65% of the amount of
undistributed capital gains included in the shareholder's income. Organizations
or persons not subject to federal income tax on such capital gains will be
entitled to a refund of their pro rata share of such taxes paid by a Fund upon
filing appropriate returns or claims for refund with the IRS. Any dividend
declared by a Fund in October, November or December of any calendar year and
payable to shareholders of record on a specified date in such a month shall be
deemed to have been received by each shareholder on December 31 of such calendar
year and to have been paid by a Fund not later than such December 31, provided
that such dividend is actually paid by a Fund during January of the following
calendar year.
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a U.S. shareholder as ordinary
income, whether paid in cash or in shares. Distributions of net-long-term
capital gains, if any, that a Fund designates as capital gains dividends are
taxable as long-term capital gains, whether paid in cash or in shares and
regardless of how long a shareholder has held shares of a Fund. Dividends and
distributions paid by a Fund (except for the portion thereof, if any,
attributable to dividends on stock of U.S. corporations received by a Fund) will
not qualify for the deduction for dividends received by corporations.
Distributions in excess of a Fund's current and accumulated earnings and profits
will, as to each shareholder, be treated as a tax-free return of capital, to the
extent of a
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shareholder's basis in his shares of a Fund, and as a capital gain thereafter
(if the shareholder holds his shares of a Fund as capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for U.S. federal income tax purposes as
receiving a distribution in the amount equal to the amount of money that the
shareholders receiving cash dividends or distributions will receive, and should
have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them.
If a Fund is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in a Fund's gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with respect to such
dividends (I.E., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date a Fund acquired
such stock. Accordingly, in order to satisfy its income distribution
requirements, a Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
SALES OF SHARES. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the difference between
the amount realized and his basis in his shares. Such gain or loss will be
treated as capital gain or loss, if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or loss if the shares
are held for more than one year and short-term capital gain or loss if the
shares are held for one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains distributions
in a Fund, within a 61-day period beginning 30 days before and ending 30 days
after the disposition of the shares. In such a case, the basis of the shares
acquired will be increased to reflect the disallowed loss. Any loss realized by
a shareholder on the sale of a Fund share held by the shareholder for six months
or less will be treated for U.S. federal income tax purposes as a long-term
capital loss to the extent of any distributions or deemed distributions of
long-term capital gains received by the shareholder with respect to such share.
BACKUP WITHHOLDING. Each Fund may be required to withhold, for
U.S. federal income tax purposes, 31% of the dividends, distributions and
redemption proceeds payable to shareholders who fail to provide a Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the IRS that they are subject to backup
withholding. Certain shareholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount withheld may be credited
against a shareholder's U.S. federal income tax liabilities.
51
<PAGE>
NOTICES. Shareholders will be notified annually by each Fund as
to the U.S. federal income tax status of the dividends, distributions and deemed
distributions attributable to undistributed capital gains (discussed above in
"The Funds and Their Investments") made by a Fund to its shareholders.
Furthermore, shareholders will also receive, if appropriate, various written
notices after the close of a Fund's taxable year regarding the U.S. federal
income tax status of certain dividends, distributions and deemed distributions
that were paid (or that are treated as having been paid) by a Fund to its
shareholders during the preceding taxable year.
OTHER TAXATION
Distributions also may be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES AFFECTING
THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE FUNDS.
DETERMINATION OF PERFORMANCE
From time to time, a Fund may quote the total return of its
Investor shares and/or Institutional shares in advertisements or in reports and
other communications to shareholders. These total return figures show the
average percentage change in value of an investment in the Investor and/or
Institutional shares from the beginning of the measuring period to the end of
the measuring period. The figures reflect changes in the price of the Investor
and/or Institutional shares assuming that any income dividends and/or capital
gain distributions made by a Fund during the period were reinvested in Investor
and/or Institutional shares of a Fund. Total return will be shown for recent
one-, five- and ten-year periods, and may be shown for other periods as well
(such as from commencement of a Fund's operations or on a year-by-year,
quarterly or current year-to-date basis). These figures are calculated by
finding the average annual compounded rates of return for the one-, five- and
ten- (or such shorter period as the relevant class of shares has been offered)
year periods that would equate the initial amount invested to the ending
redeemable value according to the following formula: P (1 + T)n = ERV. For
purposes of this formula, "P" is a hypothetical investment of $1,000; "T" is
average annual total return; "n" is number of years; and "ERV" is the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
one-, five- or ten-year periods (or fractional portion thereof). Total return or
"T" is computed by finding the average annual change in the value of an initial
$1,000 investment over the period and assumes that all dividends and
distributions are reinvested during the period.
When considering average total return figures for periods longer
than one year, it is important to note that the annual total return for one year
in the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that each Fund seeks long-term appreciation and
that such return may not be representative of any Fund's return over a longer
market cycle. Each Fund may also advertise aggregate total return figures of its
52
<PAGE>
Investor and/or Institutional shares for various periods, representing the
cumulative change in value of an investment in the Investor and/or Institutional
shares for the specific period (again reflecting changes in share prices and
assuming reinvestment of dividends and distributions). Aggregate and average
total returns may be shown by means of schedules, charts or graphs and may
indicate various components of total return (I.E., change in value of initial
investment, income dividends and capital gain distributions). Investors should
note that total return figures are based on historical earnings and are not
intended to indicate future performance.
Each Fund may advertise, from time to time, comparisons of the
performance and the expense ratio of its Investor shares and/or Institutional
shares with that of one or more other mutual funds with similar investment
objectives. Each Fund may advertise average annual calendar year-to-date and
calendar quarter returns, which are calculated according to the formula set
forth in the preceding paragraph, except that the relevant measuring period
would be the number of months that have elapsed in the current calendar year or
most recent three months, as the case may be. Investors should note that this
performance may not be representative of a Fund's total return in longer market
cycles.
The performance of a class of Fund shares will vary from time to
time depending upon market conditions, the composition of a Fund's portfolio and
operating expenses allocable to it. As described above, total return is based on
historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, a Fund's performance will fluctuate, unlike
certain bank deposits or other investments which pay a fixed yield for a stated
period of time. Any fees charged by institutions or other institutional
investors directly to their customers in connection with investments in Fund
shares are not reflected in a Fund's total return, and such fees, if charged,
will reduce the actual return received by customers on their investments.
In its reports, investor communications or advertisements, each
Fund may include: (i) its total return performance; (ii) its performance
compared with various indexes or other mutual funds; (iii) published evaluations
by nationally recognized ranking services and financial publications; (iv)
updates concerning its strategies and portfolio investments; (v) its goals, risk
factors and expenses compared with other mutual funds; (vi) analysis of its
investments by industry, country, credit quality and other characteristics;
(vii) a discussion of the risk/return continuum relating to different
investments; (viii) the potential impact of adding foreign stocks to a domestic
portfolio; (ix) the general biography or work experience of the portfolio
managers of the Funds; (x) portfolio manager commentary or market updates; (xi)
discussion of macroeconomic factors affecting the Fund and its investments; and
(xii) other information of interest to investors.
53
<PAGE>
INDEPENDENT AUDITORS AND COUNSEL
Deloitte & Touche LLP, with principal offices at Two World
Financial Center, New York, New York 10281-1414, serves as the independent
auditors for the Trust. The statements of assets and liabilities of each Fund,
as of April 27, 1999, that appear in this Statement of Additional Information
have been audited by Deloitte & Touche LLP, whose report thereon appears
elsewhere herein and has been included herein in reliance upon the report of
such firm of independent auditors given upon their authority as experts in
accounting and auditing.
Willkie Farr & Gallagher serves as counsel for the Trust, as
well as counsel to CDC Investments.
FINANCIAL STATEMENTS
Each Fund's financial statement follows the Independent
Auditors' Report.
54
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INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CDC MPT+ Funds:
We have audited the accompanying statements of assets and liabilities of CDC
MPT+ Funds (comprising, respectively, the Aggressive Equity Fund, Global
Independence Fund and US Core Equity Fund) as of April 27, 1999. These financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such statements of assets and liabilities presents fairly, in
all material respects, the financial positions of each of the respective funds
constituting CDC MPT+ Funds as of April 27, 1999 in conformity with generally
accepted accounting principles.
/s/Deloitte & Touche LLP
New York, NY
April 28, 1999
55
<PAGE>
<TABLE>
<CAPTION>
CDC MPT+ Funds
Statements of Assets and Liabilities
April 27, 1999
Aggressive Global U.S. Core
Equity Independence Equity
Fund Fund Fund
---- ---- ----
ASSETS
<S> <C> <C> <C>
Cash $ 33,333 $ 33,333 $ 33,334
--------- --------- ---------
Total Assets 33,333 33,333 33,334
--------- --------- ---------
LIABILITIES
Total Liabilities 0 0 0
--------- --------- ---------
NET ASSETS $ 33,333 $ 33,333 $ 33,334
--------- --------- ---------
--------- --------- ---------
Shares of beneficial interest
outstanding, no par value 3,333.300 3,333.300 3,333.400
--------- --------- ---------
--------- --------- ---------
Net asset value, offering price $ 10.00 $ 10.00 $ 10.00
and redemption price per share ------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes.
56
<PAGE>
CDC MPT+ Funds
Notes to Statements of Assets and Liabilities
April 27, 1999
1. ORGANIZATION
CDC MPT+ Funds (the "Trust"), is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company. The Trust consists of three funds, each having distinct
investment objectives and policies: Aggressive Equity Fund
(non-diversified portfolio), Global Independence Fund (non-diversified
portfolio) and U.S. Core Equity Fund (diversified portfolio)
(individually, the "Fund", and collectively, the "Funds"). The Trust
currently offers Institutional shares of each Fund and may offer
Investor shares.
The Trust was organized as a Delaware business trust on October 13,
1998. Prior to April 20, 1999, the Trust had no operations other than
its organization. On April 20, 1999, the Aggressive Equity Fund and
Global Independence Fund issued 3,333 Institutional shares and the U.S.
Core Equity Fund issued 3,334 Institutional shares at net asset value
(the "Initial Shares") to CDC Investment Management Corporation.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements. Actual results
could differ from those estimates.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
The Trust has an Investment Management Agreement with CDC Investment
Management Corporation (the "Adviser"), under which the Adviser manages
the investments of each Fund. Aggressive Equity Fund pays the Adviser a
basic fee of 1.50% per annum, Global Independence Fund pays the Adviser
a basic fee of 1.75% per annum and U.S. Core Equity Fund pays the
Adviser a basic fee of 1.00% per annum, of the respective Fund's
average daily net assets. This basic management fee may be adjusted
upward or downward by applying an adjustment formula (the "Performance
Adjustment"). The Performance Adjustment is calculated monthly by
comparing the Aggressive Equity and U.S. Core Equity Funds' investment
performance to the S&P 500 Index and the Global Independence Fund's
investment performance to a blend of 50% MSCI World Index/50% JP Morgan
Global Bond Index, during the most recent twelve-month period. The
difference between the Fund's performance compared to the performance
of the S&P 500 Index for the Aggressive Equity and U.S. Core Equity
Funds is multiplied by a performance adjustment of 25%
57
<PAGE>
(as an annual rate). The maximum annualized Performance Adjustment is
1.50% for Aggressive Equity Fund and 1.00% for the U.S. Core Equity
Fund. In the case of the Global Independence Fund, the difference
between the Fund s performance compared to the performance of the
relevant target is multiplied by a Performance Adjustment of 5% (as an
annual rate). The Performance Adjustment is then added to or subtracted
from the basic fee, subject to the maximum or minimum fee. The maximum
Performance Adjustment is 0.25% for the Global Independence Fund. Each
Fund's performance is calculated based on its net asset value per share
after expenses but before the management fee.
4. ORGANIZATION EXPENSES
The Adviser has borne all costs associated with the organization of the
Trust.
58
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard and Poor's Ratings
Services ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign designation. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
CORPORATE BOND RATINGS
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay principal.
Although it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this category than for
bonds in higher rated categories.
BB, B and CCC - Debt rated BB and B are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some
<PAGE>
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability
to default and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on
which no interest is being paid. Such debt is rated between debt rated C and
debt rated D.
To provide more detailed indications of credit quality, the
ratings may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest
A-2
<PAGE>
payments are protected by a large or exceptionally stable margin and principal
is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, I.E., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
the bonds rated "Aa" through "B." The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C comprise the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
A-3
