<PAGE>
As filed with the U.S. Securities and Exchange Commission
on February 25, 2000
Securities Act File No. 333-66279
Investment Company Act File No. 811-09083
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 1 [x]
----------------------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [x]
Amendment No. 3 [x]
(Check appropriate box or boxes)
CDC MPT+ FUNDS
.......................................
(Exact Name of Registrant as Specified in Charter)
9 West 57th Street, 35th Floor
New York, New York 10019
........................................................
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 891-0667
Bluford H. Putnam
President and Chief Investment Officer
CDC Investment Management Corporation
9 West 57th Street, 35th Floor
New York, New York 10019
......................................
(Name and Address of Agent for Service)
Copy to:
Daniel Schloendorn, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
<PAGE>
0502237.B
Approximate Date of Proposed Public Offering: February 29, 2000
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ x] on February 29, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on April 30, 2000 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
------------------
<PAGE>
PROSPECTUS
FEBRUARY 29, 2000
CDC MPT+ FUNDS
U.S. CORE EQUITY FUND
AGGRESSIVE EQUITY FUND
GLOBAL INDEPENDENCE FUND
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>
CONTENTS
RISK/RETURN SUMMARY...........................................................1
PERFORMANCE SUMMARY...........................................................5
U.S. CORE EQUITY FUND........................................................10
AGGRESSIVE EQUITY FUND.......................................................13
GLOBAL INDEPENDENCE FUND.....................................................15
FINANCIAL HIGHLIGHTS.........................................................17
COMMON INVESTMENT STRATEGIES FOR: AGGRESSIVE EQUITY FUND AND GLOBAL
INDEPENDENCE FUND.........................................................18
MORE ABOUT RISK..............................................................20
CERTAIN INVESTMENT PRACTICES.................................................23
MANAGEMENT...................................................................25
ACCOUNT POLICIES.............................................................32
SHAREHOLDER SERVICES.........................................................34
DISTRIBUTION POLICIES AND TAXES..............................................36
FUND DETAILS.................................................................37
ADDITIONAL INFORMATION.......................................................38
i
<PAGE>
RISK/RETURN SUMMARY
GENERAL
CDC MPT+ Funds is a 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.
-1-
<PAGE>
<TABLE>
<CAPTION>
FUND/RISK FACTORS INVESTMENT GOAL PRINCIPAL STRATEGIES
<S> <C> <C>
U.S. CORE EQUITY FUND Total return greater than that of - Invests primarily in equity
the S&P 500 Index securities of U.S. companies
EQUITY RISK Looks for companies with
attractive characteristics such
MARKET RISK as increasing operating
profits, low relative
LEVERAGE RISK valuation, appropriate capital
structures, disciplined
EXPOSURE RISK 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
-2-
<PAGE>
<CAPTION>
FUND/RISK FACTORS INVESTMENT GOAL PRINCIPAL STRATEGIES
<S> <C> <C>
- - AGGRESSIVE EQUITY FUND Total return greater than that of Invests primarily in equity and
the S&P 500 Index equity-related investments,
EQUITY RISK including common stocks,
options on securities and
EXPOSURE RISK securities indices, convertible
securities, rights and
FUTURES RISK warrants, equity swaps, and S&P
500 index futures and options
LEVERAGE RISK thereon
To enhance return incrementally
RISKS OF DERIVATIVE INSTRUMENTS and manage risk, invests in
equity index and bond futures
MARKET RISK contracts and options thereon,
currency spot and forward
FOREIGN SECURITIES RISK contracts, currency and
interest rate futures contracts
INTEREST RATE RISK and options thereon, and equity
and interest rate swap contracts
NON-DIVERSIFICATION RISK 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
-3-
<PAGE>
<CAPTION>
FUND/RISK FACTORS INVESTMENT GOAL PRINCIPAL STRATEGIES
<S> <C> <C>
- - GLOBAL INDEPENDENCE FUND Total return, on a risk adjusted Invests primarily in global
basis, consistent with the equity indices, global fixed
EXPOSURE RISK preservation of capital income and currency markets
To enhance return incrementally
FUTURES RISK and manage risk, invests in
common stocks, corporate bonds,
LEVERAGE RISK debentures and notes,
convertible securities,
RISKS OF DERIVATIVE INSTRUMENTS non-convertible debt
instruments and preferred
FOREIGN SECURITIES RISK stocks, government, bank and
commercial obligations, rights
INTEREST RATE RISK and warrants, depositary
receipts, currency spot and
MARKET RISK forward contracts, options on
securities and securities
NON-DIVERSIFICATION RISK 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.
-4-
<PAGE>
PERFORMANCE SUMMARY
Since the funds recently commenced operations and have not had at least one full
calendar year of performance, year-by-year total return and average annual total
return information is not yet available.
-5-
<PAGE>
INVESTOR EXPENSES
The following tables describe the fees and expenses you may pay if you buy and
hold shares of a fund. Please note that the expenses of each fund include the
basic, maximum and minimum management fees payable to the Adviser. Annual fund
operating expense figures are for the fiscal year ended October 31, 1999 (and
are estimated for the Investor Shares, which have not yet been sold).
FEES AND EXPENSES OF THE INVESTOR SHARES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL
U.S. CORE EQUITY FUND AGGRESSIVE EQUITY FUND INDEPENDENCE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC MAXIMUM MINIMUM BASIC MAXIMUM MINIMUM BASIC MAXIMUM MINIMUM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
(paid directly from your
investment)
- ------------------------------------------------------------------------------------------------------------------------------------
Sales charge "load" on
purchases None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred sales charge
"load" None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Sales charge "load" on
reinvested distributions None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption fees (short-term
trading fees)(1) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(deducted from fund assets)
- ------------------------------------------------------------------------------------------------------------------------------------
Management fees(2) 1.00% 2.00% 0% 1.50% 3.00% 0% 1.75% 2.00% 1.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution and
service (12b-1) fees 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
- ------------------------------------------------------------------------------------------------------------------------------------
Other expenses 1.50% 1.50% 1.50% 1.89% 1.89% 1.89% 1.73% 1.73% 1.73%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING
EXPENSES 2.75% 3.75% 1.75% 3.64% 5.14% 2.14% 3.73% 3.98% 3.48%
- ------------------------------------------------------------------------------------------------------------------------------------
Less Fee waivers and/or 1.15% 1.15% 1.15% 1.54% 1.54% 1.54% 1.38% 1.38% 1.38%
expense reimbursements(3)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING 1.60% 2.60% 0.60% 2.10% 3.60% 0.60% 2.35% 2.60% 2.10%
EXPENSES (AFTER FEE WAIVERS
AND/OR EXPENSE REIMBURSEMENTS)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
SEE NOTES ON THE FOLLOWING PAGES.
-7-
<PAGE>
FEES AND EXPENSES OF THE INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL
U.S. CORE EQUITY FUND AGGRESSIVE EQUITY FUND INDEPENDENCE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC MAXIMUM MINIMUM BASIC MAXIMUM MINIMUM BASIC MAXIMUM MINIMUM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
(paid directly from your
investment)
- ------------------------------------------------------------------------------------------------------------------------------------
Sales charge "load" on
purchases None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred sales charge
"load" None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Sales charge "load" on
reinvested distributions None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption fees (short-term 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
trading fees)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(deducted from fund assets)
- ------------------------------------------------------------------------------------------------------------------------------------
Management fees(2) 1.00% 2.00% 0% 1.50% 3.00% 0% 1.75% 2.00% 1.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution and
service (12b-1) fees None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Other expenses 1.50% 1.50% 1.50% 1.89% 1.89% 1.89% 1.73% 1.73% 1.73%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING
EXPENSES 2.50% 3.50% 1.50% 3.39% 4.89% 1.89% 3.48% 3.73% 3.23%
- ------------------------------------------------------------------------------------------------------------------------------------
Less Fee waivers and/or 1.15% 1.15% 1.15% 1.54% 1.54% 1.54% 1.38% 1.38% 1.38%
expense reimbursements(3)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING 1.35% 2.35% 0.35% 1.85% 3.35% 0.35% 2.10% 2.35% 1.85%
EXPENSES (AFTER FEE WAIVERS
AND/OR EXPENSE REIMBURSEMENTS)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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
-8-
<PAGE>
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-two countries and includes at least 1,600
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) The Adviser has agreed to reimburse expenses to each Fund through March 1,
2001, 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.
-9-
<PAGE>
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 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>
- ------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------------
basic maximum minimum basic maximum minimum basic maximum minimum basic maximum minimum
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. CORE EQUITY $282 $384 $179 $864 $1,167 $556 $1,472 $1,967 $956 $3,112 $4,050 $2,076
FUND
- ------------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE EQUITY $373 $527 $219 $1,134 $1,576 $677 $1,913 $2,620 $1,160 $3,951 $5,205 $2,492
FUND
- ------------------------------------------------------------------------------------------------------------------------------
GLOBAL INDEPENDENCE $382 $408 $357 $1,161 $1,235 $1,086 $1,957 $2,078 $1,835 $4,032 $4,253 $3,806
FUND
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
basic maximum minimum basic maximum minimum basic maximum minimum basic maximum minimum
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. CORE EQUITY $256 $359 $154 $788 $1,092 $477 $1,345 $1,845 $824 $2,863 $3,824 $1,801
FUND
- ------------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE EQUITY $347 $501 $194 $1,058 $1,503 $599 $1,791 $2,506 $1,030 $3,723 $5,009 $2,227
FUND
- ------------------------------------------------------------------------------------------------------------------------------
GLOBAL INDEPENDENCE $357 $382 $331 $1,086 $1,161 $1,010 $1,835 $1,957 $1,712 $3,806 $4,032 $3,574
FUND
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
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 uses 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 focuses 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 uses time-tested quantitative systems for identifying overvalued and
undervalued common stocks. These quantitative tools 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 manages 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 uses 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
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.
- ---------------------------
(1) EVA-Registered Trademark- is a registered trademark of Stern Stewart & Co.
-11-
<PAGE>
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
- forward delivery contracts
-12-
<PAGE>
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.
-13-
<PAGE>
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 are generally 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 applies 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 invests 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, repurchase and
reverse
-14-
<PAGE>
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.
-15-
<PAGE>
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 pursues 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 seeks 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 are generally limited to developed countries.
PORTFOLIO INVESTMENTS
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
The Fund also invests in
- - 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
-16-
<PAGE>
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.
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.
-17-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
performance of each fund's class of shares since inception. Total return
represents the rate that a shareholder would have earned (or lost) on a fund
share assuming reinvestment of all dividends and distributions. The information
in the following table was audited by Deloitte & Touche LLP, independent
auditors, whose report, along with the funds' financial statements, are included
in the annual report dated October 31, 1999 (available upon request).
For the period since the commencement of operations (July 1, 1999 to
October 31, 1999)
INSTITUTIONAL SHARES**
<TABLE>
<CAPTION>
U.S. CORE AGGRESSIVE GLOBAL
EQUITY EQUITY INDEPENDENCE
FUND FUND FUND
--------------- --------------- ---------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss) (0.03) (0.04) 0.10
Net realized and unrealized gain on investments 0.04 0.14 0.33
--------------- --------------- ---------------
Total from investment operations 0.01 0.10 0.43
--------------- --------------- ---------------
LESS DISTRIBUTIONS:
Distributions from net investment income 0 0 0
Distributions from net realized gains 0 0 0
--------------- --------------- ---------------
Total distributions 0 0 0
--------------- --------------- ---------------
NET ASSET VALUE, END OF PERIOD $10.01 $10.10 $10.43
--------------- --------------- ---------------
--------------- --------------- ---------------
TOTAL RETURN (a) 0.10% 1.00% 4.30%
--------------- --------------- ---------------
--------------- --------------- ---------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $29,320 $25,686 $26,793
Ratio of operating expenses to average net assets (b) 2.07% 2.89% 2.11%
Ratio of net investment income/(loss) to average net (0.93)% (1.31)% 3.10%
assets (b)
Ratio of operating expenses to average net assets without 3.22% 4.43% 3.49%
expenses reimbursed by investment adviser (b)
Portfolio turnover 42% .35% 0.00%
</TABLE>
** Investor Shares have not yet been sold.
(a) Total return represents aggregate total return for the period indicated.
(b) Annualized.
-18-
<PAGE>
COMMON INVESTMENT STRATEGIES FOR:
AGGRESSIVE EQUITY FUND
AND
GLOBAL INDEPENDENCE FUND
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 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 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 take positions which 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 monitors the implicit forecasting relationships using
error-learning statistical processes. The Adviser uses these tools in making
decisions regarding the optimal level of risk to be employed on various
positions.
MODERN PORTFOLIO THEORY: The funds 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 monitors and controls 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 focuses on the
annualized standard deviation of monthly performance. The Adviser uses 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 is performed as another measure of risk.
The Adviser seeks 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.
The Adviser also, on a regular basis, compares 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.
-19-
<PAGE>
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.
-20-
<PAGE>
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.
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.
-21-
<PAGE>
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 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 inability of a computer system to distinguish the
year 2000 from the year 1900 (the "Year 2000 Issue") could cause difficulties
for system users after December 31, 1999. Although this date has passed, the
impact of the failure by companies or foreign markets in which the funds invest
to address the Year 2000 Issue effectively could continue to be felt into 2000
and may negatively impact a fund's performance.
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
-22-
<PAGE>
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.
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.
-23-
<PAGE>
<TABLE>
<CAPTION>
CERTAIN INVESTMENT PRACTICES
- ---------------------------------------------------------------------------------------------------------------------------------
Global
U.S. Core Aggressive Independence
Equity Fund Equity Fund Fund
<S> <C> <C> <C>
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.
- ---------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Interests in pools of assets such as receivables -- (0) (0)
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 -- 10% 10%
Moody's Investors Service, Inc. or Baa by Standard & Poor's Ratings Service
(or of comparable quality, if unrated) are 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 331/3% 331/3% 331/3%
transactions in portfolio securities. EXPOSURE, LEVERAGE RISKS.
- ---------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES Debt securities backed by pools of mortgages, -- (0) (0)
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 15% 15% 15%
trading or those not actively traded on the open market. LIQUIDITY,
VALUATION, MARKET RISKS.
- ---------------------------------------------------------------------------------------------------------------------------------
SECURITIES LENDING. Lending portfolio securities to financial institutions; 50% - - - -
a fund receives cash, U.S. government securities or bank letters of credit as
collateral. CREDIT, LIQUIDITY, MARKET, OPERATIONAL RISKS.
- ---------------------------------------------------------------------------------------------------------------------------------
- - SHORT SALES AND SHORT SALES AGAINST THE BOX The selling of securities that 10% - - - -
have been borrowed on the expectation that the market price will drop.
Hedged. LEVERAGE, MARKET, CORRELATION, LIQUIDITY, OPPORTUNITY RISKS.
Speculative. LEVERAGE, MARKET, LIQUIDITY RISKS.
- ---------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TRADING Selling a security shortly after purchase. A fund - (0) (0)
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 10% 10% 10%
certain securities, generally common stock, at a specified price and usually for
a limited time. LIQUIDITY, MARKET, EXPOSURE RISKS.
- ---------------------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase or sale of 20% 20% 20%
securities for delivery at a future date; market value may change before
delivery. MARKET, LIQUIDITY, EXPOSURE, OPPORTUNITY, LEVERAGE RISKS.
- ---------------------------------------------------------------------------------------------------------------------------------
-24-
<PAGE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ZERO COUPON BONDS Debt securities that pay no cash income to holders until 20% 20% 20%
maturity and are issued at a discount from maturity value. At maturity, the
entire return comes from the difference between purchase price and maturity
value. INTEREST RATE RISK.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
KEY TO TABLE:
- No policy limitation on usage
(0) 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
-25-
<PAGE>
MANAGEMENT
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 limited experience in
managing U.S. registered funds, 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 December
31, 1999, CDC Investments has approximately $4.6 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
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
-26-
<PAGE>
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%. 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.
Here are examples of how the Performance Adjustment would work (using annual
rates):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
U.S. Core Equity Fund
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Total Fund Performance Relevant Basic Management Total Management
(before Management fee) Index Excess Performance Fee Fee Adjustment 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%
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Aggressive Equity Fund
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Total Fund Performance Basic Management Total Management
(before Management fee) Relevant Index Excess Performance Fee Fee Adjustment 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% .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%
- -------------------------------------------------------------------------------------------------------------------------
-27-
<PAGE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Global Independence Fund
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Total Fund Performance Basic Management Total Management
(before Management fee) Relevant Index Excess Performance Fee Fee Adjustment 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.
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 other than Mr. Klopukh
joined CDC Investments in 1997 and has been a co-portfolio manager of the
relevant fund since its inception. Mr. Klopukh joined CDC Investments in January
1999 and began co-managing the U.S. Core Equity Fund at that time. Each
portfolio manager's title with CDC Investments appears next to his name.
-28-
<PAGE>
- --------------------------------------------------------------------------------
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
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, Director 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 of Equity Trading
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
STEVEN KLOPUKH, CFA, Equity Research Analyst
Equity Research Analyst in the corporate finance
and mergers & acquisitions department of Morgan
Stanley Dean Witter & Co. from 1997 to 1998
Worked as an equity analyst at Ryan, Beck & Co.
from 1993 to 1995
Received M.B.A. with Honors from The University of
Chicago Graduate School of Business in June 1997
- --------------------------------------------------------------------------------
-29-
<PAGE>
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY FUND AND BLUFORD H. PUTNAM, PH.D., President
GLOBAL INDEPENDENCE FUND See above
JOSE QUINTANA, PH.D., Managing Director
See above
D. SYKES WILFORD, PH.D., Managing Director
Chief Investment Officer of Bankers Trust's
Private Bank and Managing Director of Bankers
Trust's 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
- --------------------------------------------------------------------------------
PRIOR PERFORMANCE OF SIMILAR PORTFOLIOS MANAGED BY THE ADVISER
The statistics below show the performance of three unregistered investment
portfolios managed by CDC Investments as well as the Funds themselves. In
managing the Funds, CDC Investments employs 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 is 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 for the unregistered portfolios following
the U.S. Core Equity strategy and the Global Independence strategy are for the
period from the commencement of the relative portfolio's operations through
December 31, 1999, and for the one-year period ended December 31, 1999. The
performance returns shown below for the unregistered portfolio following the
Aggressive Equity strategy is for the period from commencement of operations
through June 30, 1999 and for the six-month period ended June 30, 1999, the date
that portfolio was terminated. The performance returns shown below for the Funds
are for the period from the commencement of operations (July 1, 1999) through
December 31, 1999.
Fees and expenses incurred in the operation of the unregistered portfolios
differ from and are lower than the fees and expenses incurred by the
corresponding Funds during its most recent fiscal year. Accordingly, the
performance results for each unregistered portfolio have been adjusted to
reflect the overall expense ratio borne by the corresponding Fund in its first
fiscal year and the management fee and applicable Performance
-30-
<PAGE>
Adjustment that would have been charged given the actual performance of the
relevant index over the period shown.
Performance results of the Funds reflect actual fees and expenses incurred.
THE PERFORMANCE DATA THAT REPRESENTS THE PRIOR PERFORMANCE OF THE UNREGISTERED
PORTFOLIOS IS NOT REPRESENTATIVE OF 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. PART OF THE PERFORMANCE OF THE U.S. CORE EQUITY FUND REFERENCED HEREIN IS
DUE TO THE ALLOCATION TO THE FUND OF SECURITIES SOLD IN INITIAL PUBLIC
OFFERINGS, WHICH HAD A SIGNIFICANT IMPACT ON THE FUND'S PERFORMANCE. IT IS
ANTICIPATED THAT THE ALLOCATION TO THE U.S. CORE EQUITY FUND OF SECURITIES SOLD
IN INITIAL PUBLIC OFFERINGS MAY CONTINUE IN THE FUTURE, BUT THERE CAN BE NO
ASSURANCES THAT IT WILL.
THE PERFORMANCE FIGURES ARE PRESENTED IN ACCORDANCE WITH THE STANDARDS
PROMULGATED BY THE ASSOCIATION FOR INVESTMENT MANAGEMENT AND RESEARCH. THE
PERFORMANCE FIGURES FOR THE YEARS ENDED DECEMBER 31, 1998 (INCLUDED IN THE
RETURN SINCE INCEPTION) AND DECEMBER 31, 1999 FOR THE U.S. CORE EQUITY AND
GLOBAL INDEPENDENCE UNREGISTERED PORTFOLIOS (AND JUNE 30, 1999 FOR THE
AGGRESSIVE EQUITY UNREGISTERED PORTFOLIO) HAVE BEEN EXAMINED BY AN INDEPENDENT
ACCOUNTING FIRM. THE PERFORMANCE FIGURES SHOWN FOR THE CDC MPT+ FUNDS SINCE
INCEPTION TO DECEMBER 31, 1999 ARE BASED ON UNAUDITED RESULTS.
Set forth below is the performance of (i) 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 and (ii) the U.S. Core
Equity Fund, which commenced operations July 1, 1999. Returns are compared to
those of the S&P 500 Index, an unmanaged index, which does not reflect fees and
expenses. All returns reflect the reinvestment of dividends and distributions,
if any.
<TABLE>
<CAPTION>
MGMT. FEE PLUS
INCEPTION THROUGH OTHER ADJUSTED PERFORMANCE NET
DECEMBER 31, 1998 GROSS RETURN EXPENSES RETURN ADJUSTMENT RETURN
- ----------------- ------------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
U.S. EQUITY PORTFOLIO 29.53% .35% 29.18% 1.29% 27.90%
S&P 500 INDEX 27.97%
<CAPTION>
MGMT. FEE PLUS
JANUARY 1, 1999 THROUGH OTHER ADJUSTED PERFORMANCE NET
DECEMBER 31, 1999 GROSS RETURN EXPENSES RETURN ADJUSTMENT RETURN
- ----------------- ------------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
U.S. EQUITY PORTFOLIO 24.14% .35% 23.79% 1.69% 22.10%
S&P 500 INDEX 21.04%
<CAPTION>
MGMT. FEE PLUS
JULY 1, 1999 THROUGH OTHER ADJUSTED PERFORMANCE NET
DECEMBER 31, 1999 GROSS RETURN EXPENSES RETURN ADJUSTMENT RETURN
- ----------------- ------------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
CDC MPT+ FUNDS - 10.60% .18% 10.43% .96% 9.47%
U.S. CORE EQUITY
FUND
-31-
<PAGE>
<CAPTION>
<S> <C>
S&P 500 INDEX 7.71%
</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,
as noted above, was terminated on June 30, 1999, and of the Aggressive Equity
Fund. The Aggressive Equity Portfolio employed substantially the same investment
objectives, policies and strategies as the Aggressive Equity Fund. Returns are
compared to those of the S&P 500 Index, which do not reflect fees and expenses.
All returns reflect the reinvestment of dividends and distributions, if any.
<TABLE>
<CAPTION>
MGMT. FEE PLUS
INCEPTION THROUGH OTHER ADJUSTED PERFORMANCE NET
DECEMBER 31, 1998 GROSS RETURN EXPENSES RETURN ADJUSTMENT RETURN
- ----------------- ------------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
AGGRESSIVE EQUITY 10.52% .18% 10.35% .89% 9.46%
PORTFOLIO
S&P 500 INDEX 9.23%
<CAPTION>
MGMT. FEE PLUS
JANUARY 1, 1999 OTHER ADJUSTED PERFORMANCE NET
THROUGH JUNE 30, 1999 GROSS RETURN EXPENSES RETURN ADJUSTMENT RETURN
- --------------------- ------------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
AGGRESSIVE EQUITY 8.91% .18% 8.74% .00% 8.74%
PORTFOLIO
S&P 500 INDEX 12.38%
<CAPTION>
MGMT. FEE PLUS
JULY 1, 1999 THROUGH OTHER ADJUSTED PERFORMANCE NET
DECEMBER 31, 1999 GROSS RETURN EXPENSES RETURN ADJUSTMENT RETURN
- ----------------- ------------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
CDC MPT+ FUNDS -AGGRESSIVE 10.98% .18% 10.81% 1.45% 9.36%
EQUITY FUND
S&P 500 INDEX 7.71%
</TABLE>
Set forth below is the performance of (i) an unregistered, privately-offered
investment portfolio registered under the laws of Luxembourg (the "Global
Independence Portfolio"), which commenced operations on October 1, 1997, and
(ii) the Global Independence Fund. The Global Independence Portfolio employs
substantially the same investment objectives, policies and strategies as the
Global Independence Fund. Returns are compared to those of a composite index,
comprised of 50% of the World Equity Index and 50% of the Global Bond Index (the
"Composite Index."), which does not reflect fees and expenses. All returns
reflect the reinvestment of dividends and distributions, if any.
-32-
<PAGE>
<TABLE>
<CAPTION>
MGMT. FEE PLUS
INCEPTION THROUGH OTHER ADJUSTED PERFORMANCE NET
DECEMBER 31, 1997 GROSS RETURN EXPENSES RETURN ADJUSTMENT RETURN
- ----------------- ------------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
GLOBAL INDEPENDENCE 3.97% .09% 3.88% .50% 3.38%
PORTFOLIO
COMPOSITE INDEX -.80%
<CAPTION>
MGMT. FEE PLUS
JANUARY 1, 1998 THROUGH OTHER ADJUSTED PERFORMANCE NET
DECEMBER 31, 1998 GROSS RETURN EXPENSES RETURN ADJUSTMENT RETURN
- ----------------- ------------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
GLOBAL INDEPENDENCE 17.51% .35% 17.16% 1.60% 15.56%
PORTFOLIO
COMPOSITE INDEX 20.08%
<CAPTION>
MGMT. FEE PLUS
JANUARY 1, 1999 THROUGH OTHER ADJUSTED PERFORMANCE NET
DECEMBER 31, 1999 GROSS RETURN EXPENSES RETURN ADJUSTMENT RETURN
- ----------------- ------------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
GLOBAL INDEPENDENCE 11.97% .35% 11.62% 1.83% 9.79%
PORTFOLIO
COMPOSITE INDEX 10.07%
<CAPTION>
MGMT. FEE PLUS
JULY 1, 1999 THROUGH OTHER ADJUSTED PERFORMANCE NET
DECEMBER 31, 1999 GROSS RETURN EXPENSES RETURN ADJUSTMENT RETURN
- ----------------- ------------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
CDC MPT+ FUNDS -GLOBAL 10.33% .18% 10.16% 1.00% 9.16%
INDEPENDENCE
FUND
COMPOSITE INDEX 8.79%
</TABLE>
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.
-33-
<PAGE>
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.
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
-34-
<PAGE>
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.
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.
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.
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
-35-
<PAGE>
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.
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.
-36-
<PAGE>
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 long-term capital gains, regardless of how long you
have held fund shares. Distributions from other sources are generally taxed as
ordinary income.
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.
-37-
<PAGE>
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, including the portion taxable as long-term capital
gains.
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.
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.
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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 auditors'
report (annually).
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 or by sending your request electronically at
[email protected]. 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
202-942-8090.
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
Attn: CDC MPT+ Funds
2 Heritage Drive
North Quincy, MA 02171
By telephone: 800-774-9838
SEC File No. 811-09083
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
February 29, 2000
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 February 29, 2000, 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.
<PAGE>
TABLE OF CONTENTS
Page
Organization of the Funds......................................................1
Investment Objectives and Policies.............................................1
General Investment Strategies............................................1
Options, Futures, Currency Exchange Transactions and Swaps.........2
Securities Options..........................................2
Securities Index Options....................................5
OTC Options.................................................5
Futures Activities..........................................6
Futures Contracts....................................7
Options on Futures Contracts.........................8
Currency Exchange Transactions..............................8
Forward Currency Contracts...........................9
Currency Options.....................................9
Hedging.............................................10
Swaps......................................................11
Asset Coverage for Forward Contracts, Options,
Futures and Options on Futures and Swaps...................12
U.S. Government Securities........................................12
Money Market Obligations..........................................13
Bank Obligations...........................................13
Commercial Paper...........................................13
Other Short-Term Corporate Obligations.....................14
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
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Mortgage-Backed Securities........................................23
Asset-Backed Securities...........................................24
Structured Notes..................................................25
Non-Publicly Traded and Illiquid Securities.......................25
Rule 144A Securities.......................................26
Rights Offerings and Purchase Warrants............................27
Borrowing.........................................................27
U.S. Core Equity Fund Only..............................................27
Short Selling.....................................................27
Short Sales "Against the Box".....................................28
Lending of Portfolio Securities...................................29
Risk Arbitrage Trading............................................30
Aggressive Equity Fund and Global Independence Fund Only................30
Non-Diversified Status............................................30
Below Investment Grade Securities.................................31
Investment Restrictions.......................................................32
Portfolio Valuation...........................................................34
Portfolio Transactions........................................................35
Portfolio Turnover............................................................37
Management of the Funds.......................................................38
Officers and Trustees...................................................38
Control Persons and Principal Stockholders..............................42
Investment Adviser and Administrator....................................43
Management Fees.........................................................43
Choice of Performance Benchmark...................................44
Distribution and Shareholder Servicing..................................47
Investor Shares...................................................48
Institutional Shares..............................................48
General...........................................................48
Custodian and Transfer Agent............................................49
Capital Stock...........................................................49
Additional Purchase and Redemption Information................................50
Automatic Cash Withdrawal Plan..........................................51
Exchange Privilege............................................................51
Additional Information Concerning Taxes.......................................52
The Funds and Their Investments.........................................52
Taxation of United States Shareholders..................................55
Foreign Taxes...........................................................56
Other Taxation..........................................................57
Determination of Performance..................................................57
Independent Auditors and Counsel..............................................60
Financial Statements..........................................................60
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.
GENERAL INVESTMENT STRATEGIES
Unless otherwise indicated, each Fund is permitted, but not obligated,
to engage in the following investment strategies, subject to any percentage
limitations set forth below. Any percentage limitation on a Fund's ability to
invest in debt securities will not be applicable during periods when the Fund
pursues a temporary defensive strategy as discussed below.
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The Funds are not obligated to pursue any of the following strategies
and do not represent that these techniques are available now or will be
available at any time in the future.
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, 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 potential loss associated with purchasing an option is limited to
the premium paid, and the premium would partially offset any gains achieved from
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 or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
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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 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
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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 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
4
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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
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
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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 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
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(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.
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
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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.
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
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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 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.
Forward currency contracts are highly volatile, and a relatively small
price movement in a forward currency contract may result in substantial losses
to a Fund. To the extent a Fund engages in forward currency contracts to
generate current income, the Fund will be subject to these risks which the Fund
might otherwise avoid (E.G., through the use of hedging transactions).
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
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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 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
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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 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
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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 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
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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.
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
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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.
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
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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.
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,
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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 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.
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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. CDC Investments believes that the introduction of a
single European currency, the euro, on January 1, 1999 for participating
European nations in the Economic and Monetary Union may create new economic
opportunities for investors, such as (i) lower interest rates; (ii) mergers and
acquisitions; (iii) corporate restructurings; (iv) share buybacks; (v) more
efficient distribution and product packaging; and (vi) greater competition. The
introduction of the euro, however, also presents unique risks and uncertainties
for investors in those countries, including; (i) the creation of suitable
clearing and settlement payment schemes for the euro; (ii) the legal treatment
of outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than 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 and 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 before or after the
introduction of the euro and could adversely affect the value of European
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.
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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 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.
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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 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
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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
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.
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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
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the same or a different issuer within a particular period of time at 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
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to any guarantor, such as GNMA, and due to any yield retained by the issuer.
Actual yield to 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.
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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 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.
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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 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
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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 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
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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 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
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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 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. Default
by or bankruptcy of a borrower would expose the Fund to possible loss because of
adverse market action, expenses and/or delays in connection with the disposition
of the underlying securities.
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Any loans of the Fund's securities will be fully collateralized and marked to
market daily.
RISK ARBITRAGE TRADING.
The Fund may invest in risk arbitrage transactions, which are
inherently volatile. The price offered for securities of a company in a tender
offer, merger or other acquisition transaction will generally be at a
significant premium above the market price of the securities prior to the offer.
The announcement of such a transaction generally will cause the market price of
the securities to begin rising. The Fund may purchase such securities after the
announcement of the transaction at a price that is higher than the
pre-announcement market price, but which is lower than the price at which the
Adviser expects the transaction to be consummated. If the proposed transaction
is not consummated, the value of such securities purchased by the Fund may
decline significantly. It also is possible that the difference between the price
paid by the Fund for securities and the amount anticipated to be received upon
consummation of the proposed transaction may be very small. If a proposed
transaction in fact is not consummated or is delayed, the market price of the
securities may decline sharply. In addition, where the Fund has sold short the
securities it anticipates receiving in an exchange offer or merger, the Fund may
be forced to cover its short position in the market at a higher price than its
short sale, with a resulting loss. If the Fund has sold short securities which
are the subject of a proposed exchange offer, merger or tender offer and the
transaction is consummated, the Fund also may be forced to cover its short
position at a loss.
The consummation of a merger, tender offer or exchange offer can be
prevented or delayed, or the terms changed, by a variety of factors, including
(i) the opposition of the management or shareholders of the target company,
which may result in litigation to enjoin the proposed transaction; (ii) the
intervention of a governmental regulatory agency; (iii) efforts by the target
company to pursue a defensive strategy, including a merger with, or a friendly
tender offer by, a company other than the offeror; (iv) in the case of a merger,
the failure to obtain the necessary shareholder (or, in some cases, regulatory)
approvals; (v) market conditions resulting in material changes in securities
prices; (vi) compliance with any applicable securities laws; or (vii) the
failure of an acquiror to obtain the necessary financing to consummate the
transaction.
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
30
<PAGE>
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 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.
31
<PAGE>
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 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.
32
<PAGE>
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.
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.
33
<PAGE>
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.
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
34
<PAGE>
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.
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
35
<PAGE>
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. No brokerage commissions are typically paid on
purchases and sales of U.S. Government Securities.
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
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,
36
<PAGE>
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.
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.
From inception of investment operations on July 1, 1999 to the fiscal
period ended October 31, 1999, the Funds paid the following in brokerage
commissions:
37
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FUND TOTAL AMOUNT OF COMMISSIONS PAID
----------------------------------------------------------------------
<S> <C>
U.S. Core Equity Fund $ 22,015
----------------------------------------------------------------------
Aggressive Equity Fund $ 4,266
----------------------------------------------------------------------
Global Independence Fund $ 0
----------------------------------------------------------------------
</TABLE>
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.
It is not possible to predict the Funds' portfolio turnover rates.
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.
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.
38
<PAGE>
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.
Luc de Clapiers* (53) TRUSTEE.
President and Chief Executive
Officer of CDC North America
(the U.S. subsidiary of the
Caisse des Depots Group) since
1989.
Richard M. Levich, Ph.D. (51) TRUSTEE.
Stern School of Business Professor of Finance and
New York University International Business, New
44 W. 4th Street York University.
New York, New York 10012
Mike West, Ph.D. (43) TRUSTEE.
Institute of Statistics and Decision The Arts and Sciences Professor
Sciences Duke University of Statistics and Decision
Durham, NC 27708-0251 Sciences and Director of the
Institute of Statistics and
Decision Sciences, Duke
University.
Arnold Zellner, Ph.D. (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 -
Chicago, IL 60637 Graduate School of Business,
University of Chicago; From
1984 to 1996, H.G.B. Alexander
Distinguished Service Professor
- Graduate School of Business,
University of Chicago.
39
<PAGE>
D. Sykes Wilford, Ph.D. (51) VICE PRESIDENT AND INVESTMENT
OFFICER.
Managing Director of CDC
Investments since 1997; Chief
Investment Officer of Bankers
Trust's Private Bank and
Managing Director of Bankers
Trust's 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, Ph.D. (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.
Andrew Dalton (41) INVESTMENT OFFICER.
Director of CDC Investments
since 1997; 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
from 1992 to 1995.
40
<PAGE>
Jason L. Wolin (33) INVESTMENT OFFICER.
Director and Portfolio Manager
of CDC Investments since 1997;
Portfolio Manager at Bankers
Trust Company from 1994 to
1997; Project Manager
(Financial Systems Group) at
J.P. Morgan & Co. from 1992 to
1994.
C. Peter Paterno (37) TREASURER.
Director 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.
Director of CDC Investments;
Vice President, BEA Associates
from 1992 to 1997; Senior
Associate, Coopers & Lybrand,
LLP from 1989 to 1992.
Charles Rosenberg (30) 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.
41
<PAGE>
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, $3,000 for each meeting attended by the Trustee for services as
Trustee, and $250 for each telephonic meeting. Each such Trustee is also
reimbursed for expenses incurred with the Trustee's attendance at meetings.
Trustees' Total Compensation Through October 31, 1999*:
<TABLE>
<CAPTION>
NAME OF TRUSTEE FROM THE TRUST
- --------------- --------------
<S> <C>
Richard M. Levich** None
Bluford H. Putnam*** None
Luc de Clapiers*** None
Mike West $19,250
Arnold Zellner $19,250
</TABLE>
- --------
* For the fiscal period from July 1, 1999 (commencement of investment
operations) through October 31, 1999.
** Mr. Levich was elected a Trustee of the Trust on November 18, 1999 and
therefore received no compensation from the Trust for the fiscal year ended
October 31, 1999.
*** Mr. Putnam and Mr. de Clapiers each receive compensation as an affiliate of
CDC Investments and, accordingly, receive no compensation from the Trust.
As of January 31, 2000, the Trustees and officers of the Trust as a group owned
less than 1% of the outstanding shares of each Fund.
CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS
As of January 31, 2000, the names, addresses and percentage ownership
of each person that owns of record 5% or more of a class of each Fund's
outstanding shares were as follows:
42
<PAGE>
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS NAME OF FUND SHARES HELD OWNERSHIP
---------------- ------------ ----------- ---------
<S> <C> <C> <C>
CIMCO HOLDINGS, LLC U.S. Core Equity Fund 2,542,262.818 76%
c/o CDC Investment
Management Corp.
9 West 57th Street
New York, NY 10019
Attn: Bluford H. Putnam
G.A.A.S. Equity Fund U.S. Core Equity Fund 300,026.136 9%
c/o CDC Investment
Management Corp.
9 West 57th Street
New York, NY 10019
MASTER HOLDINGS U.S. Core Equity Fund 402,449.546 12%
c/o CDC Investment
Management Corp.
9 West 57th Street
New York, NY 10019
Attn: Rob Covino
MASTER HOLDINGS Aggressive Equity Fund 3,220,975.042 98%
c/o CDC Investment
Management Corp.
9 West 57th Street
New York, NY 10019
Attn: Rob Covino
MASTER HOLDINGS Global Independence Fund 2,965,485.042 97%
c/o CDC Investment
Management Corp.
9 West 57th Street
New York, NY 10019
Attn: Rob Covino
</TABLE>
Master Holdings is the majority shareholder of CIMCO Holdings LLC and
CDC Investments is a minority shareholder of CIMCO Holdings LLC. CDC Group,
Paris is the majority shareholder of Master Holdings. CDC Investments is a
wholly-owned subsidiary of CDC Group, Paris.
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
43
<PAGE>
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
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
44
<PAGE>
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, 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
45
<PAGE>
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 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.
46
<PAGE>
Advisory Fees earned by CDC Investments (portions of fees waived, if any, are
noted in parenthesis next to the amount earned)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
FISCAL PERIOD ENDED
OCTOBER 31, 1999
- -----------------------------------------------------------------------
<S> <C>
U.S. Core Equity Fund $161,247 (107,413)
- -----------------------------------------------------------------------
Aggressive Equity Fund $208,883 (125,635)
- -----------------------------------------------------------------------
Global Independence Fund $151,483 (119,427)
- -----------------------------------------------------------------------
</TABLE>
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.
Administration Fees earned by State Street Bank and Trust Company (portions of
fees waived, if any, are noted in parenthesis next to the amount earned)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
FISCAL PERIOD ENDED
OCTOBER 31, 1999
- -----------------------------------------------------------------------
<S> <C>
U.S. Core Equity Fund $30,883
- -----------------------------------------------------------------------
Aggressive Equity Fund $30,883
- -----------------------------------------------------------------------
Global Independence Fund $30,883
- -----------------------------------------------------------------------
</TABLE>
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
47
<PAGE>
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. No 12b-1 fees have been paid by
the Funds because no Investor Shares had been sold as of October 31, 1999.
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
48
<PAGE>
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 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 is 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.
49
<PAGE>
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, 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
50
<PAGE>
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 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
51
<PAGE>
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 continue to qualify to be treated as a regulated
investment company each taxable year under Part I of Subchapter M of 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 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
52
<PAGE>
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. The balance of such income must be
distributed during the next calendar 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. 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.
As a result of entering into index swaps, a Fund may make or receive
periodic net payments. A Fund may also make or receive a payment when a swap is
terminated prior to maturity through an assignment of the swap or other closing
transaction. Periodic net payments will constitute ordinary income or
deductions, while termination of a swap will result in capital gain or loss
(which will be a long-term capital gain or loss if a Fund has been a party to
the swap for more than one year).
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
53
<PAGE>
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.
Alternatively, a Fund may make a mark-to-market election that will
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, 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
54
<PAGE>
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
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.
55
<PAGE>
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.
FOREIGN TAXES.
The Global Independence Fund may elect for U.S. income tax purposes to
treat foreign income taxes paid by it as paid by its shareholders if more than
50% of its total assets at the close of its fiscal year consists of stock or
securities of foreign corporations. The Global Independence Fund may qualify for
and make this election in some, but not necessarily all, of its taxable years.
If the Fund were to make an election, shareholders of the Fund would be required
to take into account an amount equal to their pro rata portions of such foreign
taxes in computing their taxable income and then treat an amount equal to those
foreign taxes as a U.S. federal income tax deduction or as a foreign tax credit
against their U.S. federal income taxes. Shortly after any year for which it
makes such an election, the Fund will report to its shareholders the amount per
share of such foreign income tax that must be included in each shareholder's
gross income and the amount which will be available for the deduction or credit.
No deduction for foreign taxes may be claimed by a shareholder who does not
itemize deductions.
56
<PAGE>
Certain limitations will be imposed on the extent to which the credit (but not
the deduction) for foreign taxes may be claimed.
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.
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.
OTHER TAXATION
Distributions also may be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES AFFECTING
THE FUNDS AND THEIR SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE FUNDS.
57
<PAGE>
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) TO THE POWER OF 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
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.
58
<PAGE>
With respect to the Institutional Shares*, each Fund's average annual
total returns for the fiscal period from July 1, 1999 (commencement of
operations) to October 31, 1999 were as follows (estimated performance figures
calculated without the reimbursement of expenses, if any, are noted in
parenthesis):
<TABLE>
- ---------------------------------------------------------------
<S> <C>
U.S. Core Equity Fund 0.10% (-0.22%)
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Aggressive Equity Fund 1.00% (0.56%)
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Global Independence Fund 4.30% (3.88%)
- ---------------------------------------------------------------
</TABLE>
* Investor Shares of the Funds were not offered during this period.
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 addition, reference may be made in advertising a class of Fund
shares to opinions of Wall Street economists and analysts regarding economic
cycles and their effects historically on the performance of small companies,
both as a class and relative to other investments. A Fund may also discuss its
beta, or volatility relative to the market, and make reference to its relative
performance in various market cycles in the United States.
Each Fund may compare its performance with (i) that of other mutual
funds with similar investment objectives and policies, which may be based on the
rankings prepared by Lipper Analytical Services, Inc. or similar investment
services that
59
<PAGE>
monitor the performance of mutual funds; and (ii) appropriate indexes of
investment securities or with data developed by CDC Investments derived from
such indexes. A Fund may also include evaluations of the Fund published by
nationally recognized ranking services and by financial publications such as
BARRON'S, BUSINESS WEEK, FINANCIAL TIMES, FORBES, FORTUNE, INC., INSTITUTIONAL
INVESTOR, INVESTOR'S BUSINESS DAILY, MONEY, MORNINGSTAR, MUTUAL FUND MAGAZINE,
SMARTMONEY, THE WALL STREET JOURNAL and WORTH. Morningstar, Inc. rates funds in
broad categories based on risk/reward analyses over various time periods. In
addition, each Fund may from time to time compare the expense ratio of its
Shares to that of investment companies with similar objectives and policies,
based on data generated by Lipper Analytical Services, Inc. or similar
investment services that monitor mutual funds.
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.
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 financial statements of each Fund for the fiscal year ended
October 31, 1999 that are incorporated by reference in this Statement of
Additional Information have been audited by Deloitte & Touche LLP, whose report
thereon has been incorporated by reference 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 audited annual report dated October 31, 1999 which either
accompanies this Statement of Information or has previously been provided to the
investor to whom this Statement of Additional Information is being sent, is
incorporated herein by reference with respect to all information regarding the
Funds included therein. Each Fund will furnish without charge a copy of its
annual report upon request by calling (800) 774-9838.
60
<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 quality
<PAGE>
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 payments are protected by a large or exceptionally
stable margin and principal is secure.
A-2
<PAGE>
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
<PAGE>
PART C
OTHER INFORMATION
Item 23. EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
(a) (1) Certificate of Trust. *
(a) (2) Trust Instrument. *
(b) (1) By-Laws.*
(b) (2) Amendment to By-Laws.
(c) Form of Share Certificates. **
(d) (1) Investment Advisory Agreement for the U.S. Core Equity
Fund. ***
(d) (2) Investment Advisory Agreement for the Aggressive Equity
Fund. ***
(d) (3) Investment Advisory Agreement for the Global Independence
Fund. ***
(e) Form of Distribution Agreement with Funds Distributor,
Inc. **
(f) Not applicable.
(g) Form of Custodian Agreement with State Street Bank and Trust
Company. **
(h) (1) Form of Transfer Agency and Service Agreement with State
Street Bank and Trust Company. **
(2) Form of Administration Agreement with State Street Bank and
Trust Company. **
(3) Form of Amended and Restated Expense Limitation Agreement.
(i) (1) Consent of Willkie Farr & Gallagher, counsel to Registrant.
* Incorporated by reference to Registrant's Registration Statement on Form
N-1A filed on October 28, 1998.
** Incorporated by reference to Registrant's Pre-Effective Amendment No. 1 to
its Registration Statement on Form N-1A filed on March 22, 1999.
*** Incorporated by reference to Registrant's Pre-Effective Amendment No. 2 to
its Registration Statement on Form N-1A filed on May 6, 1999
<PAGE>
(2) Opinion and Consent of Willkie Farr & Gallagher, counsel to
Registrant. ***
(3) Opinion and Consent of Richards, Layton & Finger, Delaware
counsel to Registrant. ***
(j) Consent of Deloitte & Touche LLP, Independent Auditors.
(k) Not applicable.
(l) Purchase Agreement. ***
(m) (1) Shareholder Servicing and Distribution
Plan. **
(2) Shareholder Servicing and Distribution Agreement. **
(n) 18f-3 Plan. **
(o) Not applicable.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH REGISTRANT
See "Management of the Funds - Control Persons and Principal
Stockholders" of the Statement of Additional Information.
Item 25. INDEMNIFICATION
Under Article X of the Trust Instrument (the "Instrument"), the
Trustees and officers of Registrant shall not have any liability to Registrant
or its stockholders for money damages, to the fullest extent permitted by
Delaware law. This limitation on liability applies to events occurring at the
time a person serves as a Trustee or officer of Registrant whether or not such
person is a Trustee or officer at the time of any proceeding in which liability
is asserted. No provision of Article X shall protect or purport to protect any
Trustee or officer of Registrant against any liability to Registrant or its
stockholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Registrant shall indemnify and advance
expenses to its currently acting and its former Trustee to the fullest extent
that indemnification of Trustees and advancement of expenses to Directors is
permitted by Delaware law. Discussion of this coverage is incorporated by
reference to Item 25 of Part C of the Fund's Pre-Effective Amendment No. 2 to
the Registration Statement on Form N-1A filed on May 6, 1999.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
C-2
<PAGE>
Registrant is managed by CDC Investment Management Corporation ("CDC
Investments"). CDC Investments is an established leader in providing alternative
investment strategies for institutional clients. As of December 31, 1999, CDC
Investments had approximately $4.6 billion in assets under management and
provides asset management services to large European, Asian and North American
financial institutions, family offices, fund of funds, pension funds and other
investors. The list required by this Item 26 of officers and directors of CDC
Investments together with information as to their other businesses, professions,
vocations or employment of a substantial nature during the past two years is
incorporated by reference to Schedules A and D of Form ADV filed by CDC
Investments (SEC File No. 801-42137) pursuant to the Advisers Act.
Item 27. PRINCIPAL UNDERWRITER
(a) Funds Distributor, Inc. serves as distributor for Registrant, as well as
for: American Century California Tax-Free and Municipal Funds, American Century
Capital Portfolios, Inc., American Century Government Income Trust, American
Century International Bond Funds, American Century Investment Trust, American
Century Municipal Trust, American Century Mutual Funds, Inc., American Century
Premium Reserves, Inc., American Century Quantitative Equity Funds, American
Century Strategic Asset Allocations, Inc., American Century Target Maturities
Trust, American Century Variable Portfolios, Inc., American Century World Mutual
Funds, Inc., The Brinson Funds, Dresdner RCM Capital Funds, Inc., Dresdner RCM
Global Funds, Inc., Dresdner RCM Investment Funds Inc., J.P. Morgan
Institutional Funds, J.P. Morgan Funds, JPM Series Trust, JPM Series Trust II,
LaSalle Partners Funds, Inc., Merrimac Series, Monetta Fund, Inc., Monetta
Trust, The Montgomery Funds I, The Montgomery Funds II, The Munder Framlington
Funds Trust, The Munder Funds Trust, The Munder Funds, Inc., National Investors
Cash Management Fund, Inc., Nomura Pacific Basin Fund, Inc., Orbitex Group of
Funds, The Saratoga Advantage Trust, SG Cowen Funds, Inc., SG Cowen Income +
Growth Fund, Inc., SG Cowen Standby Reserve Fund, Inc., SG Cowen Standby
Tax-Exempt Reserve Fund, Inc., SG Cowen Series Funds, Inc., The Skyline Funds,
SoGen Funds, Inc., SoGen Variable Funds, Inc., St. Clair Funds, Inc., TD
Waterhouse Trust, Waterhouse Investors Family of Funds, Inc. and WEBS Index
Fund, Inc.
(b) The information required by this Item 27 relating to each
director, officer or partner of Funds Distributor, Inc. is incorporated by
reference to Schedule A of Form BD filed by Funds Distributor, Inc. (SEC File
No. 8-20518) pursuant to the Securities Exchange Act of 1934.
(c) None.
C-3
<PAGE>
Item 28. LOCATION OF ACCOUNTS AND RECORDS
(1) CDC Investment Management Corporation
9 West 57th Street, 35th Floor
New York, New York 10019
(records relating to its functions as investment adviser;
Registrant's Certificate of Trust, Trust Instrument, By-laws
and minute books)
(2) State Street Bank and Trust Company
222 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as administrator and fund
accounting agent)
(3) Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, Massachusetts 02109
(records relating to its functions as distributor)
(4) State Street Bank and Trust Company
222 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as custodian)
(5) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as transfer agent)
Item 29. MANAGEMENT SERVICES
Not applicable.
Item 30. UNDERTAKINGS.
Not applicable.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933,
as amended, and has duly caused this Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and the State of New York, on this 25th day of February, 2000.
CDC MPT+ FUNDS
By: /s/ Bluford H. Putnam
------------------------------------------
Bluford H. Putnam
President and Chief Investment Officer
KNOW ALL MEN BY THESE PRESENTS, that Richard M. Levich an undersigned Trustee of
CDC MPT+ Funds, a Delaware business trust, hereby makes, constitutes and
appoints each of Bluford H. Putnam, Rachel D. Manney and C. Peter Paterno, as
his agent and attorney-in-fact for the purpose of executing in his name, (a) in
his personal capacity or (b) in his capacity as a Trustee of CDC MPT+ Funds, all
documents, certificates, instruments, statements, filings and agreements
("documents") to be filed with or delivered to any foreign or domestic
governmental or regulatory body or required or requested by any other person or
entity pursuant to any legal or regulatory requirement, and any other documents
relating or ancillary thereto, including but not limited to, all documents
relating to filings with the United States Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, and the Investment Company Act of 1940, as amended
(collectively, the "Acts"), and the rules and regulations promulgated
thereunder, including any registration statements (including amendments thereto)
on Form N-1A required to be filed with the SEC pursuant to the Acts. All past
acts of attorney-in-fact in furtherance of the foregoing are hereby ratified and
confirmed. Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/Bluford H. Putnam Trustee, President and Chief February 25, 2000
- --------------------
Bluford H. Putnam Investment Officer
/s/Richard M. Levich Trustee February 25, 2000
Richard M. Levich
Mike West* Trustee February 25, 2000
Arnold Zellner* Trustee February 25, 2000
/s/C. Peter Paterno February 25, 2000
C. Peter Paterno Treasurer
/s/Rachel D. Manney February 25, 2000
- -------------------
Rachel D. Manney Secretary
By:/s/Rachel D. Manney
Rachel D. Manney as attorney-in fact
*Rachel D. Manney signs this document pursuant to the power of attorney
contained in Pre-Effective Amendment No. 1 to the Registration Statement, filed
March 22, 1999.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
(b)(2) Amendment to the Bylaws.
(h)(3) Form of Amended and Restated Expense Limitation Agreement
(i)(1) Consent of Willkie Farr & Gallagher, counsel to Registrant.
(j) Consent of Deloitte & Touche LLP, Independent Auditors.
<PAGE>
Amendment to the By-Laws
of
CDC MPT+ Funds
The provisions of Article X of the Trust's By-Laws, Article VI,
Section 6.1 shall be amended to read as follows:
The fiscal year of the Trust and of each Series of the Trust shall end on
October 31 of each year; provided that the last fiscal year of the Trust and
each Series shall end on the date on which the Trust or each such Series is
terminated, as applicable; and further provided that the Trustees by resolution
and without a Shareholder vote may at any time change the fiscal year of the
Trust and of any or all Series (and the Trust and each Series may have different
fiscal years as determined by the Trustees).
Dated the 3rd day of June, 1999
<PAGE>
FORM OF
AMENDED AND RESTATED
EXPENSE LIMITATION AGREEMENT
THIS AMENDED AND RESTATED EXPENSE LIMITATION AGREEMENT is made as of
the 1st day of March, 2000 by and between CDC MPT+ FUNDS, a Delaware business
trust (the "Trust"), on behalf of the U.S. Core Equity Fund, Aggressive Equity
Fund and Global Independence Fund (each a "Fund" and collectively the "Funds"),
and CDC Investment Management Corporation, a New York corporation (the
"Adviser"), with respect to the following:
WHEREAS, the Adviser serves as each Fund's investment adviser pursuant
to an Investment Advisory Agreement dated as of the date hereof (collectively,
the "Agreements");
WHEREAS, the Adviser has voluntarily agreed, under the Agreements, to
reimburse expenses so that the expenses (other than management fees, 12b-1 fees,
interest, taxes, brokerage and any extraordinary expenses, including litigation
expenses) for each of the Funds will not exceed 0.35% of the Fund's average
daily net assets; and
WHEREAS, the Adviser has currently agreed to maintain this expense
reimbursement through July 1, 2000;
WHEREAS, the Trust and the Adviser desire to formalize this voluntary
expense reimbursement arrangement and extend the existing agreement for a
12-month period beginning on March 1, 2000.
NOW, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. The Adviser agrees to reimburse expenses for a 12-month period beginning on
March 1, 2000 to the extent necessary so that the Fund's expenses (other than
management fees, 12b-1 fees, interest, taxes, brokerage and any extraordinary
expenses) do not exceed 0.35% of the Fund's average daily net assets.
2. Upon the termination of the Investment Advisory Agreement, this Agreement
shall automatically terminate.
3. Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
Investment Company Act of 1940, as amended (the "1940 Act") shall be resolved by
reference to such term or provision of the 1940 Act and to interpretations
thereof, if any, by the United States Courts or, in the absence of
<PAGE>
any controlling decision of any such court, by rules, regulations or orders of
the Securities and Exchange Commission ("SEC") issued pursuant to the 1940 Act.
In addition, where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is revised by rule, regulation or order of the SEC,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of the State of Delaware.
4. This Agreement supersedes the prior Expense Limitation Agreement dated as of
March 23, 1999.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers as of the day and year first above
written.
[SEAL]
CDC MPT+ FUNDS
Attest: _____________________ By: _______________________
Name: Name:
Title:
CDC INVESTMENT MANAGEMENT
CORPORATION
Attest: _____________________ By: _______________________
Name: Name:
Title:
3
<PAGE>
CONSENT OF COUNSEL
CDC MPT+ Funds
We hereby consent to being named in the Statement of Additional
Information included in Post-Effective Amendment No. 1 (the "Amendment") to the
Registration Statement on Form N-1A (Securities Act File No. 333-66279,
Investment Company Act File No. 811-09083) of CDC MPT+ Funds (the "Trust") under
the caption "Independent Auditors and Counsel" and to the Trust's filing a copy
of this Consent as an exhibit to the Amendment. Further, we hereby consent to
the Trust's reliance on our legal opinion dated May 5, 1999 currently on file
with the Securities and Exchange Commission in connection with the offering of
the Trust's shares.
/s/ Willkie Farr & Gallagher
---------------------------------
Willkie Farr & Gallagher
February 25, 2000
New York, New York
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
CDC MPT+ Funds:
We consent to the use in Post-Effective Amendment No. 1 to Registration
Statement No. 333-66279 of our report dated December 10, 1999, appearing in the
Annual Report for the period ended October 31, 1999, which is incorporated by
reference in the Statement of Additional Information, which is included in such
Registration Statement, and to the references to us under the captions
"Financial Highlights" in the Prospectus and "Independent Auditors and Counsel"
in the Statement of Additional Information, which are also included in such
Registration Statement.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
February 23, 2000
