Registration Nos. 333-84639
811-9521
Securities and Exchange Commission
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ___
Pre-Effective Amendment No. ____ ___
Post-Effective Amendment No. 5 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ___
Amendment No. 7 X
(Check appropriate box or boxes)
MANAGERS AMG FUNDS
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(Exact Name of Registrant as Specified in Charter)
40 Richards Avenue, Norwalk, Connecticut 06854
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(Address of Principal Executive Offices)
Philip H. Newman, Esq.
Elizabeth Shea Fries, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
---------------------------------------------------------
(Name and Address of Agent for Service)
As soon as practicable after the effective date of this
Registration Statement
--------------------------------------------------------------
(Approximate Date of Proposed Public Offering)
It is proposed that this filing will become effective (check
appropriate box):
X Immediately upon filing pursuant to ___ On (date) pursuant to
paragraph (b) paragraph (b)
___ 60 days after filing pursuant to ___ On (date) pursuant to
paragraph (a)(1) paragraph (a)(1)
___ 75 days after filing pursuant to ___ On (date) pursuant to
paragraph (a)(2) of Rule 485 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>
MANAGERS AMG FUNDS
FIRST QUADRANT TAX-MANAGED EQUITY FUND
PROSPECTUS
DATED NOVEMBER 14, 2000
The Securities and Exchange Commission has not approved or
disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a
criminal offense.
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TABLE OF CONTENTS
Page
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KEY INFORMATION ABOUT THE FIRST QUADRANT TAX-MANAGED EQUITY
FUND 1
Summary of the Goals, Principal Strategies and
Principal Risk Factors of the Fund 1
PERFORMANCE SUMMARY 3
FEES AND EXPENSES OF THE FUND 3
Fees and Expenses 3
Example 3
FIRST QUADRANT TAX-MANAGED EQUITY FUND 4
Objective 4
Principal Investment Strategies 4
Additional Practices and Risks 5
Should You Invest in this Fund? 5
MANAGERS AMG FUNDS 5
YOUR ACCOUNT 6
Minimum Investments in the Fund 6
HOW TO PURCHASE SHARES 8
DISTRIBUTION PLAN 8
HOW TO SELL SHARES 9
INVESTOR SERVICES 9
THE FUND AND ITS POLICIES 10
ACCOUNT STATEMENTS 10
DIVIDENDS AND DISTRIBUTIONS 11
TAX INFORMATION 11
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KEY INFORMATION ABOUT THE FIRST QUADRANT TAX-MANAGED EQUITY FUND
This Prospectus contains important information for anyone
interested in investing in the FIRST QUADRANT TAX-MANAGED EQUITY
FUND (the "Fund"), a series of MANAGERS AMG FUNDS. Please read
this document carefully before you invest and keep it for future
reference. You should base your purchase of shares of the Fund
on your own goals, risk preferences and investment time horizons.
SUMMARY OF THE GOALS, PRINCIPAL STRATEGIES AND PRINCIPAL RISK
FACTORS OF THE FUND
The following is a summary of the goals, principal
strategies and principal risk factors of the Fund.
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GOALS PRINCIPAL STRATEGIES PRINCIPAL RISK
FACTORS
----- -------------------- ---------------
The Fund seeks to Invests in a diversified Market Risk
achieve superior long-portfolio of U.S. equity Management Risk
term after-tax securities that reflects Tax-Management
returns the industry, earnings Risk
growth, valuation and
similar characteristics
of the Russell 3000
Index; ordinarily invests
in 150 to 400 stocks
Uses quantitative models
that analyze top-down
(market and economic)
conditions and bottom-up
(company specific) data
to enhance long-term
returns through the stock
selection process
Applies a variety of tax-
sensitive investment
techniques designed to
minimize taxable income
and realized capital
gains for shareholders,
such as investing in
stocks that pay below
average dividends,
employing a buy-and-hold
strategy and realizing
losses to offset realized
gains
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All investments involve some type and level of risk. Risk
is the possibility that you will lose money or not make any
additional money by investing in the Fund. Before you invest,
please make sure that you have read, and understand, the risk
factors that apply to the Fund. The following is a discussion of
the principal risk factors of the Fund.
MARKET RISK
The Fund is subject to the risks generally of investing in
stocks, commonly referred to as "market risk." Market risk
includes the risk of sudden and unpredictable drops in value of
the market as a whole and periods of lackluster performance.
Despite unique influences on individual companies, stock prices
in general rise and fall as a result of investors' perceptions of
the market as a whole. The consequences of market risk are that
if the stock market drops in value, the value of the Fund's
portfolio of investments is also likely to decrease in value.
The increase or decrease in the value of the Fund's investments,
in percentage terms, may be more or less than the increase or
decrease in the value of the market.
MANAGEMENT RISK
The Fund is subject to management risk because it is an
actively managed investment portfolio. Management risk is the
chance that poor security selection will cause the Fund to
underperform other funds with similar objectives. The success of
the Fund's investment strategy depends significantly on the skill
of First Quadrant, L.P. ("First Quadrant") in assessing the
potential of the securities in which the Fund invests. First
Quadrant will apply its investment techniques and risk analyses
in making investment decisions for the Fund, but there can be no
guarantee that these will produce the desired result.
TAX-MANAGEMENT RISK
First Quadrant applies a variety of tax-management
investment strategies designed to minimize taxable income and
capital gains for shareholders. Notwithstanding the use of these
strategies, the Fund may have taxable income and may realize
taxable capital gains. The ability of the Fund to avoid
realizing taxable gains may be affected by the timing of cash
2
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flows into and out of the Fund attributable to the payment of
expenses and daily net sales and redemptions. In addition,
investors purchasing shares when the Fund has large accumulated
capital gains could receive a significant part of the purchase
price of their shares back as a taxable capital gain
distribution. Over time, securities with unrealized gains may
comprise a substantial portion of the Fund's assets.
3
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PERFORMANCE SUMMARY
Because the Fund has not completed a full calendar year's
operations, performance information is not included in this
Prospectus.
FEES AND EXPENSES OF THE FUND
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY
IF YOU BUY AND HOLD SHARES OF THE FUND.
FEES AND EXPENSES
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SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
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Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of the offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
and Other Distributions None
Maximum Account Fee None
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ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
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Management Fee 0.85%
Distribution (12b-1) Fees1 0.00%
Other Expenses2 0.44%
-----
Total Annual Fund Operating Expenses 1.29%
Fee Waiver and Reimbursement3 (0.29%)
-----
Net Annual Fund Operating Expenses 1.00%
=====
<FN>
1 Although the Fund is subject to a Rule 12b-1 Plan of
Distribution that permits payments of up to 0.25% of the Fund's
average daily net assets, no payments have been authorized under
the plan to date and no payments are expected to be authorized
during the first year of operation.
2 Because the Fund is new , the "Other Expenses" of the Fund
are based on annualized projected expenses and average net assets
for the fiscal year ending October 31, 2001.
4
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3 The Managers Funds LLC and First Quadrant have
contractually agreed, for a period of not less than eighteen (18)
months, to limit Net Annual Fund Operating Expenses to 1.00%
subject to later reimbursement by the Fund in certain
circumstances. See "Managers AMG Funds."
</FN>
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EXAMPLE
The following Example will help you compare the cost of
investing in the Fund to the cost of investing in other mutual
funds. The Example makes certain assumptions. It assumes that
you invest $10,000 as an initial investment in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. It also assumes that your investment has a
5% total return each year and the Fund's operating expenses
remain the same. Although your actual costs may be higher or
lower, based on the above assumptions, your costs would be+:
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1 YEAR 3 YEARS
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$102 $155
<FN>
+The Example reflects the impact of the Fund's contractual
expense limitation for the initial eighteen (18) month period
covered by the Example.
The Example should not be considered a representation of
past or future expenses, as actual expenses may be greater or
lower than those shown.
</FN>
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FIRST QUADRANT TAX-MANAGED EQUITY FUND
OBJECTIVE
The Fund seeks to achieve superior long-term after-tax
returns for investors .
PRINCIPAL INVESTMENT STRATEGIES
First Quadrant will pursue the Fund's objective by investing
in a diversified portfolio of U.S. equity securities that
reflects the characteristics of the Russell 3000 Index (the
"Benchmark") in terms of industry, earnings growth, valuation and
similar measurements. The Benchmark measures the performance of
the 3,000 largest U.S. companies based on total market
capitalization, which represents 98% of the investable U.S.
equity market. As of June 30, 2000, the Benchmark had a total
market capitalization range of approximately $178 million to $520
billion. The number of stocks in which the Fund invests will
5
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vary depending on market conditions and the size of the Fund.
The Fund is expected to invest in approximately 150 to 400
stocks.
First Quadrant will use a proprietary quantitative
analytical model to construct the Fund's portfolio to reflect the
characteristics of the Benchmark and will combine a top-down
analysis of market and economic conditions with a bottom-up stock
selection review process to enhance returns. The top-down
analysis will consist of a review of market and economic data
such as interest rates, commodity price changes, market
volatility levels, inflation expectations, credit spreads and
foreign exchange rates to identify those industries and sectors
of the U.S. economy that are likely to benefit from present and
future economic conditions. First Quadrant will modify the
industry weightings in the Fund's portfolio relative to the
Benchmark based on the top-down analysis, consistent with
maintaining tax efficiency for investors. In general, these
weightings will not differ from the industry weightings of the
Benchmark by more than 5%. In addition, consistent with
minimizing taxable gains and enhancing returns, First Quadrant
may underweight and overweight the Fund's exposure (relative to
the Benchmark) to specific securities within an industry.
Individual stocks will be selected based upon a bottom-up review
of a variety of security-specific valuation metrics, such as
earnings revisions, earnings surprise signals, insider trading,
corporate actions and changes in various indices.
First Quadrant will manage the Fund's portfolio to minimize
taxable distributions to shareholders. First Quadrant will apply
a variety of tax-sensitive investment techniques, including the
following:
* Investing in stocks that pay below-average dividends;
* Employing a buy-and-hold strategy that will avoid realizing
short-term capital gains and defer as long as possible the
realization of long-term capital gains; and
* Realizing losses on specific securities or specific tax lots
of securities to offset realized gains.
The Fund can be expected to distribute a smaller percentage
of its returns each year than other equity mutual funds that are
managed without regard to tax considerations. There can be no
assurance, however, that taxable distributions can always be
avoided.
6
<PAGE>
ADDITIONAL PRACTICES AND RISKS
For temporary or defensive purposes, the Fund may invest,
without limit, in cash or quality short-term debt securities
including repurchase agreements. To the extent that the Fund is
invested in these instruments, the Fund will not be pursuing its
investment objective.
The Fund may invest in derivatives. Derivatives, a category
that includes options and futures, are financial instruments
whose value derives from another security, an index or a
currency. The Fund may use derivatives to attempt to maintain
exposure to the equity markets while holding cash for temporary
liquidity needs. There is a risk that a derivative may not
perform as expected, thereby causing a loss for the Fund or
amplifying a gain or loss for the Fund. With some derivatives,
there is also the risk that the counterparty may fail to honor
its contract terms, causing a loss for the Fund.
SHOULD YOU INVEST IN THIS FUND?
This Fund MAY be suitable if you:
* Are seeking exposure to equity markets
* Are seeking an equity portfolio which minimizes the impact
of taxes
* Are willing to accept a higher degree of risk for the
opportunity of higher potential returns
* Have an investment time horizon of five years or more
This Fund MAY NOT be suitable if you:
* Are seeking stability of principal
* Are not required to pay taxes
* Are investing with a shorter time horizon in mind
* Are uncomfortable with stock market risk
* Are seeking current income
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WHAT ARE YOU INVESTING IN? You are buying shares of
a pooled investment known as a mutual fund. It is
professionally managed and gives you the opportunity
to invest in a wide variety of companies, industries
and markets. This Fund is not a complete investment
program and there is no guarantee that the Fund will
reach its stated goals.
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7
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MANAGERS AMG FUNDS
Managers AMG Funds is a no-load mutual fund family comprised
of different funds, each having distinct investment management
objectives, strategies, risks and policies. First Quadrant Tax-
Managed Equity Fund is one of the funds in the fund family.
The Managers Funds LLC (the "Investment Manager"), a
subsidiary of Affiliated Managers Group, Inc., serves as
investment manager to the Fund and is responsible for the Fund's
overall administration and distribution. The Investment Manager
also monitors the performance, security holdings and investment
strategies of First Quadrant, the sub-adviser of the Fund and,
when appropriate, evaluates any potential new asset managers for
the fund family.
<PAGE>
First Quadrant has day-to-day responsibility for managing
the Fund's portfolio. First Quadrant is located at 800 E.
Colorado Boulevard, Suite 900, Pasadena, California, 91101.
Affiliated Managers Group, Inc. indirectly owns a majority
interest in First Quadrant. As of September 30, 2000, First
Quadrant had assets under management of $22 billion. Robert D.
Arnott and Christopher G. Luck are the lead portfolio managers
for the Fund. Mr. Arnott is the Managing Partner of First
Quadrant, a position he has held since March 1996, and previously
was the Chief Executive Officer of its predecessor, First
Quadrant Corporation, since January 1994. Mr. Luck is a Partner
of First Quadrant and Director of Equity Portfolio Management,
positions he has held since March 1996, and previously was the
Director of Equity Management of its predecessor, First Quadrant
Corporation, since September 1995.
The Fund is obligated by its investment management agreement
to pay an annual management fee to the Investment Manager of
0.85% of the average daily net assets of the Fund. The
Investment Manager, in turn, pays First Quadrant 0.85% of the
average daily net assets of the Fund for its services as sub-
adviser. Under its investment management agreement with the
Fund, the Investment Manager provides a variety of administrative
services to the Fund and, under its distribution agreement with
the Fund, the Investment Manager provides a variety of
shareholder and marketing services to the Fund. The Investment
Manager receives no additional compensation from the Fund for
these services.
8
<PAGE>
The Investment Manager has contractually agreed, for a
period of not less than eighteen (18) months, to waive fees and
pay or reimburse the Fund to the extent total expenses of the
Fund exceed 1.00% of the Fund's average daily net assets. The
Fund is obligated to repay the Investment Manager such amounts
waived, paid or reimbursed in future years provided that the
repayment occurs within 3 years after the waiver or reimbursement
and that such repayment would not cause the Fund's expenses in
any such future year to exceed 1.00% of the Fund's average daily
net assets.
YOUR ACCOUNT
As an investor, you pay no sales charges to invest in the
Fund and you pay no charges to redeem out of the Fund. The price
at which you purchase and redeem your shares is equal to the net
asset value per share (NAV) next determined after your purchase
or redemption order is received on each day the New York Stock
Exchange (NYSE) is open for trading. The NAV is equal to the
Fund's net worth (assets minus liabilities) divided by the number
of shares outstanding. The Fund's NAV is calculated at the close
of regular business of the NYSE, usually 4:00 p.m. New York Time.
The Fund's investments are valued based on market values.
If market quotations are not readily available for any security,
the value of the security will be based on an evaluation of its
fair value, pursuant to procedures established by the Board of
Trustees.
MINIMUM INVESTMENTS IN THE FUND
Cash investments in the Fund must be in U.S. Dollars.
Third-party checks which are payable to an existing shareholder
who is a natural person (as opposed to a corporation or
partnership) and endorsed over to the Fund or State Street Bank
and Trust Company will be accepted.
Subject to approval by the Investment Manager and First
Quadrant, you may be permitted to purchase shares of the Fund by
means of an in-kind contribution of securities, which will be
valued in accordance with the Fund's pricing procedures. As with
a cash purchase of shares, an in-kind contribution will also be
subject to the Fund's minimum investment requirements.
9
<PAGE>
The following provides the minimum initial and additional
investments in the Fund:
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INITIAL ADDITIONAL
INVESTMENT INVESTMENT
---------- -----------
Regular accounts $5,000 $1,000
Traditional IRA $5,000 $1,000
Roth IRA $5,000 $1,000
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The Fund or the underwriter may, in their discretion, waive
the minimum and initial investment amounts at any time.
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A Traditional IRA is an individual retirement account.
Contributions may be deductible at certain income levels and
earnings are tax-deferred while your withdrawals and
distributions are taxable in the year that they are made.
A Roth IRA is an IRA with non-deductible contributions and
tax-free growth of assets and distributions. The account must
be held for five years and certain other conditions must be met
in order to qualify.
You should consult your tax professional for more information
on IRA accounts.
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10
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HOW TO PURCHASE SHARES
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INITIAL PURCHASE ADDITIONAL PURCHASES
----------------- ---------------------
THROUGH YOUR Contact your Send any additional
INVESTMENT ADVISOR investment advisor monies to your
or other investment investment
professional. professional at the
address appearing on
your account
statement.
ALL SHAREHOLDERS: Complete the account
application.
*BY MAIL Write a letter of
Mail the application instruction and a
and a check payable check payable to
to Managers AMG Managers AMG Funds
Funds to: to:
Managers AMG Funds Managers AMG Funds
c/o Boston Financial c/o Boston Financial
Data Services, Inc. Data Services, Inc.
P.O. Box 8517 P.O. Box 8517
Boston, MA 02266- Boston, MA 02266-
8517 8517
Include your account
# and Fund name on
your check.
*BY TELEPHONE Not available If your account has
already been
established, call
the Transfer Agent
at (800) 252-0682.
The minimum
additional
investment is
$1,000.
*BY INTERNET Not available If your account has
already been
established, see our
website at
http://www.managersa
mg.com. The minimum
additional
investment is
$1,000.
</TABLE>
11
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FOR BANK WIRES: Please call and notify the Fund at (800)
252-0682. Then instruct your bank to wire the money to
State Street Bank and Trust Company, Boston, MA 02101; ABA
#011000028; BFN Managers AMG Funds A/C 9905-472-8, FBO
Shareholder name, account number and Fund name. Please be
aware that your bank may charge you a fee for this service.
If you invest through a third party such as a bank, broker-
dealer or other fund distribution organization , rather than
directly with the Trust, the policies, fees and minimum
investment amounts may be different than those described in this
Prospectus. The Funds may also participate in programs with many
national brokerage firms which limit the transaction fees for the
shareholder and may pay fees to these firms for participation in
these programs.
DISTRIBUTION PLAN
The Fund has adopted a distribution plan to pay for the
marketing of shares of the Fund. Under the plan, the Board of
Trustees may authorize payments at an annual rate of up to 0.25%
of the Fund's average daily net assets. The Trustees have not
authorized the payment of any fees to date.
12
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HOW TO SELL SHARES
You may sell your shares at any time. Your shares will be
sold at the NAV calculated after the Fund's Transfer Agent
receives your order. Orders received after 4:00 p.m. New York
Time will receive the NAV per share determined at the close of
trading on the next NYSE trading day.
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INSTRUCTIONS
-------------
THROUGH YOUR INVESTMENT Contact your investment
ADVISOR advisor or other investment
professional.
ALL SHAREHOLDERS: Write a letter of instruction
*BY MAIL containing:
* the name of the Fund
* dollar amount or number of
shares to be sold
* your name
* your account number
* signatures of all owners on
account
Mail letter to:
Managers AMG Funds
c/o Boston Financial Data
Services, Inc.
P.O. Box 8517
Boston, MA 02266-8517
*BY TELEPHONE If you elected telephone
redemption privileges on your
account application, call us
at (800) 252-0682.
*BY INTERNET See our website at
http://www.managersamg.com.
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Redemptions of $25,000 and over require a signature
guarantee. A signature guarantee helps to protect against fraud.
You can obtain one from most banks and securities dealers. A
notary public cannot provide a signature guarantee. In joint
accounts, both signatures must be guaranteed.
Telephone redemptions are available only for redemptions
which are below $25,000.
INVESTOR SERVICES
Automatic Reinvestment Plan allows your dividends and
capital gain distributions to be reinvested in additional shares
of the Fund. You can elect to receive cash.
Automatic Investments allows you to make automatic
deductions from a designated bank account.
Systematic Withdrawals allows you to make automatic monthly
withdrawals of $100 or more. Withdrawals are normally completed
on the 25th day of each month. If the 25th day of any month is a
weekend or a holiday, the withdrawal will be completed on the
next business day.
Individual Retirement Accounts are available to you at no
additional cost. Call us at (800) 835-3879 for more information
and an IRA kit.
The Fund has an Exchange Privilege which allows you to
exchange your shares of the Fund for shares of any series of
Managers AMG Funds, The Managers Funds, Managers Trust I and
Managers Trust II. There is no fee associated with the Exchange
Privilege. Be sure to read the Prospectus of any series of
Managers AMG Funds, The Managers Funds, Managers Trust I or
Managers Trust II that you wish to exchange into. You can
request your exchange in writing, by telephone (if elected on the
application), by internet or through your investment advisor,
bank or investment professional.
The Fund will not be responsible for any losses resulting from
unauthorized transactions
(such as purchases, sales or exchanges)
if it follows reasonable security procedures
designed to verify the identity of the investor. You should
verify the accuracy of your confirmation statements immediately
after you receive them. If you do not want the ability to sell
and exchange by telephone or internet, call the Fund for
instructions.
THE FUND AND ITS POLICIES
The Fund is a series of a "Massachusetts business trust."
The Board of Trustees may, without the approval of the
shareholders, create additional series at any time. Also at any
time, the Board of Trustees may, without shareholder approval,
divide this series or any other series into two or more classes
of shares with different preferences, privileges, and expenses.
14
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The Fund reserves the right to:
* redeem an account if the value of the account falls below
$5,000 due to redemptions;
* suspend redemptions or postpone payments when the NYSE is
closed for any reason other than its usual weekend or holiday
closings or when trading is restricted by the Securities and
Exchange Commission;
* change the minimum investment amounts;
* delay sending out redemption proceeds for up to seven days
(this usually applies to very large redemptions without notice,
excessive trading or during unusual market conditions);
* make a redemption-in-kind (a payment in portfolio securities
instead of in cash) if we determine that a redemption is too
large and/or may cause harm to the Fund and its shareholders;
* refuse any purchase or exchange request if we determine that
such request could adversely affect the Fund's NAV, including if
such person or group has engaged in excessive trading (to be
determined in our discretion);
* after prior warning and notification, close an account due
to excessive trading; and
* terminate or change the Exchange Privilege or impose fees in
connection with exchanges or redemptions.
ACCOUNT STATEMENTS
You will receive quarterly and yearly statements detailing
your account activity. All investors (other than IRA accounts)
will also receive a Form 1099-DIV in January, detailing the tax
characteristics of any dividends and distributions that you have
received in your account, whether taken in cash or additional
shares. You will also receive a confirmation after each trade
executed in your account.
15
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DIVIDENDS AND DISTRIBUTIONS
Income dividends and net capital gain distributions, if any,
are normally declared and paid annually in December.
We will automatically reinvest your distributions of
dividends and capital gains unless you tell us otherwise. You
may change your election by writing to us at least 10 days prior
to the scheduled payment date.
TAX INFORMATION
Please be aware that the following tax information is
general and refers to the provisions of the Internal Revenue Code
of 1986, as amended, which are in effect as of the date of this
Prospectus. You should consult a tax adviser about the status of
your distributions from the Fund.
All dividends and short-term capital gains distributions are
generally taxable to you as ordinary income, whether you receive
the distribution in cash or reinvest it for additional shares.
An exchange of the Fund's shares for shares of another Fund will
be treated as a sale of the Fund's shares and any gain on the
transaction may be subject to federal income tax.
Keep in mind that distributions may be taxable to you at
different rates depending on the length of time the Fund held the
applicable investment and not the length of time that you held
your Fund shares. When you do sell your Fund shares, a capital
gain may be realized, except for certain tax-deferred accounts,
such as IRA accounts.
Federal law requires the Fund to withhold taxes on
distributions paid to shareholders who;
* fail to provide a social security number or taxpayer
identification number;
* fail to certify that their social security number or
taxpayer identification number is correct; or
* fail to certify that they are exempt from withholding.
16
<PAGE>
MANAGERS AMG FUNDS
FIRST QUADRANT TAX-MANAGED EQUITY FUND
INVESTMENT MANAGER AND FUND DISTRIBUTOR
The Managers Funds LLC
40 Richards Avenue
Norwalk, Connecticut 06854-2325
(203) 857-5321 or (800) 835-3879
SUB-ADVISER
First Quadrant, L.P.
800 E. Colorado Boulevard, Suite 900
Pasadena, California 91101
CUSTODIAN
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
TRANSFER AGENT
Boston Financial Data Services, Inc.
Attn: Managers AMG Funds
P.O. Box 8517
Boston, Massachusetts 02266-8517
(800) 252-0682
TRUSTEES
Jack W. Aber
William E. Chapman, II
Sean M. Healey*
Edward J. Kaier
Eric Rakowski
*Interested Person
<PAGE>
For more Information
Additional information for the Fund, including the Statement
of Additional Information, is available to you without charge and
may be requested as follows:
By Telephone: Call 1-800-835-3879
By Mail: Managers AMG Funds
40 Richards Avenue
Norwalk, CT 06854
On the Internet: Electronic copies are
available on our website at
http://www.managersamg.com
A current Statement of Additional Information is on file
with the Securities and Exchange Commission and is incorporated
by reference (is legally part of this prospectus). Text-only
copies are available on the EDGAR database of the SEC's website
at http://www.sec.gov, and copies of this information may be
obtained, after paying a duplicating fee, by electronic request
at the following e-mail address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C.
20549-0102 (202-942-8090). Information about the Fund also may
be reviewed and copied at the SEC's Public Reference Room.
INVESTMENT COMPANY ACT REGISTRATION NUMBER 811-9521
<PAGE>
MANAGERS AMG FUNDS
FIRST QUADRANT TAX-MANAGED EQUITY FUND
____________________________
STATEMENT OF ADDITIONAL INFORMATION
DATED NOVEMBER 14, 2000
________________________________________________________________
You can obtain a free copy of the Prospectus of the First
Quadrant Tax-Managed Equity Fund (the "Fund") by calling Managers
AMG Funds at (800) 835-3879. The Prospectus provides the basic
information about investing in the Fund.
This Statement of Additional Information is not a Prospectus.
It contains additional information regarding the activities and
operations of the Fund. It should be read in conjunction with
the Fund's Prospectus.
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TABLE OF CONTENTS
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GENERAL INFORMATION 1
INVESTMENT OBJECTIVES AND POLICIES 1
INVESTMENT TECHNIQUES AND ASSOCIATED RISKS 1
DIVERSIFICATION REQUIREMENTS FOR THE FUND 6
FUNDAMENTAL INVESTMENT RESTRICTIONS 6
TEMPORARY DEFENSIVE POSITION 7
PORTFOLIO TURNOVER 7
BOARD OF TRUSTEES AND OFFICERS OF THE TRUST 8
TRUSTEES' COMPENSATION 9
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 9
CONTROL PERSONS 9
MANAGEMENT OWNERSHIP 10
MANAGEMENT OF THE FUND 10
INVESTMENT MANAGER AND SUB-ADVISER 10
COMPENSATION OF INVESTMENT MANAGER
AND SUB-ADVISER BY THE FUND 10
FEE WAIVERS AND EXPENSE LIMITATIONS 10
INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS 11
REIMBURSEMENT AGREEMENT 12
CODE OF ETHICS 12
DISTRIBUTION ARRANGEMENTS 12
CUSTODIAN 13
TRANSFER AGENT 13
INDEPENDENT PUBLIC ACCOUNTANTS 13
BROKERAGE ALLOCATION AND OTHER PRACTICES 13
PURCHASE, REDEMPTION AND PRICING OF SHARES 14
PURCHASING SHARES 14
REDEEMING SHARES 15
EXCHANGE OF SHARES 15
NET ASSET VALUE 16
DIVIDENDS AND DISTRIBUTIONS 16
DISTRIBUTION PLAN 16
CERTAIN TAX MATTERS 17
FEDERAL INCOME TAXATION OF FUND-IN GENERAL 17
TAXATION OF THE FUND'S INVESTMENTS 17
FEDERAL INCOME TAXATION OF SHAREHOLDERS 18
FOREIGN SHAREHOLDERS 18
STATE AND LOCAL TAXES 18
OTHER TAXATION 19
PERFORMANCE DATA 19
TOTAL RETURN 19
PERFORMANCE COMPARISONS 19
MASSACHUSETTS BUSINESS TRUST 19
DESCRIPTION OF SHARES 20
ADDITIONAL INFORMATION 21
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GENERAL INFORMATION
This Statement of Additional Information relates only to the
First Quadrant Tax-Managed Equity Fund (the "Fund"). The Fund is
a series of shares of beneficial interest of Managers AMG Funds,
a no-load mutual fund family, formed as a Massachusetts business
trust (the "Trust"). The Trust was organized on June 18, 1999.
This Statement of Additional Information describes the
financial history, management and operation of the Fund, as well
as the Fund's investment objectives and policies. It should be
read in conjunction with the Fund's current Prospectus. The
Trust's executive office is located at 40 Richards Avenue,
Norwalk, CT 06854.
The Managers Funds LLC, a subsidiary of Affiliated Managers
Group, Inc., serves as investment manager to the Fund and is
responsible for the Fund's overall administration and
distribution. See "Management of the Fund."
INVESTMENT OBJECTIVES AND POLICIES
The following is additional information regarding the
investment objectives and policies used by the Fund in an attempt
to achieve its objective as stated in its Prospectus. The Fund
is a diversified open-end management investment company.
The Fund seeks to achieve superior long-term after-tax
returns for investors. First Quadrant will pursue the Fund's
objective by investing in a diversified portfolio of U.S. equity
securities that reflects the characteristics of the Russell 3000
Index (the "Benchmark") in terms of industry, earnings growth,
valuation and similar measurements. The Benchmark measures the
performance of the 3,000 largest U.S. companies based on total
market capitalization, which represents 98% of the investable
U.S. equity market. As of June 30, 2000, the Benchmark had a
total market capitalization range of approximately $178 million
to $520 billion. The number of stocks in which the Fund invests
will vary depending on market conditions and the size of the
Fund. The Fund is expected to invest in approximately 150
to 400 stocks.
First Quadrant will use a proprietary quantitative
analytical model to construct the Fund's portfolio to reflect the
characteristics of the Benchmark and will combine a top-down
analysis of market and economic conditions with a bottom-up stock
selection review process to enhance returns. The top-down
analysis will consist of a review of market and economic data
such as interest rates, commodity price changes, market
volatility levels, inflation expectations, credit spreads and
foreign exchange rates to identify those industries and sectors
of the U.S. economy that are likely to benefit from present and
future economic conditions. First Quadrant will modify the
industry weightings in the Fund's portfolio relative to the
Benchmark based on the top-down analysis, consistent with
maintaining tax efficiency for investors, In general, these
weightings will not differ from the industry weightings of the
Benchmark by more than 5%. In addition, consistent with
minimizing taxable gains and enhancing returns, First Quadrant
may underweight and overweight the Fund's exposure (relative to
the Benchmark) to specific securities within an industry.
Individual stocks will be selected based upon a bottom-up review
of a variety of security-specific valuation metrics, such as
earnings revisions, earnings surprise signals, insider trading,
corporate actions and changes in various indices.
The Fund can be expected to distribute a smaller percentage
of its returns each year than other equity mutual funds that are
managed without regard to tax considerations. There can be no
assurance, however, that taxable distributions can always be
avoided.
INVESTMENT TECHNIQUES AND ASSOCIATED RISKS
The following are descriptions of the types of securities
that may be purchased by the Fund. Also see "Quality and
Diversification Requirements of the Fund."
(1) Cash Equivalents. The Fund may invest in cash
equivalents. Cash equivalents include certificates of deposit,
bankers acceptances, commercial paper, short-term corporate debt
securities and repurchase agreements.
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Bankers Acceptances. The Fund may invest in bankers
acceptances. Bankers acceptances are short-term credit
instruments used to finance the import, export, transfer or
storage of goods. These instruments become "accepted" when a
bank guarantees their payment upon maturity.
Eurodollar bankers acceptances are bankers acceptances
denominated in U.S. Dollars and are "accepted" by foreign
branches of major U.S. commercial banks.
Certificates of Deposit. The Fund may invest in certificates
of deposit. Certificates of deposit are issues against money
deposited into a bank (including eligible foreign branches of
U.S. banks) for a definite period of time. They earn a specified
rate of return and are normally negotiable.
Commercial Paper. The Fund may invest in commercial paper.
Commercial Paper refers to promissory notes that represent an
unsecured debt of a corporation or finance company. They have a
maturity of less than 9 months. Eurodollar commercial paper
refers to promissory notes payable in U.S. Dollars by European
issuers.
Repurchase Agreements. The Fund may enter into repurchase
agreements with brokers, dealers or banks that meet the credit
guidelines which have been approved by the Fund's Board of
Trustees. In a repurchase agreement, the Fund buys a security
from a bank or a broker-dealer that has agreed to repurchase the
same security at a mutually agreed upon date and price. The
resale price normally is the purchase price plus a mutually
agreed upon interest rate. This interest rate is effective for
the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. The
period of these repurchase agreements will be short, and at no
time will the Fund enter into repurchase agreements for more than
seven days.
Repurchase agreements could have certain risks that may
adversely affect the Fund. If a seller defaults, the Fund may
incur a loss if the value of the collateral securing the
repurchase agreement declines and may incur disposition costs in
connection with liquidating the collateral. In addition, if
bankruptcy proceedings are commenced with respect to a seller of
the security, realization of disposition of the collateral by the
Fund may be delayed or limited.
(2) Reverse Repurchase Agreements. The Fund may enter into
reverse repurchase agreements. In a reverse repurchase
agreement, the Fund sells a security and agrees to repurchase the
same security at a mutually agreed upon date and price. The
price reflects the interest rates in effect for the term of the
agreement. For the purposes of the Investment Company Act of
1940, as amended (the "1940 Act"), a reverse repurchase agreement
is also considered as the borrowing of money by the Fund and,
therefore, a form of leverage which may cause any gains or losses
for the Fund to become magnified.
The Fund will invest the proceeds of borrowings under reverse
repurchase agreements. In addition, the Fund will enter into
reverse repurchase agreements only when the interest income to be
earned from the investment of the proceeds is more than the
interest expense of the transaction. The Fund will not invest
the proceeds of a reverse repurchase agreement for a period that
is longer than the reverse repurchase agreement itself. The Fund
will establish and maintain a separate account with the Custodian
that contains a segregated portfolio of securities in an amount
which is at least equal to the amount of its purchase obligations
under the reverse repurchase agreement.
(3) Emerging Market Securities. The Fund may invest some of
its assets in the securities of emerging market countries.
Investments in securities in emerging market countries may be
considered to be speculative and may have additional risks from
those associated with investing in the securities of U.S.
issuers. There may be limited information available to investors
which is publicly available, and generally emerging market
issuers are not subject to uniform accounting, auditing and
financial standards and requirements like those required by U.S.
issuers.
Investors should be aware that the value of the Fund's
investments in emerging markets securities may be adversely
affected by changes in the political, economic or social
conditions, expropriation, nationalization, limitation on the
removal of funds or assets, controls, tax regulations and other
foreign restrictions in emerging market countries. These risks
may be more severe than those experienced in foreign countries.
Emerging market securities trade with less frequency and volume
than domestic securities and therefore may have greater price
volatility and lack liquidity. Furthermore, there is often no
legal structure governing private or foreign investment or
private property in some emerging market countries. This may
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adversely affect the Fund's operations and the ability to obtain
a judgement against an issuer in an emerging market country.
(4) Foreign Securities. The Fund may invest in foreign
securities either directly or indirectly in the form of American
Depository Receipts or similar instruments. Investments in
securities of foreign issuers and in obligations of domestic
banks involve different and additional risks from those
associated with investing in securities of U.S. issuers. There
may be limited information available to investors which is
publicly available, and generally foreign issuers are not subject
to uniform accounting, auditing and financial standards and
requirements like those applicable to U.S. issuers. Any foreign
commercial paper must not be subject to foreign withholding tax
at the time of purchase.
Investors should be aware that the value of the Fund's
investments in foreign securities may be adversely affected by
changes in political or social conditions, confiscatory taxation,
diplomatic relations, expropriation, nationalization, limitation
on the removal of funds or assets, or the establishment of
exchange controls or other foreign restrictions and tax
regulations in foreign countries. In addition, due to the
differences in the economy of these foreign countries compared to
the U.S. economy, whether favorably or unfavorably, portfolio
securities may appreciate or depreciate and could therefore
adversely affect the Fund's operations. It may also be difficult
to obtain a judgement against a foreign creditor. Foreign
securities trade with less frequency and volume than domestic
securities and therefore may have greater price volatility.
Furthermore, changes in foreign exchange rates will have an
affect on those securities that are denominated in currencies
other than the U.S. Dollar.
Forward Foreign Currency Exchange Contracts. The Fund may
purchase or sell equity securities of foreign countries.
Therefore, substantially all of the Fund's income may be derived
from foreign currency. A forward foreign currency exchange
contract is an obligation to purchase or sell a specific currency
at a mutually agreed upon date and price. The contract is
usually between a bank and its customers. The contract may be
denominated in U.S. Dollars or may be referred to as a
"cross-currency" contract. A cross-currency contract is a
contract which is denominated in another currency other than in
U.S. Dollars.
In such a contract, the Fund's custodian will segregate cash
or marketable securities in an amount not less than the value of
the Fund's total assets committed to these contracts. Generally,
the Fund will not enter into contracts that are greater than 90
days.
Forward foreign currency contracts have additional risks. It
may be difficult to determine the market movements of the
currency. The value of the Fund's assets may be adversely
affected by changes in foreign currency exchange rates and
regulations and controls on currency exchange. Therefore, the
Fund may incur costs in converting foreign currency.
If the Fund engages in an offsetting transaction, the Fund
will experience a gain or a loss determined by the movement in
the contract prices. An "offsetting transaction" is one where
the Fund enters into a transaction with the bank upon maturity of
the original contract. The Fund must sell or purchase on the
same maturity date as the original contract the same amount of
foreign currency as the original contract.
Foreign Currency Considerations. The Fund may invest some of
its assets in securities denominated in foreign currencies. The
Fund will compute and distribute the income earned by the Fund at
the foreign exchange rate in effect on that date. If the value
of the foreign currency declines in relation to the U.S. Dollar
between the time that the Fund earns the income and the time that
the income is converted into U.S. Dollars, the Fund may be
required to sell its securities in order to make its
distributions in U.S. Dollars. As a result, the liquidity of the
Fund's securities may have an adverse affect on the Fund's
performance.
(5) Futures Contracts. The Fund may buy and sell futures
contracts and options on future contracts to attempt to maintain
exposure to the equity markets while holding cash for temporary
liquidity needs, or protect the value of the Fund's portfolio
against changes in the prices of the securities in which it
invests. When the Fund buys or sells a futures contract, the
Fund must segregate cash and/or liquid securities equivalent to
the value of the contract.
There are additional risks associated with futures contracts.
It may be impossible to determine the future price of the
securities, and securities may not be marketable enough to close
out the contract when the Fund desires to do so.
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Equity Index Futures Contracts. The Fund may enter into
equity index futures contracts. An equity index future contract
is an agreement for the Fund to buy or sell an index relating to
equity securities at a mutually agreed upon date and price.
Equity index futures contracts are often used to hedge against
anticipated changes in the level of stock prices. When the Fund
enters into this type of contract, the Fund makes a deposit
called an "initial margin." This initial margin must be equal to
a specified percentage of the value of the contract. The rest of
the payment is made when the contract expires.
(6) Illiquid Securities, Private Placements and Certain
Unregistered Securities. The Fund may invest in privately
placed, restricted, Rule 144A or other unregistered securities.
The Fund may not acquire illiquid holdings if, as a result, more
than 15% of the Fund's total assets would be in illiquid
investments. Subject to this Fundamental policy limitation, the
Fund may acquire investments that are illiquid or have limited
liquidity, such as private placements or investments that are not
registered under the Securities Act of 1933, as amended (the
"1933 Act") and cannot be offered for public sale in the United
States without first being registered under the 1933 Act. An
investment is considered "illiquid" if it cannot be disposed of
within seven (7) days in the normal course of business at
approximately the same amount at which it was valued in the
Fund's portfolio. The price the Fund's portfolio may pay for
illiquid securities or receives upon resale may be lower than the
price paid or received for similar securities with a more liquid
market. Accordingly, the valuations of these securities will
reflect any limitations on their liquidity.
The Fund may purchase Rule 144A securities eligible for sale
without registration under the 1933 Act. These securities may be
determined to be illiquid in accordance with the guidelines
established by The Managers Funds LLC and approved by the
Trustees. The Trustees will monitor these guidelines on a
periodic basis.
Investors should be aware that the Fund may be subject to a
risk if the Fund should decide to sell these securities when a
buyer is not readily available and at a price which the Fund
believes represents the security's value. In the case where an
illiquid security must be registered under the 1933 Act before it
may be sold, the Fund may be obligated to pay all or part of the
registration expenses. Therefore, a considerable time may elapse
between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market
conditions develop, the Fund may obtain a less favorable price
than was available when it had first decided to sell the
security.
(7) Obligations of Domestic and Foreign Banks. Banks are
subject to extensive governmental regulations. These regulations
place limitations on the amounts and types of loans and other
financial commitments which may be made by the bank and the
interest rates and fees which may be charged on these loans and
commitments. The profitability of the banking industry depends
on the availability and costs of capital funds for the purpose of
financing loans under prevailing money market conditions.
General economic conditions also play a key role in the
operations of the banking industry. Exposure to credit losses
arising from potential financial difficulties of borrowers may
affect the ability of the bank to meet its obligations under a
letter of credit.
(8) Option Contracts.
Covered Call Options. The Fund may write ("sell") covered
call options on individual stocks, equity indices and futures
contracts, including equity index futures contracts. Written
call options must be listed on a national securities exchange or
a futures exchange.
A call option is a short-term contract that is generally for
no more than nine months. This contract gives a buyer of the
option, in return for a paid premium, the right to buy the
underlying security or contract at an agreed upon price prior to
the expiration of the option. The buyer can purchase the
underlying security or contract regardless of its market price.
A call option is considered "covered" if the Fund that is writing
the option owns or has a right to immediately acquire the
underlying security or contract.
The Fund may terminate an obligation to sell an outstanding
option by making a "closing purchase transaction." The Fund makes
a closing purchase transaction when it buys a call option on the
same security or contract with has the same price and expiration
date. As a result, the Fund will realize a loss if the amount
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paid is less than the amount received from the sale. A closing
purchase transaction may only be made on an exchange that has a
secondary market for the option with the same price and
expiration date. There is no guarantee that the secondary market
will have liquidity for the option.
There are risks associated with writing covered call options.
The Fund is required to pay brokerage fees in order to write
covered call options as well as fees for the purchases and sales
of the underlying securities or contracts. The portfolio
turnover rate of the Fund may increase due to the Fund writing a
covered call option.
Covered Put Options. The Fund may write ("sell") covered put
options on individual stocks, equity indices and futures
contracts, including equity index futures contracts.
A put option is a short-term contract that is generally for
no more than nine months. This contract gives a buyer of the
option, in return for a paid premium, the right to sell the
underlying security or contract at an agreed upon price prior to
the expiration of the option. The buyer can sell the underlying
security or contract at the option price regardless of its market
price. A put option is considered "covered" if the Fund which is
writing the option owns or has a right to immediately acquire the
underlying security or contract. The seller of a put option
assumes the risk of the decrease of the value of the underlying
security. If the underlying security decreases, the buyer could
exercise the option and the underlying security or contract could
be sold to the seller at a price that is higher than its current
market value.
The Fund may terminate an obligation to sell an outstanding
option by making a "closing purchase transaction." The Fund makes
a closing purchase transaction when it buys a put option on the
same security or contract with the same price and expiration
date. As a result, the Fund will realize a loss if the amount
paid is less than the amount received from the sale. A closing
purchase transaction may only be made on an exchange that has a
secondary market for the option with the same price and
expiration date. There is no guarantee that the secondary market
will have liquidity for the option.
There are risks associated with writing covered put options.
The Fund is required to pay brokerage fees in order to write
covered put options as well as fees for the purchases and sales
of the underlying securities or contracts. The portfolio
turnover rate of the Fund may increase due to the Fund writing a
covered put option.
Dealer Options. Dealer Options are also known as
Over-the-Counter options ("OTC"). Dealer options are puts and
calls where the strike price, the expiration date and the premium
payment are privately negotiated. The bank's creditworthiness
and financial strength are judged by the Sub- Adviser and must be
determined to be as good as the creditworthiness and strength of
the banks to whom the Fund lends its portfolio securities.
Puts and Calls. The Fund may buy options on individual
stocks, equity indices and equity futures contracts. The Fund's
purpose in buying these puts and calls is to protect itself
against an adverse affect in changes of the general level of
market prices in which the Fund operates. A put option gives the
buyer the right upon payment to deliver a security or contract at
an agreed upon date and price. A call option gives the buyer the
right upon payment to ask the seller of the option to deliver the
security or contract at an agreed upon date and price.
(9) Rights and Warrants. The Fund may purchase rights and
warrants. Rights are short-term obligations issued in
conjunction with new stock issues. Warrants give the holder the
right to buy an issuer's securities at a stated price for a
stated time.
(10) Securities Lending. The Fund may lend its portfolio
securities in order to realize additional income. This lending
is subject to the Fund's investment policies and restrictions.
Any loan of portfolio securities must be secured at all times by
collateral that is equal to or greater than the value of the
loan. If a seller defaults, the Fund may use the collateral to
satisfy the loan. However, if the buyer defaults, the buyer may
lose some rights to the collateral securing the loans of
portfolio securities.
(11) Segregated Accounts. The Fund will establish a
segregated account with its Custodian after it has entered into
either a repurchase agreement or certain options, futures and
forward contracts. The segregated account will maintain cash
and/or liquid securities that are equal in value to the
obligations in the agreement.
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(12) Short Sales. The Fund may enter into short sales.
The Fund enters into a short sale when it sells a security that
it does not own. A broker retains the proceeds of the sales
until the Fund replaces the sold security. The Fund arranges with
the broker to borrow the security. The Fund must replace the
security at its market price at the time of the replacement. As
a result, the Fund may have to pay a premium to borrow the
security and the Fund may, but will not necessarily, receive any
interest on the proceeds of the sale. The Fund must pay to the
broker any dividends or interest payable on the security until
the security is replaced. Collateral, consisting of cash, or
marketable securities, is used to secure the Fund's obligation to
replace the security. The collateral is deposited with the
broker. If the price of the security sold increases between the
time of the sale and the time the Fund replaces the security, the
Fund will incur a loss. If the price declines during that
period, the Fund will realize a capital gain. The capital gain
will be decreased by the amount of transaction costs and any
premiums, dividends or interest the Fund will have to pay in
connection with the short sale. The loss will be increased by
the amount of transaction costs and any premiums, dividends or
interest the Fund will have to pay in connection with the short
sale. For tax planning reasons, the Fund may also engage in
short sales with respect to a security that the Fund currently
holds or has a right to acquire, commonly referred to as a "short
against the box."
(13) When-Issued Securities. The Fund may purchase
securities on a when-issued basis. The purchase price and the
interest rate payable, if any, on the securities are fixed on the
purchase commitment date or at the time the settlement date is
fixed. The value of these securities is subject to market
fluctuation. For fixed-income securities, no interest accrues to
the Fund until a settlement takes place. At the time the Fund
makes a commitment to purchase securities on a when-issued basis,
the Fund will record the transaction, reflect the daily value of
the securities when determining the net asset value of the Fund,
and if applicable, calculate the maturity for the purposes of
determining the average maturity from the date of the
Transaction. At the time of settlement, a when-issued security
may be valued below the amount of the purchase price.
To facilitate these transactions, the Fund will maintain a
segregated account with the Custodian that will include cash, or
marketable securities, in an amount which is at least equal to
the commitments. On the delivery dates of the transactions, the
Fund will meet its obligations from maturities or sales of the
securities held in the segregated account and/or from cash flow.
If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition, it could incur a
loss or a gain due to market fluctuation. Furthermore, the Fund
may be at a disadvantage if the other party to the transaction
defaults. When-issued transactions may allow the Fund to hedge
against unanticipated changes in interest rates.
DIVERSIFICATION REQUIREMENTS FOR THE FUND
The Fund intends to meet the diversification requirements of
the 1940 Act as currently in effect. Investments not subject to
the diversification requirements could involve an increased risk
to an investor should an issuer, or a state or its related
entities, be unable to make interest or principal payments or
should the market value of such securities decline.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by
the Trust with respect to the Fund. Except as otherwise stated,
these investment restrictions are "fundamental" policies. A
"fundamental" policy is defined in the 1940 Act to mean that the
restriction cannot be changed without the vote of a "majority of
the outstanding voting securities" of the Fund. A majority of
the outstanding voting securities is defined in the 1940 Act as
the lesser of (a) 67% or more of the voting securities present at
a meeting if the holders of more than 50% of the outstanding
voting securities are present or represented by proxy, or (b)
more than 50% of the outstanding voting securities.
The Fund may not:
(1) Issue senior securities. For purposes of this
restriction, borrowing money, making loans, the issuance of
shares of beneficial interest in multiple classes or series, the
deferral of Trustees' fees, the purchase or sale of options,
futures contracts, forward commitments and repurchase agreements
entered into in accordance with the Fund's investment policies,
are not deemed to be senior securities.
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(2) Borrow money, except (i) in amounts not to exceed 33 1/3%
of the value of the Fund's total assets (including the amount
borrowed) taken at market value from banks or through reverse
repurchase agreements or forward roll transactions, (ii) up to an
additional 5% of its total assets for temporary purposes, (iii)
in connection with short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv)
the Fund may purchase securities on margin to the extent
permitted by applicable law. For purposes of this investment
restriction, investments in short sales, roll transactions,
futures contracts, options on futures contracts, securities or
indices and forward commitments, entered into in accordance with
the Fund's investment policies, shall not constitute borrowing.
(3) Underwrite the securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter under the
Securities Act of 1933.
(4) Purchase or sell real estate, except that the Fund may
(i) acquire or lease office space for its own use, (ii) invest in
securities of issuers that invest in real estate or interests
therein, (iii) invest in securities that are secured by real
estate or interests therein, (iv) purchase and sell mortgage-
related securities and (v) hold and sell real estate acquired by
the Fund as a result of the ownership of securities.
(5) Purchase or sell commodities or commodity contracts,
except the Fund may purchase and sell options on securities,
securities indices and currency, futures contracts on securities,
securities indices and currency and options on such futures,
forward foreign currency exchange contracts, forward commitments,
securities index put or call warrants and repurchase agreements
entered into in accordance with the Fund's investment policies.
(6) Make loans, except that the Fund may (i) lend portfolio
securities in accordance with the Fund's investment policies up
to 33 1/3% of the Fund's total assets taken at market value, (ii)
enter into repurchase agreements, (iii) purchase all or a portion
of an issue of debt securities, bank loan participation
interests, bank certificates of deposit, bankers' acceptances,
debentures or other securities, whether or not the purchase is
made upon the original issuance of the securities and (iv) lend
portfolio securities and participate in an interfund lending
program with other series of the Trust provided that no such loan
may be made if, as a result, the aggregate of such loans would
exceed 33 1/3% of the value of the Fund's total assets.
(7) With respect to 75% of its total assets, purchase
securities of an issuer (other than the U.S. Government, its
agencies, instrumentalities or authorities or repurchase
agreements collateralized by U.S. Government securities and other
investment companies), if: (a) such purchase would cause more
than 5% of the Fund's total assets taken at market value to be
invested in the securities of such issuer; or (b) such purchase
would at the time result in more than 10% of the outstanding
voting securities of such issuer being held by the Fund.
(8) Invest more than 25% of its total assets in the
securities of one or more issuers conducting their principal
business activities in the same industry (excluding the U.S.
Government or its agencies or instrumentalities).
If any percentage restriction described above for the Fund is
adhered to at the time of investment, a subsequent increase or
decrease in the percentage resulting from a change in the value
of the Fund's assets will not constitute a violation of the
restriction.
Unless otherwise provided, for purposes of investment
restriction (8) above, the term "industry" shall be defined by
reference to the SEC Industry Codes set forth in the Directory of
Companies Required to File Annual Reports with the Securities and
Exchange Commission.
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TEMPORARY DEFENSIVE POSITION
For temporary or defensive purposes, the Fund may invest,
without limit, in cash or quality short-term debt securities
including repurchase agreements. To the extent that the Fund is
invested in these instruments, the Fund will not be pursuing its
investment objective.
PORTFOLIO TURNOVER
Generally, the Fund purchases securities for investment
purposes and not for short-term trading profits. However, the
Fund may sell securities without regard to the length of time
that the security is held in the portfolio if such sale is
consistent with the Fund's investment objectives. A higher
degree of portfolio activity may increase brokerage costs to the
Fund.
The portfolio turnover rate is computed by dividing the
dollar amount of the securities which are purchased or sold
(whichever amount is smaller) by the average value of the
securities owned during the year. Short-term investments such as
commercial paper, short-term U.S. Government securities and
variable rate securities (those securities with intervals of less
than one-year) are not considered when computing the portfolio
turnover rate.
BOARD OF TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees and Officers of the Trust, their
business addresses, principal occupations and dates of birth are
listed below. The Board of Trustees provides broad supervision
over the affairs of the Trust and the Fund. Unless otherwise
noted, the address of the Trustees and Officers is the address of
the Trust: 40 Richards Avenue, Norwalk, CT 06854.
JACK W. ABER - Trustee; Professor of Finance, Boston University
School of Management since 1972. He has served as a Trustee of
the Trust since June 1999. He also serves as a Trustee of The
Managers Funds, The Managers Trust I and The Managers Trust II.
His address is 595 Commonwealth Avenue, Boston, Massachusetts
02215. His date of birth is September 9, 1937.
WILLIAM E. CHAPMAN, II - Trustee; President and Owner, Longboat
Retirement Planning Solutions. From 1990 to 1998, he served in a
variety of roles with Kemper Funds, the last of which was
President of the Retirement Plans Group. Prior to joining
Kemper, he spent 24 years with CIGNA in investment sales,
marketing and general management roles. He has served as a
Trustee of the Trust since June 1999. He also serves as a
Trustee of The Managers Funds, The Managers Trust I and The
Managers Trust II. His address is 380 Gulf of Mexico Drive,
Longboat Key, Florida 34228. His date of birth is September 23,
1941.
SEAN M. HEALEY(1) - Trustee; President and Chief Operating Officer
of Affiliated Managers Group, Inc. since October 1999. From
April 1995 to October 1999, he was Executive Vice President of
Affiliated Managers Group, Inc. From August 1987 through March
1995, he served in a variety of roles in the Mergers and
Acquisitions Department of Goldman, Sachs & Co., the last of
which was as Vice President. His address is Two International
Place, 23rd Floor, Boston, Massachusetts 02110. He has served
as a Trustee of the Trust since June 1999. He also serves as a
Trustee of The Managers Funds, The Managers Trust I and The
Managers Trust II. His date of birth is May 9, 1961.
EDWARD J. KAIER - Trustee; Partner, Hepburn Willcox Hamilton &
Putnam since 1977. He has served as a Trustee of the Trust since
June 1999. He also serves as a Trustee of The Managers Funds,
The Managers Trust I and The Managers Trust II. His address is
1100 One Penn Center, Philadelphia, Pennsylvania 19103. His date
of birth is September 23, 1945.
---------------------------
(1)Mr. Healey is an "interested person" (as defined in the 1940 Act)
of the Trust.
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ERIC RAKOWSKI - Trustee; Professor, University of California at
Berkeley School of Law since 1990. Visiting Professor, Harvard
Law School 1998-1999. He has served as a Trustee of the Trust
since June 1999. He also serves as a Trustee of The Managers
Funds, The Managers Trust I and The Managers Trust II. His
address is 1535 Delaware Street, Berkeley, California
94703-1281. His date of birth is June 5, 1958.
PETER M. LEBOVITZ - President; President of The Managers Funds
LLC. From September 1994 to April 1999, he was Managing Director
of The Managers Funds, L.P. (the predecessor to The Managers
Funds LLC). From June 1993 to June 1994, he was the Director of
Marketing for Hyperion Capital Management, Inc. From April 1989
to June 1993, he was Senior Vice President for Greenwich Asset
Management, Inc. His date of birth is January 18, 1955.
DONALD S. RUMERY - Treasurer and Principal Accounting Officer;
Chief Financial Officer of The Managers Funds LLC (formerly The
Managers Funds, L.P.) since December 1994. From March 1990 to
December 1994, he was a Vice President of Signature Financial
Group. From August 1980 to March 1990, he held various positions
with The Putnam Companies, the last of which was Vice President.
His date of birth is May 29, 1958.
JOHN KINGSTON, III - Secretary; Vice President of Affiliated
Managers Group, Inc. since March 1999. From June 1998 to
February 1999, he served in a general counseling capacity with
Morgan Stanley Dean Witter Investment Management Inc. From
September 1994 to May 1998 he was an Associate with Ropes & Gray.
His date of birth is October 23, 1965.
PETER M. MCCABE - Assistant Treasurer; Portfolio Administrator of
The Managers Funds LLC (formerly The Managers Funds, L.P.) since
August 1995. From July 1994 to August 1995, he was a Portfolio
Administrator at Oppenheimer Capital, L.P. His date of birth is
September 8, 1972.
LAURA A. PENTIMONE - Assistant Secretary; Legal/Compliance Officer
of The Managers Funds LLC (formerly The Managers Funds, L.P.)
since September 1997. From August 1994 to June 1997, she was a
law student. Her date of birth is November 10, 1970.
9
<PAGE>
Trustees' Compensation
Compensation Table:
Total Compensation
from the
Aggregate Aggregate Fund and the
Name of Compensation Compensation Fund Complex
Trustee from the Fund from the Trust (a) Paid to Trustees(b)
-------------------------------------------------------------------------------
Jack W. Aber ---- $4,000 $26,000
William E. Chapman, II ---- $4,000 $26,000
Sean M. Healey none none none
Edward K. Kaier ---- $4,000 $26,000
Eric Rakowski ---- $4,000 $26,000
____________________
(a) Compensation is estimated for the Fund's fiscal year ending
October 31, 2001. The Fund does not provide any pension or
retirement benefits for the Trustees.
(b) Total compensation includes estimated compensation to be
paid during the 12-month period ending December 31, 2000 for
services as Trustees of The Managers Funds, The Managers
Trust I and The Managers Trust II.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
CONTROL PERSONS
As of November 14, 2000, through its ownership of 100% of
the shares of the Fund, Affiliated Managers Group, Inc. ("AMG")
"controlled" (within the meaning of the 1940 Act) the Fund. An
entity or person which "controls" a particular Fund could have
effective voting control over that Fund.
No other person or entity owned shares of the Fund.
MANAGEMENT OWNERSHIP
As of November 14, 2000, all management personnel (i.e.,
Trustees and Officers) as a group owned beneficially less than 1%
of the outstanding shares of the Fund.
MANAGEMENT OF THE FUND
INVESTMENT MANAGER AND SUB-ADVISER
The Trustees provide broad supervision over the operations
and affairs of the Trust and the Fund. The Managers Funds LLC
(the "Investment Manager") serves as investment manager to and
distributor of the Fund. The Managers Funds LLC is a subsidiary
of AMG, and AMG serves as the Managing Member of the LLC. AMG is
located at Two International Place, 23rd Floor, Boston,
Massachusetts 02110.
The Investment Manager and its corporate predecessors have
had over 20 years of experience in evaluating sub-advisers for
individuals and institutional investors. As part of its services
to the Fund under an investment management agreement with the
Trust dated November 14, 2000 (the "Investment Management
Agreement"), the Investment Manager also carries out the daily
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<PAGE>
administration of the Trust and Fund. For its investment
management services, the Investment Manager receives an
investment management fee from the Fund. All or a portion of the
investment management fee paid by the Fund to the Investment
Manager is used to pay the advisory fees of First Quadrant, L.P.,
the sub-adviser which manages the assets of the Fund (the "Sub-
Adviser" or "First Quadrant"). The Investment Manager receives
no additional compensation from the Fund for its administration
services. First Quadrant was selected by the Investment Manager,
subject to the review and approval of the Trustees. First
Quadrant is the successor firm to First Quadrant Corporation,
which was formed in 1998. AMG indirectly owns a majority
interest in First Quadrant. As of September 30, 2000, First
Quadrant's assets under management totaled approximately $22
billion. First Quadrant's address is 800 E. Colorado Boulevard,
Suite 900, Pasadena, California, 91101. Robert D. Arnott and
Christopher G. Luck are the lead portfolio managers for the Fund.
The Sub-Adviser has discretion, subject to oversight by the
Trustees and the Investment Manager, to purchase and sell
portfolio assets, consistent with the Fund's investment
objectives, policies and restrictions. Generally, the services
which the Sub-Adviser provides to the Fund are limited to asset
management and related recordkeeping services. The Sub-Adviser
may also serve as a discretionary or non-discretionary investment
adviser to management or advisory accounts which are unrelated in
any manner to the Investment Manager or its affiliates.
COMPENSATION OF INVESTMENT MANAGER AND SUB-ADVISER BY THE FUND
As compensation for the investment management services
rendered and related expenses under the Investment Management
Agreement, the Fund has agreed to pay the Investment Manager an
investment management fee, which is computed daily as percentages
of the average of the value of the net assets of the Fund and may
be paid monthly. As compensation for the investment management
services rendered and related expenses under the Sub-Advisory
Agreement, the Investment Manager has agreed to pay the
Sub-Adviser a fee (net of all mutually agreed upon fee waivers
and reimbursements required by applicable law) for managing the
portfolio, which is also computed daily and paid monthly. The
fee paid to the Sub-Adviser is paid out of the fee the Investment
Manager receives from the Fund and does not increase the expenses
of the Fund.
FEE WAIVERS AND EXPENSE LIMITATIONS
The Investment Manager has contractually agreed, for a
period of no less than eighteen (18) months, to limit total
annual fund operating expenses to 1.00%; subject to later
reimbursement by the Fund in certain circumstances. The waiver
may, at the discretion of the Investment Manager, be continued
beyond such point. See "Managers AMG Funds" in the Prospectus
for further information.
The Investment Manager has decided to waive all or a portion
of its fees from the Fund or reimburse expenses to the Fund for a
variety of reasons, including attempting to make the Fund's
performance more competitive as compared to similar funds. The
effect of the expense limitation in effect at the date of this
Statement of Additional Information on the management fees which
are expected to be payable by the Fund is reflected in the
Expense Information located at the front of the Fund's Prospectus
INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
The Managers Funds LLC serves as investment manager to the
Fund under the Investment Management Agreement. The Investment
Management Agreement permits the Investment Manager to from time
to time engage one or more sub-advisers to assist in the
performance of its services. Pursuant to the Investment
Management Agreement, the Investment Manager has entered into a
sub-advisory agreement with First Quadrant, L.P., dated November
14, 2000 (the "Sub-Advisory Agreement").
The Investment Management Agreement and the Sub-Advisory
Agreement provide for an initial term of two years and thereafter
shall continue in effect from year to year so long as such
continuation is specifically approved at least annually (i) by
either the Trustees of the Trust or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the
Fund, and (ii) in either event by the vote of a majority of the
Trustees of the Trust who are not parties to the agreements or
"interested persons" (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of
voting on such continuance. The Investment Management Agreement
and the Sub-Advisory Agreement may be terminated, without
penalty, by the Board of Trustees, by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) by the
Investment Manager or (in the case of the Sub-Advisory Agreement)
by the Sub-Adviser on not more than 60 days' written notice to
the other party and to the Fund. The Investment Management
Agreement and the Sub-Advisory Agreement terminate automatically
in the event of assignment, as defined under the 1940 Act and
regulations thereunder.
The Investment Management Agreement provides that the
Investment Manager is specifically responsible for:
* developing and furnishing continuously an investment program
and strategy for the Fund in compliance with the Fund's
investment objective and policies as set forth in the Trust's
current Registration Statement;
* providing research and analysis relative to the investment
program and investments of the Fund;
* determining (subject to the overall supervision and review
of the Board of Trustees of the Trust) what investments shall be
purchased, held, sold or exchanged by the Fund and what portion,
if any, of the assets of the Fund shall be held in cash or cash
equivalents; and
* making changes on behalf of the Trust in the investments of
the Fund.
Under the Sub-Advisory Agreement, First Quadrant is
responsible for performing substantially these same advisory
services for the Investment Manager and the Fund.
The Investment Management Agreement also provides that the
Investment Manager shall furnish the Fund with office space and
facilities, services of executives and administrative personnel
and certain other administrative services. The Investment
Manager compensates all executive and clerical personnel and
Trustees of the Trust if such persons are employees of the
Investment Manager or its affiliates.
The Fund pays all expenses not borne by its Investment
Manager or Sub-Adviser including, but not limited to, the charges
and expenses of the Fund's custodian and transfer agent,
independent auditors and legal counsel for the Fund and the
Trust's independent Trustees, 12b-1 fees, if any, all brokerage
commissions and transfer taxes in connection with portfolio
transactions, all taxes and filing fees, the fees and expenses
for registration or qualification of its shares under federal and
state securities laws, all expenses of shareholders' and
Trustees' meetings and of preparing, printing and mailing reports
to shareholders and the compensation of Trustees who are not
directors, officers or employees of the Investment Manager, Sub-
Adviser or their affiliates, other than affiliated registered
investment companies.
The Sub-Advisory Agreement requires the Sub-Adviser to
provide fair and equitable treatment to the Fund in the selection
of portfolio investments and the allocation of investment
opportunities. However, it does not obligate the Sub-Adviser to
acquire for the Fund a position in any investment which any of
the Sub-Adviser's other clients may acquire. The Fund shall have
no first refusal, co-investment or other rights in respect of any
such investment, either for the Fund or otherwise.
Although the Sub-Adviser makes investment decisions for the
Fund independent of those for its other clients, it is likely
that similar investment decisions will be made from time to time.
When the Fund and another client of a Sub-Adviser are
simultaneously engaged in the purchase or sale of the same
security, the transactions are, to the extent feasible and
practicable, averaged as to price and the amount is allocated
between the Fund and the other client(s) pursuant to a formula
considered equitable by the Sub-Adviser. In specific cases, this
system could have an adverse affect on the price or volume of the
security to be purchased or sold by the Fund. However, the
Trustees believe, over time, that coordination and the ability to
participate in volume transactions should benefit the Fund.
REIMBURSEMENT AGREEMENT
Under the Investment Management Agreement, the Investment
Manager provides a variety of administrative services to the Fund
and, under its distribution agreement with the Fund, the
Investment Manager provides a variety of shareholder and
12
<PAGE>
marketing services to the Fund. The Investment Manager receives
no additional compensation from the Fund for these services.
Pursuant to a Reimbursement Agreement between the Investment
Manager and First Quadrant, First Quadrant reimburses the
Investment Manager for the costs the Investment Manager bears in
providing such services to the Fund.
CODE OF ETHICS
The Trustees have adopted a Code of Ethics under Rule 17j-1
of the 1940 Act on behalf of the Trust. The Code of Ethics of
the Trust incorporates the code of ethics of the Investment
Manager (applicable to "access persons" of the Trust that are
also employees of the Investment Manager) and the code of ethics
of the Sub-Adviser (applicable to "access persons" of the Trust
that are also employees of the Sub-Adviser). In combination,
these codes of ethics generally require access persons to
preclear any personal securities investment (with limited
exceptions such as government securities). The preclearance
requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the
proposed investment. The restrictions also include a ban on
trading securities based on information about the trading within
a Fund.
DISTRIBUTION ARRANGEMENTS
Under a distribution agreement between the Fund and The
Managers Funds (the "Distribution Agreement"), The Managers Funds
LLC serves as distributor (the "Distributor") in connection with
the offering of the Fund's shares on a no-load basis. The
Distributor bears certain expenses associated with the
distribution and sale of shares of the Fund. The Distributor
acts as agent in arranging for the sale of the Fund's shares
without sales commission or other compensation.
The Distribution Agreement between the Trust and the
Distributor may be terminated by either party under certain
specified circumstances and will automatically terminate on
assignment in the same manner as the Investment Management
Agreement. The Distribution Agreement may be continued annually
so long as such continuation is specifically approved at least
annually (i) by either the Trustees of the Trust or by vote of a
majority of the outstanding voting securities (as defined in the
1940 Act) of the Fund, and (ii) in either event by the vote of a
majority of the Trustees of the Trust who are not parties to the
agreement or "interested persons" (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the
purpose of voting on such continuance.
CUSTODIAN
State Street Bank and Trust Company ("State Street" or the
"Custodian"), 1776 Heritage Drive, North Quincy, Massachusetts,
is the Custodian for the Fund. It is responsible for holding all
cash assets and all portfolio securities of the Fund, releasing
and delivering such securities as directed by the Fund,
maintaining bank accounts in the names of the Fund, receiving for
deposit into such accounts payments for shares of the Fund,
collecting income and other payments due the Fund with respect to
portfolio securities and paying out monies of the Fund. In
addition, when the Fund trades in futures contracts and those
trades would require the deposit of initial margin with a futures
commission merchant ("FCM"), the Fund will enter into a separate
special custodian agreement with a custodian in the name of the
FCM which agreement will provide that the FCM will be permitted
access to the account only upon the Fund's default under the
contract.
The Custodian is authorized to deposit securities in
securities depositories or to use the services of sub-
custodians, including foreign sub-custodians, to the extent
permitted by and subject to the regulations of the Securities and
Exchange Commission.
TRANSFER AGENT
Boston Financial Data Services, Inc., P.O. Box 8517, Boston,
Massachusetts 02266-8517, is the transfer agent (the "Transfer
Agent") for the Fund.
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<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts 02110, is the independent public accountant for the
Fund. PricewaterhouseCoopers LLP conducts an annual audit of the
financial statements of the Fund, assists in the preparation
and/or review of each of the Fund's federal and state income tax
returns and consults with the Fund as to matters of accounting
and federal and state income taxation.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Sub-Advisory Agreement provides that the Sub-Adviser
place all orders for the purchase and sale of securities which
are held in the Fund's portfolio. In executing portfolio
transactions and selecting brokers or dealers, it is the policy
and principal objective of the Sub-Adviser to seek best price and
execution. It is expected that securities will ordinarily be
purchased in the primary markets. The Sub-Adviser shall consider
all factors that it deems relevant when assessing best price and
execution for the Fund, including the breadth of the market in
the security, the price of the security, the financial condition
and execution capability of the broker or dealer and the
reasonableness of the commission, if any (for the specific
transaction and on a continuing basis).
In addition, when selecting brokers to execute transactions
and in evaluating the best available net price and execution, the
Sub-Adviser is authorized by the Trustees to consider the
"brokerage and research services" (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as
amended), provided by the broker. The Sub-Adviser is also
authorized to cause the Fund to pay a commission to a broker who
provides such brokerage and research services for executing a
portfolio transaction which is in excess of the amount of
commission another broker would have charged for effecting that
transaction. The Sub-Adviser must determine in good faith,
however, that such commission was reasonable in relation to the
value of the brokerage and research services provided viewed in
terms of that particular transaction or in terms of all the
accounts over which the Sub-Adviser exercises investment
discretion. Brokerage and research services received from such
brokers will be in addition to, and not in lieu of, the services
required to be performed by each Sub-Adviser. The Fund may
purchase and sell portfolio securities through brokers who
provide the Fund with research services.
The Trustees will periodically review the total amount of
commissions paid by the Fund to determine if the commissions paid
over representative periods of time were reasonable in relation
to commissions being charged by other brokers and the benefits to
the Fund of using particular brokers or dealers. It is possible
that certain of the services received by the Sub-Adviser
attributable to a particular transaction will primarily benefit
one or more other accounts for which investment discretion is
exercised by the Sub-Adviser.
The fees of the Sub-Adviser are not reduced by reason of
their receipt of such brokerage and research services.
Generally, the Sub-Adviser does not provide any services to the
Fund except portfolio investment management and related record-
keeping services.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASING SHARES
Investors may open accounts with the Fund through their
financial planners or investment professionals, or through the
Trust in limited circumstances as described in the Prospectus.
Shares may also be purchased through bank trust departments on
behalf of their clients, other investors such as corporations,
endowment funds and charitable foundations, and tax-exempt
employee welfare, pension and profit-sharing plans. There are no
charges by the Trust for being a customer for this purpose. The
Trust reserves the right to determine which customers and which
purchase orders the Trust will accept.
Certain investors may purchase or sell Fund shares through
broker-dealers or through other processing organizations who may
impose transaction fees or other charges in connection with this
service. Shares purchased in this way may be treated as a single
14
<PAGE>
account for purposes of the minimum initial investment. The Fund
may from time to time make payments to such broker-dealers or
processing organizations for certain recordkeeping services.
Investors who do not wish to receive the services of a
broker-dealer or processing organization may consider investing
directly with the Trust. Shares held through a broker-dealer or
processing organization may be transferred into the investor's
name by contacting the broker-dealer or processing organization
or the Transfer Agent. Certain processing organizations may
receive compensation from the Trust's Investment Manager and/or
the Sub-Adviser.
Purchase orders received by the Fund before 4:00 p.m. New
York Time, c/o Boston Financial Data Services, Inc. at the
address listed in the Prospectus on any Business Day will receive
the net asset value computed that day. Orders received after
4:00 p.m. by certain processing organizations which have entered
into special arrangements with the Investment Manager will also
receive that day's offering price. The broker-dealer, omnibus
processor or investment professional is responsible for promptly
transmitting orders to the Trust. Orders transmitted to the
Trust at the address indicated in the Prospectus will be promptly
forwarded to the Transfer Agent.
Federal Funds or Bank Wires used to pay for purchase orders
must be in U.S. dollars and received in advance, except for
certain processing organizations which have entered into special
arrangements with the Trust. Purchases made by check are effected
when the check is received, but are accepted subject to
collection at full face value in U.S. funds and must be drawn in
U.S. Dollars on a U.S. bank.
To ensure that checks are collected by the Trust,
redemptions of shares which were purchased by check are not
effected until the clearance of the check, which may take up to
15 days after the date of purchase unless arrangements are made
with the Investment Manager. However, during this 15 day period,
such shareholder may exchange such shares into any series of
Managers AMG Funds, The Managers Funds, The Managers Trust I or
The Managers Trust II. The 15 day holding period for redemptions
would still apply to such exchanges.
If the check accompanying any purchase order does not clear,
or if there are insufficient funds in your bank account, the
transaction will be canceled and you will be responsible for any
loss the Trust incurs. For current shareholders, the Fund can
redeem shares from any identically registered account in the Fund
as reimbursement for any loss incurred. The Trust has the right
to prohibit or restrict all future purchases in the Trust in the
event of any nonpayment for shares. Third party checks which are
payable to an existing shareholder who is a natural person (as
opposed to a corporation or partnership) and endorsed over to the
Fund or State Street Bank and Trust Company will be accepted.
In the interest of economy and convenience, share
certificates will not be issued. All share purchases are
confirmed to the record holder and credited to such holder's
account on the Trust's books maintained by the Transfer Agent.
REDEEMING SHARES
Any redemption orders received by the Trust before 4:00 p.m.
New York Time on any Business Day will receive the net asset
value determined at the close of trading on the New York Stock
Exchange (the "NYSE") on that day.
Redemption orders received after 4:00 p.m. will be redeemed
at the net asset value determined at the close of trading on the
next Business Day. Redemption orders transmitted to the Trust at
the address indicated in the Prospectus will be promptly
forwarded to the Transfer Agent. If you are trading through a
broker-dealer or investment adviser, such investment professional
is responsible for promptly transmitting orders. There is no
redemption charge. The Fund reserves the right to redeem
shareholder accounts (after 60 days notice) when the value of the
Fund shares in the account falls below $5000 due to redemptions.
Whether the Fund will exercise its right to redeem shareholder
accounts will be determined by the Investment Manager on a
case-by-case basis.
If the Fund determines that it would be detrimental to the
best interest of the remaining shareholders of the Fund to make
payment wholly or partly in cash, payment of the redemption price
may be made in whole or in part by a distribution in kind of
securities from the Fund, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the
redeeming shareholder might incur transaction costs in converting
the assets to cash. The method of valuing portfolio securities
15
<PAGE>
is described under the "Net Asset Value," and such valuation will
be made as of the same time the redemption price is determined.
Investors should be aware that redemptions from the Fund may
not be processed if a redemption request is not submitted in
proper form. To be in proper form, the request must include the
shareholder's taxpayer identification number, account number,
Fund number and signatures of all account holders. All
redemptions will be mailed to the address of record on the
shareholder's account. In addition, if a shareholder sends a
check for the purchase of shares of the Fund and shares are
purchased before the check has cleared, the transmittal of
redemption proceeds from the shares will occur upon clearance of
the check which may take up to 15 days. The Fund reserves the
right to suspend the right of redemption and to postpone the date
of payment upon redemption beyond seven days as follows: (i)
during periods when the NYSE is closed for other than weekends
and holidays or when trading on the NYSE is restricted as
determined by the SEC by rule or regulation, (ii) during periods
in which an emergency, as determined by the SEC, exists that
causes disposal by the Fund of, or evaluation of the net asset
value of, portfolio securities to be unreasonable or
impracticable, or (iii) for such other periods as the SEC may
permit.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into shares of
any series of Managers AMG Funds, The Managers Funds, The
Managers Trust I or The Managers Trust II without any charge. An
investor may make such an exchange if following such exchange the
investor would continue to meet the Fund's minimum investment
amount. Shareholders should read the Prospectus of the series of
Managers AMG Funds, The Managers Funds, The Managers Trust I or
The Managers Trust II they are exchanging into. Investors may
exchange only into accounts that are registered in the same name
with the same address and taxpayer identification number. Shares
are exchanged on the basis of the relative net asset value per
share. Since exchanges are purchases of a series of Managers AMG
Funds, The Managers Funds, The Managers Trust I or The Managers
Trust II and redemptions of the Fund, the usual purchase and
redemption procedures and requirements apply to each exchange.
Shareholders are subject to federal income tax and may recognize
capital gains or losses on the exchange for federal income tax
purposes. Settlement on the shares of any series of Managers AMG
Funds, The Managers Funds, The Managers Trust I or The Managers
Trust II will occur when the proceeds from redemption become
available. The Trust reserves the right to discontinue, alter or
limit the exchange privilege at any time.
NET ASSET VALUE
The Fund computes its Net Asset value once daily on Monday
through Friday on each day on which the NYSE is open for trading,
at the close of business of the NYSE, usually 4:00 p.m. New York
Time. The net asset value will not be computed on the day the
following legal holidays are observed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund may close for purchases and redemptions at such other
times as may be determined by the Board of Trustees to the extent
permitted by applicable law. The time at which orders are
accepted and shares are redeemed may be changed in case of an
emergency or if the NYSE closes at a time other than 4:00 p.m.
New York Time.
The net asset value of the Fund is equal to the value of the
Fund (assets minus liabilities) divided by the number of shares
outstanding. Fund securities listed on an exchange are valued at
the last quoted sale price on the exchange where such securities
are principally traded on the valuation date, prior to the close
of trading on the NYSE, or, lacking any sales, at the last quoted
bid price on such principal exchange prior to the close of
trading on the NYSE. Over-the-counter securities for which
market quotations are readily available are valued at the last
sale price or, lacking any sales, at the last quoted bid price on
that date prior to the close of trading on the NYSE. Securities
and other instruments for which market quotations are not readily
available are valued at fair value, as determined in good faith
and pursuant to procedures established by the Trustees.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends and distributions as
described in the Prospectus.
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If a shareholder has elected to receive dividends and/or
their distributions in cash and the postal or other delivery
service is unable to deliver the checks to the shareholder's
address of record, the dividends and/or distribution will
automatically be converted to having the dividends and/or
distributions reinvested in additional shares. No interest will
accrue on amounts represented by uncashed dividend or redemption
checks.
DISTRIBUTION PLAN
The Trust has adopted a "Plan of Distribution Pursuant to
Rule 12b-1" (the "Distribution Plan") under which the Trust may
engage, directly or indirectly, in financing any activities
primarily intended to result in the sale of shares, including,
but not limited to, (1) making payments to underwriters,
securities dealers and others engaged in the sale of shares,
including payments to the Distributor to compensate or reimburse
other persons for engaging in such activities and (2) paying
expenses or providing reimbursement of expenditures incurred by
the Distributor or other persons in connection with the offer or
sale of shares, including expenses relating to the formulation
and implementation of marketing strategies and promotional
activities such as direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising, the
preparation, printing and distribution of sales literature and
reports for recipients other than existing shareholders of the
Trust, and obtaining such information, analyses and reports with
respect to marketing and promotional activities and investor
accounts as the Trust may, from time to time, deem advisable.
The Trust and the Fund are authorized to engage in the activities
listed above, and in other activities primarily intended to
result in the sale of shares, either directly or through other
persons with which the Trust has entered into agreements pursuant
to the Distribution Plan. Under the Distribution Plan, the Board
of Trustees may authorize payments which may not exceed on an
annual basis 0.25% of the average annual net assets of the Fund.
The Trustees have not authorized the payment of any fees to date.
CERTAIN TAX MATTERS
FEDERAL INCOME TAXATION OF FUND-IN GENERAL
The Fund intends to qualify and elect to be treated each
taxable year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), although it cannot give complete assurance that it
will qualify to do so. Accordingly, the 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, gains from the sale or other disposition of
stock, 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 (the "90%
test"); and (b) satisfy certain diversification requirements on a
quarterly basis.
If the Fund should fail to qualify as a regulated investment
company in any year, it would lose the beneficial tax treatment
accorded regulated investment companies under Subchapter M of the
Code and all of its taxable income would be subject to tax at
regular corporate rates without any deduction for distributions
to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of the Fund's
current or accumulated earnings and profits. Also, the
shareholders, if they received a distribution in excess of
current or accumulated earnings and profits, would receive a
return of capital that would reduce the basis of their shares of
the Fund to the extent thereof. Any distribution in excess of a
shareholder's basis in the shareholder's shares would be taxable
as gain realized from the sale of such shares.
The Fund will be liable for a nondeductible 4% excise tax on
amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement. To avoid the tax, during
each calendar year the Fund must distribute an amount equal to at
least 98% of the sum of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, and
its net capital gain income for the 12-month period ending on
October 31, in addition to any undistributed portion of the
respective balances from the prior year. For that purpose, any
income or gain retained by the Fund that is subject to corporate
tax will be considered to have been distributed by year end. The
Fund intends to make sufficient distributions to avoid this 4%
excise tax.
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<PAGE>
TAXATION OF THE FUND'S INVESTMENTS
Original Issue Discount; Market Discount. For federal
income tax purposes, debt securities purchased by the Fund may be
treated as having original issue discount. Original issue
discount represents interest for federal income tax purposes and
can generally be defined as the excess of the stated redemption
price at maturity of a debt obligation over the issue price.
Original issue discount is treated for federal income tax
purposes as income earned by the Fund, whether or not any income
is actually received, and therefore is subject to the
distribution requirements of the Code. Generally, the amount of
original issue discount is determined on the basis of a constant
yield to maturity which takes into account the compounding of
accrued interest. Under Section 1286 of the Code, an investment
in a stripped bond or stripped coupon may result in original
issue discount.
Debt securities may be purchased by the Fund at a discount
that exceeds the original issue discount plus previously accrued
original issue discount remaining on the securities, if any, at
the time the Fund purchases the securities. This additional
discount represents market discount for federal income tax
purposes. In the case of any debt security issued after July 18,
1984, having a fixed maturity date of more than one year from the
date of issue and having market discount, the gain realized on
disposition will be treated as interest to the extent it does not
exceed the accrued market discount on the security (unless the
Fund elects to include such accrued market discount in income in
the tax year to which it is attributable). Generally, market
discount is accrued on a daily basis. The Fund may be required
to capitalize, rather than deduct currently, part or all of any
direct interest expense incurred or continued to purchase or
carry any debt security having market discount, unless the Fund
makes the election to include market discount currently. Because
the Fund must include original issue discount in income, it will
be more difficult for the Fund to make the distributions required
for the Fund to maintain its status as a regulated investment
company under Subchapter M of the Code or to avoid the 4% excise
tax described above.
Options and Futures Transactions. Certain of the Fund's
investments may be subject to provisions of the Code that (i)
require inclusion of unrealized gains or losses in the Fund's
income for purposes of the 90% test, and require inclusion of
unrealized gains in the Fund's income for purposes of the excise
tax and the distribution requirements applicable to regulated
investment companies; (ii) defer recognition of realized losses;
and (iii) characterize both realized and unrealized gain or loss
as short-term and long-term gain, irrespective of the holding
period of the investment. Such provisions generally apply to,
among other investments, options on debt securities, indices on
securities and futures contracts. The Fund will monitor its
transactions and may make certain tax elections available to it
in order to mitigate the impact of these rules and prevent
disqualification of the Fund as a regulated investment company.
FEDERAL INCOME TAXATION OF SHAREHOLDERS
General. Dividends paid by the Fund may be eligible for the
70% dividends-received deduction for corporations. The
percentage of the Fund's dividends eligible for such tax
treatment may be less than 100% to the extent that less than 100%
of the Fund's gross income may be from qualifying dividends of
domestic corporations. Any dividend declared in October, November
or December and made payable to shareholders of record in any
such month is treated as received by such shareholder on
December 31, provided that the Fund pays the dividend during
January of the following calendar year.
Distributions by the Fund can result in a reduction in the
fair market value of the Fund's shares. Should a distribution
reduce the fair market value below a shareholder's cost basis,
such distribution nevertheless may be taxable to the shareholder
as ordinary income or capital gain, even though, from an
investment standpoint, it may constitute a partial return of
capital. In particular, investors should be careful to consider
the tax implications of buying shares just prior to a taxable
distribution. The price of shares purchased at that time
includes the amount of any forthcoming distribution. Those
investors purchasing shares just prior to a taxable distribution
will then receive a return of investment upon distribution which
will nevertheless be taxable to them.
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<PAGE>
FOREIGN SHAREHOLDERS
Dividends of net investment income and distribution of
realized net short-term gain in excess of net long-term loss to a
shareholder who is a nonresident alien individual, fiduciary of a
foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) unless
the dividends are effectively connected with a U.S. trade or
business of the shareholder, in which case the dividends will be
subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations.
Distributions treated as long-term capital gains to foreign
shareholders will not be subject to U.S. tax unless the
distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a
shareholder who is a nonresident alien individual, the
shareholder was present in the United States for more than 182
days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident
alien individual or foreign entity, the Fund may be required to
withhold U.S. federal income tax as "backup withholding" at the
rate of 31% from distributions treated as long-term capital gains
and from the proceeds of redemptions, exchanges or other
dispositions of the Fund's shares unless IRS Form W-8 is
provided. Transfers by gift of shares of the Fund by a foreign
shareholder who is a non-resident alien individual will not be
subject to U.S. federal gift tax, but the value of shares of the
Fund held by such shareholder at his or her death will be
includible in his or her gross estate for U.S. federal estate tax
purposes.
STATE AND LOCAL TAXES
The Fund may also be subject to state and/or local taxes in
jurisdictions in which the Fund is deemed to be doing business.
In addition, the treatment of the Fund and its shareholders in
those states which have income tax laws might differ from
treatment under the federal income tax laws. Shareholders should
consult with their own tax advisers concerning the foregoing
state and local tax consequences of investing in the Fund.
OTHER TAXATION
The Fund is a series of a Massachusetts business trust.
Under current law, neither the Trust nor the Fund is liable for
any income or franchise tax in The Commonwealth of Massachusetts,
provided that the Fund continues to qualify as a regulated
investment company under Subchapter M of the Code.
Shareholders should consult their tax advisers about the
application of the provisions of tax law described in this
Statement of Additional Information in light of their particular
tax situations.
PERFORMANCE DATA
From time to time, the Fund may quote performance in terms
of yield, actual distributions, total return or capital
appreciation in reports, sales literature, and advertisements
published by the Fund. Since the Fund commenced operations on
November 14, 2000, there is no current performance information
for the Fund.
TOTAL RETURN
The Fund may advertise performance in terms of average
annual total return for 1-, 5- and 10-year periods, or for such
lesser periods that the Fund has been in existence. Average
annual total return is computed by finding the average annual
compounded rates of return over the periods that would equate the
initial amount invested to the ending redeemable value, according
to the following formula:
P (1 + T) N = ERV
In the above formula, P = a hypothetical initial payment of
$1,000
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T = average annual total return
N = number of years
ERV = ending redeemable value of the hypothetical $1,000 payment
made at the beginning of the 1-, 5- or 10-year periods at the end
of the year or period
The figure is then annualized. The formula assumes that any
charges are deducted from the initial $1,000 payment and assumes
that all dividends and distributions by the Fund are reinvested
at the price stated in the Prospectus on the reinvestment dates
during the period
PERFORMANCE COMPARISONS
The Fund may compare its performance to the performance of
other mutual funds having similar objectives. This comparison
must be expressed as a ranking prepared by independent services
or publications that monitor the performance of various mutual
funds such as Lipper, Inc. ("Lipper") and Morningstar, Inc.,
("Morningstar"). Lipper prepares the "Lipper Composite Index," a
performance benchmark based upon the average performance of
publicly offered stock funds, bond funds, and money market funds
as reported by Lipper. Morningstar, a widely used independent
research firm, also ranks mutual funds by overall performance,
investment objectives and assets. The Fund's performance may also
be compared to the performance of various unmanaged indices such
as the Russell 3000 Index, Wilshire 5000 Equity Index, Russell
3000 Growth Index, Russell 1000 Growth Index, Standard & Poor's
500 Composite Stock Price Index, the Standard & Poor's 400
Composite Stock Price Index or the Dow Jones Industrial Average.
MASSACHUSETTS BUSINESS TRUST
The Fund is a series of a "Massachusetts business trust." A
copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts.
The Declaration of Trust and the By-Laws of the Trust are
designed to make the Trust similar in most respects to a
Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability and are
described below.
Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as
partners for the obligations of the trust. This is not the case
for a Massachusetts business corporation. However, the
Declaration of Trust of the Trust provides that the shareholders
shall not be subject to any personal liability for the acts or
obligations of the Fund and that every written agreement,
obligation, instrument or undertaking made on behalf of the Fund
shall contain a provision to the effect that the shareholders are
not personally liable thereunder.
No personal liability will attach to the shareholders under
any undertaking containing such provision when adequate notice of
such provision is given, except possibly in a few jurisdictions.
With respect to all types of claims in the latter jurisdictions,
(i) tort claims, (ii) contract claims where the provision
referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other
jurisdictions, a shareholder may be held personally liable to the
extent that claims are not satisfied by the Fund. However, upon
payment of such liability, the shareholder will be entitled to
reimbursement from the general assets of the Fund. The Trustees
of the Trust intend to conduct the operations of the Trust in a
way as to avoid, as far as possible, ultimate liability of the
shareholders of the Fund.
The Declaration of Trust further provides that the name of
the Trust refers to the Trustees collectively as Trustees, not as
individuals or personally, that no Trustee, officer, employee or
agent of the Fund or to a shareholder, and that no Trustee,
officer, employee or agent is liable to any third persons in
connection with the affairs of the Fund, except if the liability
arises from his or its own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or its duties to such
third persons. It also provides that all third persons shall
look solely to the property of the Fund for any satisfaction of
claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Trust's Declaration of Trust provides
that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs
of the Fund.
The Trust shall continue without limitation of time subject
to the provisions in the Declaration of Trust concerning
termination by action of the shareholders or by action of the
Trustees upon notice to the shareholders.
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DESCRIPTION OF SHARES
The Trust is an open-end management investment company
organized as a Massachusetts business trust in which the Fund
represents a separate series of shares of beneficial interest.
See "Massachusetts Business Trust" above.
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares ($0.001 par value)
of one or more series and to divide or combine the shares of any
series, if applicable, without changing the proportionate
beneficial interest of each shareholder in the Fund or assets of
another series, if applicable. Each share of the Fund represents
an equal proportional interest in the Fund with each other share.
Upon liquidation of the Fund, shareholders are entitled to share
pro rata in the net assets of the Fund available for distribution
to such shareholders. See "Massachusetts Business Trust" above.
Shares of the Fund have no preemptive or conversion rights and
are fully paid and nonassessable. The rights of redemption and
exchange are described in the Prospectus and in this Statement of
Additional Information.
The shareholders of the Trust are entitled to one vote for
each dollar of net asset value (or a proportionate fractional
vote in respect of a fractional dollar amount), on matters on
which shares of the Fund shall be entitled to vote. Subject to
the 1940 Act, the Trustees themselves have the power to alter the
number and the terms of office of the Trustees, to lengthen their
own terms, or to make their terms of unlimited duration subject
to certain removal procedures, and appoint their own successors,
provided however, that immediately after such appointment the
requisite majority of the Trustees have been elected by the
shareholders of the Trust. The voting rights of shareholders are
not cumulative so that holders of more than 50% of the shares
voting can, if they choose, elect all Trustees being selected
while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold
meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be
required by either the 1940 Act or by the Declaration of Trust of
the Trust.
Shareholders of the Trust have the right, upon the
declaration in writing or vote of more than two-thirds of its
outstanding shares, to remove a Trustee from office. The
Trustees will call a meeting of shareholders to vote on removal
of a Trustee upon the written request of the record holders of
10% of the shares of the Trust. In addition, whenever ten or
more shareholders of record who have been shareholders of record
for at least six months prior to the date of the application, and
who hold in the aggregate either shares of the Fund having a net
asset value of at least $25,000 or at least 1% of the Trust's
outstanding shares, whichever is less, shall apply to the
Trustees in writing, stating that they wish to communicate with
other shareholders with a view to obtaining signatures to request
a meeting for the purpose of voting upon the question of removal
of any of the Trustees and accompanies by a form of communication
and request which they wish to transmit, the Trustees shall
within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the
names and addresses of all shareholders as recorded on the books
of the Trust; or (2) inform such applicants as to the approximate
number of shareholders of record, and the approximate cost of
mailing to them the proposed shareholder communication and form
of request. If the Trustees elect to follow the latter, the
Trustees, upon the written request of such applicants accompanied
by a tender of the material to be mailed and the reasonable
expenses of mailing, shall, with reasonable promptness, mail such
material to all shareholders of record at their addresses as
recorded on the books, unless within five business days after
such tender the Trustees shall mail to such applicants and file
with the SEC, together with a copy of the material to be mailed,
a written statement signed by at least a majority of the Trustees
to the effect that in their opinion either such material contains
untrue statements of fact or omits to state facts necessary to
make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such
opinion. After opportunity for hearing upon the objections
specified in the written statements filed, the SEC may, and if
demanded by the Trustees or by such applicants shall, enter an
order either sustaining one or more objections or refusing to
sustain any of such objections, or if, after the entry of an
order sustaining one or more objections, the SEC shall find,
after notice and opportunity for a hearing, that all objections
so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all
shareholders with reasonable promptness after the entry of such
order and the renewal of such tender.
The Trustees have authorized the issuance and sale to the
public of shares of one series of the Trust. The Trustees may
authorize the issuance of additional series of the Trust. The
proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with
distinct investment objectives, policies and restrictions, and
21
<PAGE>
share purchase, redemption and net asset value procedures. All
consideration received by the Trust for shares of any additional
series, and all assets in which such consideration is invested,
would belong to that series, subject only to the rights of
creditors of the Trust and would be subject to the liabilities
related thereto. Shareholders of the additional series will
approve the adoption of any management contract, distribution
agreement and any changes in the investment policies of the Fund,
to the extent required by the 1940 Act.
ADDITIONAL INFORMATION
This Statement of Additional Information and the Prospectus
do not contain all of the information included in the Trust's
Registration Statement filed with the SEC under the 1933 Act.
Pursuant to the rules and regulations of the SEC, certain
portions have been omitted. The Registration Statements,
including the Exhibits filed therewith, may be examined at the
office of the SEC in Washington DC.
Statements contained in the Statement of Additional
Information and the Prospectus concerning the contents or any
contract or other document are not necessarily complete, and in
each instance, reference is made to the copy of such contract or
other document filed as an Exhibit to the applicable Registration
Statement. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized
to give any information or to make any representations, other
than those contained in the Prospectus or this Statement of
Additional Information, in connection with the offer of shares of
the Fund and, if given or made, such other representations or
information must not be relied upon as having been authorized by
the Trust, the Fund or the Distributor. The Prospectus and this
Statement of Additional Information do not constitute an offer to
sell or solicit an offer to buy any of the securities offered
thereby in any jurisdiction to any person to whom it is unlawful
for the Fund or the Distributor to make such offer in such
jurisdictions.
22
<PAGE>
PART C
To the Registration Statement of
Managers AMG Funds (the "Trust")
Item 23. Exhibits.
Exhibit No. Description
----------- -------------
a.1 Master Trust Agreement dated June 18, 1999.(i)
a.2 Amendment No. 1 to Master Trust Agreement changing the
name of the "Essex Growth Fund" to "Essex Aggressive
Growth Fund."(iii)
a.3 Amendment No. 2 to Master Trust Agreement changing the
name of the Trust to "Managers AMG Funds."(iii)
a.4 Amendment No. 3 to Master Trust Agreement establishing
a new series of shares of beneficial interest of the
Trust designated as the "Frontier Growth Fund," filed
herewith.
a.5 Amendment No. 4 to Master Trust Agreement establishing
a new series of shares of beneficial interest of the
Trust designated as the "First Quadrant Tax-Managed
Equity Fund," filed herewith.
b. By-Laws of the Trust dated June 18, 1999.(i)
c. Sections 4.2(d), 4.2(e), 4.2(f), 4.2(i), 4.2(j),
4.2(k), 4.2(m), 4.6, 6.3, 6.5, 6.6, 7.1, 7.2 and 7.3
and Article V of the Master Trust Agreement are
included in Exhibit a.(i)
d.1 Investment Management Agreement between the Registrant
and The Managers Funds LLC, dated as of October 19,
1999.(iii)
d.2 Form of Letter Agreement to Investment Management
Agreement between the Registrant and The Managers
Funds, LLC with respect to the Frontier Growth Fund,
dated as of September 19, 2000 (vi).
d.3 Form of Letter Agreement to Investment Management
Agreement between the Registrant and The Managers Funds
LLC with respect to the First Quadrant Tax-Managed
Equity Fund, filed herewith.
d.4 Sub-Advisory Agreement between The Managers Funds LLC
and Essex Investment Management Company, LLC with
respect to the Essex Aggressive Growth Fund, dated as
of October 19, 1999. (iii)
d.5 Form of Sub-Advisory Agreement between The Managers
Funds LLC and Frontier Capital Management Company, LLC
with respect to the Frontier Growth Fund, dated as of
September 19, 2000 (iv).
d.6 Form of Sub-Advisory Agreement between The Managers
Funds LLC and First Quadrant, L.P. with respect to the
First Quadrant Tax-Managed Equity Fund, dated as of
November 14, 2000, filed herewith.
e.1 Distribution Agreement between the Registrant and The
Managers Funds LLC, dated as of October 19, 1999. (iii)
e.2 Form of Letter Agreement to the Distribution Agreement
between the Registrant and The Managers Funds LLC with
respect to the Frontier Growth Fund. (vi)
f. Not applicable.
g. Form of Custodian Agreement between the Registrant and
State Street Bank and Trust Company.
h. Form of Transfer Agency Agreement between the
Registrant and Boston Financial Data Services, Inc.
i.1 Opinion and Consent of Goodwin, Procter & Hoar LLP with
respect to the Essex Aggressive Growth Fund.(iii)
i.2 Opinion and Consent of Goodwin, Procter & Hoar LLP with
respect to the Frontier Growth Fund. (vi)
i.3 Opinion and Consent of Goodwin, Procter & Hoar LLP with
respect to the First Quadrant Tax-Managed Equity Fund,
filed herewith.
j.1 Consent of PricewaterhouseCoopers LLP with respect to
the Essex Aggressive Growth Fund. (iii)
k. Not Applicable.
l. Power of Attorney dated September 9, 1999. (ii)
m. Plan of Distribution Pursuant to Rule 12b-1, dated as
of October 15, 1999.(iii)
n. Not applicable.
o. Not applicable.
p.1 Code of Ethics of the Trust.(vi)
p.2 Code of Ethics of The Managers Funds LLC.(vi)
p.3 Code of Ethics of Essex Investment Management Company,
LLC, filed herewith.
p.4 Code of Ethics of Frontier Capital Management Company,
LLC.(vi)
p.5 Code of Ethics of First Quadrant, L.P., filed herewith.
(i) Filed as an exhibit to the Registrant's Registration
Statement on Form N-1A, Registration No. 333-84639
(filed August 6, 1999), under the same exhibit number.
(ii) Filed as an exhibit to Pre-Effective Amendment No. 1 to
the Registrant's Registration Statement on Form N-1A,
Registration No. 333-84639 (filed September 23, 1999),
under the same exhibit number.
(iii) Filed as an exhibit to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement on Form N-1A,
Registration No. 333-84639 (filed November 1, 1999), under the
same exhibit number.
(iv) Filed as an exhibit to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A, Registration
No. 333-84639 (filed June 19, 2000), under the same exhibit
number.
(v) Filed as an exhibit to Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form N-1A, Registration
No. 333-84639 (filed August 1, 2000), under the same exhibit
number.
(vi) Filed as an exhibit to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form N-1A, Registration
No. 333-84639 (filed September 15, 2000), under the same exhibit
number.
Item 24. Persons Controlled by or Under Common Control with
Registrant.
None.
Item 25. Indemnification.
Under Article VI of the Registrant's Master Trust
Agreement, any present or former Trustee, Officer, agent or
employee or person serving in such capacity with another
entity at the request of the Registrant ("Covered Person")
shall be indemnified against all liabilities, including but
not limited to amounts paid in satisfaction of judgments, in
compromises or as fines or penalties and expenses, including
reasonable legal and accounting fees, in connection with the
defense or disposition of any proceeding by or in the name
of the Registrant or any shareholder in his capacity as such
if: (i) a favorable final decision on the merits is made by
a court or administrative body; or (ii) a reasonable
determination is made by a vote of the majority of a quorum
of disinterested Trustees or by independent legal counsel
that the Covered Person was not liable by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in his office ("Disabling
Conduct"); or (iii) a determination is made to indemnify the
Covered Person under procedures approved by the Board of
Trustees which in the opinion of independent legal counsel
are not inconsistent with the Investment Company Act of
1940, as amended (the "1940 Act"). Said Article VI further
provides that the Registrant shall indemnify any Covered
Person against any such liabilities and expenses incurred in
connection with the defense or disposition of any other type
of proceeding except with respect to any matter as to which
the Covered Person shall have engaged in Disabling Conduct
or shall have been finally adjudicated not to have acted in
good faith and in the reasonable belief that such Covered
Person's action was in or not opposed to the best interests
of the Registrant.
Item 26. Business and Other Connections of Investment Adviser.
The Managers Funds LLC, a registered investment
adviser, is a subsidiary of Affiliated Managers Group, Inc.
("AMG") and AMG serves as its Managing Member. The Managers
Funds LLC serves as an investment adviser to investment
companies registered under the 1940 Act. The business and
other connections of the officers and directors of The
Managers Funds LLC, are listed in Schedules A and D of its
ADV Form as currently on file with the Commission, the text
of which Schedules are hereby incorporated herein by
reference. The file number of said ADV Form is 801-56365.
Essex Investment Management Company, LLC ("Essex')
serves as sub-adviser to the Essex Aggressive Growth Fund.
AMG owns a majority interest in Essex. Essex is the
successor firm to Essex Investment Management Company, Inc.,
which was formed in 1976. The business and other
connections of the officers and directors of Essex are
listed in Schedules A and D of its ADV Form as currently on
file with the Commission, the text of which Schedules are
hereby incorporated herein by reference. The file number of
said ADV Form is 801-12548.
Frontier Capital Management Company, LLC. ("Frontier")
serves as sub-adviser to the Frontier Growth Fund. AMG owns
a majority interest in Frontier. Frontier is the successor
firm to Frontier Capital Management Company, Inc., which was
formed in 1980. The business and other connections of the
officers and directors of Frontier are listed in Schedules A
and D of its ADV Form as currently on file with the
Commission, the text of which Schedules are hereby
incorporated herein by reference. The file number of said
ADV Form is 801-15724.
First Quadrant, L.P. ("First Quadrant") serves as sub-
adviser to the First Quadrant Tax-Managed Equity Fund. AMG
owns a majority interest in First Quadrant. First Quadrant
is the successor firm to First Quadrant Corporation, which
was formed in 1988. a registered investment adviser, The
business and other connections of the officers and directors
of First Quadrant are listed in Schedules A and D of its ADV
Form as currently on file with the Commission, the text of
which Schedules are hereby incorporated herein by reference.
The file number of said ADV Form is 801-51748.
Item 27. Principal Underwriters.
(a) The Managers Funds LLC acts as principal underwriter
for the Registrant. The Managers Funds LLC also acts
as principal underwriter for The Managers Funds, The
Managers Trust I and The Managers Trust II.
(b) The following information relates to the directors,
officers and partners of The Managers Funds LLC:
The business and other connections of the officers and
directors of The Managers Funds LLC are listed in Schedules
A and D of its ADV Form as currently on file with the
Commission, the text of which Schedules are hereby
incorporated herein by reference. The file number of said
ADV Form is 801-56365.
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts and records of the Registrant are
maintained at the offices of the Registrant at 40 Richards
Avenue, Norwalk, Connecticut 06854 and at the offices of
the Custodian, State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02106 and 1776
Heritage Drive, North Quincy, Massachusetts 01171 and at
the offices of the Transfer Agent, Boston Financial Data
Services, Inc. 1776 Heritage Drive, North Quincy,
Massachusetts 01171.
Item 29. Management Services.
There are no management-related service contracts other
than the Investment Management Agreement relating to
management services described in Parts A and B.
Item 30. Undertakings.
Not applicable.
<PAGE>
Exhibit a.3.
-------------
MANAGERS AMG FUNDS
Amendment No. 3 to Master Trust Agreement
CERTIFICATE AND INSTRUMENT OF AMENDMENT
The undersigned, Secretary of Managers AMG Funds (the
"Trust"), does hereby certify that pursuant to Article VII,
Section 7.3 of the Master Trust Agreement of the Trust dated June
18, 1999, the following resolutions were duly adopted by a
majority of the Trustees of the Trust at a meeting of the Board
of Trustees held on June 1, 2000.
RESOLVED: That pursuant to Section 4.1 of the
Master Trust Agreement (the "Master Trust
Agreement") of Managers AMG Funds (the
"Trust") there be and hereby is established a
new series of shares of beneficial interest
of the Trust to be designated as the
"Frontier Growth Fund" (the "Fund"); and
further
RESOLVED: That the first paragraph of Section 4.2
of the Master Trust Agreement be, and it
hereby is, amended and restated in its
entirety as set forth below:
"Section 4.2 Establishment and Designation of
Sub-Trusts and Classes. Without limiting the
authority of the Trustees set forth in
Section 4.1 to establish and designate any
further Sub-Trusts and classes, the Trustees
hereby establish and designate the following
Sub-Trusts thereof: (i) Essex Aggressive
Growth Fund and (ii) Frontier Growth Fund,
each of which shall have a single class of
shares. The Shares of such Sub-Trusts and
any Shares of any further Sub-Trust or class
that may from time to time be established and
designated by the Trustees shall (unless the
Trustees otherwise determine with respect to
some further Sub-Trust or class at the time
of establishing and designating the same)
have the following relative rights and
preferences:"
RESOLVED: That the officers of the Trust be
authorized and directed to prepare and file
with the Secretary of State of The
Commonwealth of Massachusetts and other
applicable authorities an amendment to the
Master Trust Agreement to reflect the
establishment of the Fund, as described in
the preceding resolutions.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 19th day of September, 2000.
/s/ John Kingston
John Kingston, III
Secretary
<PAGE>
Exhibit a.4
------------
MANAGERS AMG FUNDS
Amendment No. 4 to Master Trust Agreement
CERTIFICATE AND INSTRUMENT OF AMENDMENT
The undersigned, Secretary of Managers AMG Funds (the
"Trust"), does hereby certify that pursuant to Article VII,
Section 7.3 of the Master Trust Agreement of the Trust dated June
18, 1999, the following resolutions were duly adopted by written
consent dated August 15, 2000 by a majority of the Trustees of
the Trust.
RESOLVED: That pursuant to Section 4.1 of the
Master Trust Agreement (the "Master Trust
Agreement") of the Trust there be and hereby
is established a new series of shares of
beneficial interest of the Trust to be
designated as the "First Quadrant Tax-Managed
Equity Fund" (the "Fund"); and further
RESOLVED: That the first paragraph of Section 4.2
of the Master Trust Agreement be, and it
hereby is, amended and restated in its
entirety as set forth below:
"Section 4.2 Establishment and Designation of
Sub-Trusts and Classes. Without limiting the
authority of the Trustees set forth in
Section 4.1 to establish and designate any
further Sub-Trusts and classes, the Trustees
hereby establish and designate the following
Sub-Trusts thereof: (i) Essex Aggressive
Growth Fund, (ii) Frontier Growth Fund and
(iii) First Quadrant Tax-Managed Equity Fund,
each of which shall have a single class of
shares. The Shares of such Sub-Trusts and
any Shares of any further Sub-Trust or class
that may from time to time be established and
designated by the Trustees shall (unless the
Trustees otherwise determine with respect to
some further Sub-Trust or class at the time
of establishing and designating the same)
have the following relative rights and
preferences:"
RESOLVED: That the officers of the Trust be
authorized and directed to prepare and file
with the Secretary of State of The
Commonwealth of Massachusetts and other
applicable authorities an amendment to the
Master Trust Agreement to reflect the
establishment of the Fund, as described in
the preceding resolutions.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 10th day of November, 2000.
/s/ John Kingston
John Kingston, III
Secretary
<PAGE>
Exhibit d.3
------------
LETTER AGREEMENT
First Quadrant Tax-Managed Equity Fund
Investment Management Agreement
November 14, 2000
The Managers Funds LLC
40 Richards Avenue
Norwalk, Connecticut 06854
Attn: Peter Lebovitz
Re: Investment Management Agreement between The Managers Funds
LLC and Managers AMG Funds, dated as of October 19, 1999
Ladies and Gentlemen:
Pursuant to Paragraph 1(b) of the Investment Management Agreement
between The Managers Funds LLC and Managers AMG Funds (the
"Trust"), dated October 19, 1999, the Trust hereby advises you
that it is creating a new series to be named First Quadrant Tax-
Managed Equity Fund (the "New Fund"), and that the Trust desires
The Managers Funds LLC to provide management and investment
advisory services with respect to the New Fund pursuant to the
terms and conditions of the Investment Management Agreement. The
investment advisory fees to be payable with respect to the New
Fund are reflected on the attached Schedule A.
Please acknowledge your agreement to provide such management and
investment advisory services to the New Fund by executing this
letter agreement in the space provided below and then returning
it to the undersigned.
Sincerely,
Managers AMG Funds
By: _______________________________
Name:
Title:
ACKNOWLEDGED AND ACCEPTED
The Managers Funds LLC
By: _______________________________
Name:
Title:
Date:
<PAGE>
SCHEDULE A
FIRST QUADRANT TAX-MANAGED EQUITY FUND
Advisory Fees pursuant to Section 2(a)
The Trust shall pay to the Adviser an annual gross
investment advisory fee equal to 0.85% of the average daily net
assets of the First Quadrant Tax-Managed Equity Fund; provided,
however, that the Adviser agrees, for a period of not less than
eighteen (18) months, to waive its advisory fee and pay or
reimburse the Trust for expenses of the Fund to the extent total
expenses of the Fund would otherwise exceed 1.00% of the Fund's
average daily net assets. Such fee shall be accrued daily and
paid as soon as practical after the last day of each calendar
month.
In addition to the foregoing waiver, payment or
reimbursement (if any), the Adviser may from time to time
voluntarily waive all or a portion of the advisory fee payable
with respect to the First Quadrant Tax-Managed Equity Fund and/or
pay or reimburse the Trust for expenses of the Fund. In addition
to any amounts otherwise payable to the Adviser as an advisory
fee for current services under the Investment Management
Agreement, the Trust shall be obligated to pay the Adviser all
amounts previously waived, paid or reimbursed by the Adviser with
respect to the First Quadrant Tax-Managed Equity Fund, provided
that the amount of such additional payment in any year, together
with all other expenses of the First Quadrant Tax-Managed Equity
Fund, in the aggregate, would not cause the First Quadrant Tax-
Managed Equity Fund's expense ratio in such year to exceed 1.00%
of the average daily net assets of the First Quadrant Tax-Managed
Equity Fund and provided further that no additional payments
shall be made with respect to amounts waived, paid or reimbursed
more than three (3) years prior to the date the Fund accrues a
liability with respect to such additional payment.
Administration Fees Pursuant to Section 2(b)
None.
<PAGE>
Exhibit i.3
-------------
[Goodwin, Procter & Hoar LLP Letterhead]
November 14, 2000
Managers AMG Funds
40 Richards Avenue
Norwalk, Connecticut 06854
Ladies and Gentlemen:
As counsel to Managers AMG Funds (the ATrust@), we have been
asked to render our opinion in connection with the issuance by
the Trust of an unlimited number of shares, $.001 par value per
share (the "Shares"), of the Trust representing interests in the
First Quadrant Tax-Managed Equity Fund (the "Fund"), a portfolio
series of the Trust, as more fully described in the prospectus
and statement of additional information contained in Post-
Effective Amendment No. 5 (the "Amendment") to the Registration
Statement on Form N-1A (Registration No. 333-84639) of the Trust.
We have examined the Master Trust Agreement of the Trust
dated June 18, 1999, as amended to date, the By-Laws of the
Trust, certain resolutions adopted by the Board of Trustees of
the Trust, the prospectus and statement of additional information
which form a part of the Amendment and such other documents as we
deemed necessary for purposes of this opinion.
Based upon the foregoing, we are of the opinion that the
Shares, when sold in accordance with the terms of the prospectus
and statement of additional information relating to the Shares,
as in effect at the time of the sale, will be legally issued,
fully-paid and non-assessable by the Trust.
We also hereby consent to the reference to this firm in the
prospectus and statement of additional information which form a
part of the Amendment and to a copy of this opinion being filed
as an exhibit to the Amendment.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit p.3
-----------
ESSEX INVESTMENT MANAGEMENT COMPANY, LLC.
Code of Ethics
and
Statement of Policies and Procedures on Insider Trading
ESSEX INVESTMENT MANAGEMENT COMPANY, LLC.
OFFICERS & EMPLOYEES CODE OF ETHICS REGARDING
PERSONAL SECURITY TRANSACTIONS
I. General Principals
As an investment adviser, Essex and its employees owe a
fiduciary responsibility to our clients, this requires each
of us to put the interest of our clients first. A critical
component of our fiduciary duty to our clients is to avoid
potential conflicts of interest. As such our Code of Ethics
provides the following:
* All employees must place the interest of our clients first;
* All employees must execute personal securities transactions
in compliance with this Code of Ethics and to avoid any actual or
potential conflict of interest. Even the appearance of a
conflict of interest must be anticipated and avoided; and
* No employee should take inappropriate advantage of their
position and/or unfair advantage of information that they learn.
A. Code Not to Forbid or Even Discourage Personal Investing
It is strongly emphasized that it is not the
intention of this Code of Ethics to forbid or
even discourage the accumulation and
management, by officers or employees, of a
personal portfolio consisting of securities
generally available to the public including
securities in the portfolios of client
accounts. Indeed, a sound personal
investment program is one very good way to
develop an analytical skill in dealing with
the market which can be of great value to the
client accounts. Such a course of action
must however, in recognition of the service
relationship to the clients, be carried on in
accordance with certain standards and
guidelines that have been established for
everyone's protection.
B. Restricted Activities
Among other things, it is clear that each
officer or employee or their family members
should be certain that he/she avoid:
1. purchasing or selling securities in such a way as to compete
in the marketplace with the accounts of clients managed by Essex,
or otherwise acting to injure their transactions;
2. using knowledge of client securities transactions to profit
by the market effect of such client transactions;
3. placing a transaction, which in hindsight, might take on the
appearance of "front-running" clients' accounts; or
4. giving to others information not generally available to the
public of proposed or current purchases or sales by the clients
(except to the extent necessary to the carrying on of the
business of the clients) because of the possibility of such
others taking action detrimental or potentially detrimental to
the client accounts or potentially benefiting from the market
effect of such client transaction.
II. Certain Investing Guidelines for Officers & Employees
(Affiliated Persons)
All officers and employees and their family members, as
described in Section IV, below (each of whom is herein
described as an "Affiliated Person") of Essex must
adhere to the following restrictions:
A. Simultaneous Transactions
An Affiliated Person may not purchase, sell,
short, etc. any security if, within the prior
three full business days and up to the time
the Head Trader pre-clears the transaction,
Essex has had activity in such security or an
equivalent on behalf of any of its clients.
Any simultaneous transactions, i.e., any
purchase or sale of any security by any
Affiliated Person simultaneously with, or at
approximately the same time as a client
account, may involve a conflict with our
clients and therefore may be a violation of
the Code whether or not there is any
detriment to the client account and whether
or not any individual benefits thereby.
A pattern of buying or selling at
approximately the same time as any account,
or in advance of any account, carries with
it, at a minimum, the appearance of a
violation of the Code. The Compliance
Officer will carefully consider with any
Affiliated Person any transaction of his/her
having the appearance of a joint
participation or simultaneous transaction.
If any Affiliated Person intends to purchase
or sell any security which is held by a
client account, or has knowledge that a
particular asset is being considered for
purchase or sale by client accounts, it is
recommended that that person review his/her
potential purchase or sale with the
Compliance Officer.
Front-running is strictly prohibited by this
Code. Front-running violations are typified
in personal trades conducted shortly before
Essex's transaction and is calculated to
capitalize on the market effect of Essex's
trading. Obviously, an Affiliated Person's
transactions should be avoided where they
have the possible appearance of front-running
even though that was not the intent. Trading
by an Affiliated Person immediately after a
trade by Essex may allow that person to
benefit from any market effect caused by
Essex's trades.
B. Initial Public and Secondary Offerings
It is completely prohibited for any
Affiliated Person to participate for his/her
personal account in an initial public
offering or a secondary offering of
securities of an issuer, since the
availability of such participation may stem,
or appear to stem, from his/her relationship
with Essex. Notwithstanding the foregoing, an
Affiliated Person may participate in an
initial public offering if the opportunity of
such investment was not in any way related to
his/her relationship with Essex. The
Compliance Officer will have the final
determination as to whether a particular
investment opportunity arose from his/her
relationship with Essex. Such a situation
may arise for example, where a Savings Bank
goes public and offers investment
opportunities to its long-term depositors.
Purchase of a security pursuant to this
section is still subject to the reporting
requirements of Section V(E). This policy
does not prohibit an Affiliated Person from
buying securities in the open market after
such offering, provided all other provisions
of this Code are met.
C. Short Term Trading
Affiliated Persons are prohibited from
engaging in "Short-Term" trading. For
purposes of this Code, "Short-Term" trading
is defined as the sale/cover of a security
within thirty days of a purchase/short of the
same security. However, if the price
declines by 20% or more within thirty days of
being purchased, the Compliance Officer, in
his/her sole discretion, may waive this
restriction. The subsequent sale would be
subject to all other provisions of this Code.
In order to avoid the appearance of a
conflict of interest arising from Affiliated
Persons quickly profiting on their personal
trades, Essex requires a thirty-day holding
period on all purchases/shorts.
D. Cooperative Investments
An Affiliated Person may have a beneficial
interest in a limited partnership, business
trust, or investment club, or other similar
organization dealing in securities
("Cooperative Investment") only with the
prior written approval of the Compliance
Officer. This provision does not apply to a
Cooperative Investment managed by Essex for
its employees.
One of the factors to be considered by the
Compliance Officer will be the extent the
Affiliated Person takes part in any
investment decision. If the Affiliated
Person takes any part in any investment
decision, or could have the appearance of
taking part in any decision, the Cooperative
Investment must follow this Code, including
the pre-clearance provision. If the
Cooperative Investment does not adhere to
this Code, then participation by the
Affiliated Person will be prohibited. The
decision of the Compliance Officer will be
final.
E. Mutual Funds
An Affiliated Person may invest in any
regulated investment company (mutual fund)
provided the purchase or sale of such fund(s)
is on substantially the same terms as someone
who is not associated with Essex would
obtain.
F. Options and Short Sales
The use of options and short sales are
subject to all provisions of this Code as is
the case with any other security. Due to the
restrictions on simultaneous transactions,
the limited life of an option contract, and
the potential for unlimited losses on short
sales, an Affiliated Person should very
carefully consider the implications of
writing, buying, or selling or exercising put
or call options or making short sales or
combinations of any of the foregoing. It is
emphasized that because of the special nature
of some of these transactions, the potential
conflicts they may create with investments
held in or being considered for purchase or
sale by client accounts, and the trading
restrictions and prohibitions contained in
this Code, the Affiliated Person should weigh
the risks associated with these types of
investments.
In addition, the potential for conflict
and/or the appearance of conflict of interest
with our clients by using these types of
investments is increased. The appearance of
front-running is also increased. Therefore,
the use of these types of investments will be
carefully scrutinized by the Compliance
Officer, and if it is determined that the
Affiliated Person benefited, at the expense
of any client, the profits from the
transaction may be disgorged.
In any case, the use of options to evade
the provisions of this Code is prohibited.
G. Private Placements and Investment Letter Securities
In limited situations, an Affiliated Person
may purchase investment letter securities, or
securities in a private offering, however,
the procedures for such purchase are vastly
different then the normal pre-clearance
authorization for publicly traded securities
described in II. A. above. This section does
not apply to securities purchased through a
vehicle managed by Essex in which an
Affiliated Person has made an investment.
Investing in private placements by an
Affiliated Person increases the potential for
either a conflict or the appearance of a
conflict of interest with Essex's clients.
For example, if the accounts have accepted
the invitation, such persons obviously cannot
compete with them. If they have refused, a
participation by such persons is open to the
charge that the accounts refused to invest,
or were encouraged not to invest, in order to
enable the individual to participate.
If the security is such that any client's
accounts could possibly have an interest in
it, a purchase by an Affiliated Person is
open to the charge that he received preferred
treatment from a broker-dealer because of his
association with an investment advisor or a
counseling account.
However, in some instances, there may be
extenuating circumstances or special facts,
such as personal relationships with the
issuer. In addition, in certain situations,
it may be in the best interest of the client
for an Affiliated Person to make an
investment - where for example the purchase
of a larger block may reduce the overall unit
price of the issue.
Therefore, Affiliated Persons may request
permission to make such investments.
Application, in writing, for such permission
should be addressed to the Compliance
Officer, who will then bring such request to
Joseph C. McNay, Chairman, Colin McNay,
Research Director or Stephen R. Clark,
Executive Vice President ("Designated
Officers"). The determination of the
Designated Officer(s) will be final and a
memo to the employee's personnel file will
memorialize their determination.
When making a determination as to whether an
employee may make an investment in a
restricted security, the following will be
taken into account:
1. That each client who is known to be potentially interested
in such type of investment or whose stated investment objectives
are consistent with such an investment has been informed directly
about the opportunity;
2. Essex has made a good faith determination as to what portion
of such offering should be made available to each client in this
group of accounts, based on risk/return characteristics, level of
diversification, other investment opportunities available, etc.
of the client's account;
3. All clients whose investment guidelines would permit such an
investment have been notified of the investment opportunity and
have responded back to Essex, in writing, of their acceptance or
rejection of the investment; and
4. All doubts must be resolved in favor of offering the
investment to the client at the expense of the affiliate's
opportunity to invest.
After the above four items have been resolved
and the investment opportunity is still
available to the affiliate, then the
Designated Officer(s) must further determine:
1. That the affiliate's participation in the offering will not
have a material adverse effect on the terms being offered to the
client;
2. That the affiliate is participating in the offering on the
same terms as the client and on the same terms as generally being
offered to other prospective investors;
3. That the proposed transaction in no way creates any
unfairness to any of Essex's existing clients; and
4. That any conflict will be resolved in favor of the client,
even if it means the Affiliated Person is not allowed to make the
investment.
H. Gifts and Endorsements
This Code of Ethics requires any
Affiliated Person to report the receipt of
any gift or other service, item, etc. of more
than a de minimis value (currently $150) from
any person or entity per year that does
business with Essex. This report is due on
the 10th day of the month following the
receipt of such gift, service or item in
excess of the de minimis amount.
I. Other Securities Investments
Essex does not generally engage on
behalf of its clients in securities
transactions other than those described
specifically in the Code. Nevertheless, all
securities transactions by employees are
subject to the principles of the Code,
whether or not they are of a type
specifically described herein. All
securities transactions should be included in
the monthly reports described below. They
are also subject to the pre-clearance
procedure, unless the Code expressly states
otherwise.
The following securities transactions do
not require pre-clearance, but only if the
Affiliated Person is completely satisfied
that such an investment is consistent with
the general principles of the Code, as well
as its specific requirements:
* Direct investments in obligations of the United States;
* Investments in commodities (not including index futures or
currency futures or forward contracts);
* Direct investment in real estate (not including securities
evidencing an interest in real estate, such as REITs);
* Investments in mutual funds (except as described herein);
and
* Investments in FDIC-insured bank accounts or certificates of
deposit.
* U. S. Depository Receipts as described in Section II(K).
J. Dividend Reinvestment Plans
Certain Affiliated Persons may
participate in an issuer's dividend
reinvestment plan ("DRP") and may make cash
contributions to purchase additional shares
through the DRP. All such investments must
be reflected in the monthly reports. The
commencement of participation in a DRP is
subject to the pre-clearance procedure, as is
any cash contribution to a DRP (except as
described below).
If an Affiliated Person intends to make
small cash contributions ($1,000.00 or less)
to an individual DRP on a monthly (or less
frequent) basis as part of an ongoing
personal investment program in such security,
such Affiliated Person may pre-clear the
investment program as a whole and then he or
she need not pre-clear each investment made
within the confines of such a plan.
The termination of an investment plan as
described above, the termination of
participation in the DRP, and the purchase of
shares through the DRP by dividend
reinvestment alone are all not subject to pre-
clearance, though they all must be included
in the monthly reports.
K. Exemptions
(1) Purchases or sales of securities may be
exempted from the provisions of Section II.A.
if the Affiliated Person obtains a
certification from the Head Trader that the
proposed purchase or sale, or any purchases
or sales by Essex accounts in the next few
business days, are unlikely to have a
material impact on the price of the security.
(2) Purchases or sales of U.S Index
Depository Receipts (e.g., S & P Depository
Receipts - SPDR) in amounts less than $50,000
(or some other amount as the Compliance
Officer determines) do not have to be pre-
cleared. For transactions in amounts in
excess of $50,000 the Affiliated Person must
obtain a certification from the Head Trader
that the proposed purchase or sale, or any
purchases or sales by Essex accounts in the
next few business days, are unlikely to have
a material impact on the price of the of the
U.S. Index Depository Receipt.
Simultaneous transactions by Affiliated
Persons in securities that are also held by
Essex clients at a minimum may create the
appearance of a conflict of interest with the
interests of the Essex client. However, the
provisions of this Code are designed to
recognize that, as a practical matter, there
is little chance for a client to be harmed,
or an employee to benefit through "front-
running", if purchases or sales are made in
small amounts in a large capitalized, liquid
stock. In making the certification necessary
to obtain this exemption, the Head Trader
shall consider the market capitalization of
the security, its average daily trading
volume, and the likelihood that the
Affiliated Person's transaction, (or any
potential transactions by Essex client
accounts in the next few business days) would
produce a material impact on the security's
price.
(3) Trading activity through an account for
which the Affiliated Person does not have any
authority to trade or to exercise discretion
is not subject to the pre-clearance or
reporting provisions of this Code. This
would include for example, Blind Trusts or
brokerage accounts where the Affiliated
Person cannot exercise trading authority.
III. Insider Trading
All officers and employees of Essex are subject to
special rules relating to trading on the basis of material,
nonpublic information - sometimes referred to "insider
trading". All officers and employees must read and sign the
attached appendix relating to Essex's policies on insider
trading.
IV. Persons to Whom this Code Applies
A. The requirements of this Code apply directly to all
Affiliated Persons. An Affiliated Person is defined as:
1. You
2. Your spouse,
3. Your minor children,
4. Any other person living with you or to whose financial
support you contribute, and
5. Any account for the above categories over which you have
discretionary authority.
B. Code applies to others indirectly
The intent of this Code cannot be
circumvented by an Affiliated Person by
providing information to a person who is not
described in A. above, with the expectation
that that person will trade on such
information. Thus, for example, an
Affiliated Person may not provide information
to a brother or sister not living with
him/her with the expectation that that
brother or sister will trade on the
information.
V. Procedural Requirements
A. Prior to entering any personal securities transaction the
Affiliated Person will be required to have a Pre-clearance Form
executed by both the Head Trader and Director of Research (as
well as by the employee himself/herself) certifying:
1. There are no open orders currently pending on the trading
desk;
2. That there is no interest that might result in activity in
said security during the immediate days ahead;
3. That there has not been an Essex transaction during the last
few business days;
4. There is not any research currently being conducted and the
Research Director has not directed any person to perform such
research or to the best of the Research Director's knowledge, no
research is contemplated that might result in transaction
activity during the immediate days ahead
5. That the Affiliated Person is not aware of any information
which has not been disclosed to the Investment Committee, which,
if it had been disclosed might have resulted in either the
purchase or sale of a security for any of Essex's clients
accounts; and
6. When the last trade by Essex occurred in such security, if
such trade occurred in the prior five days.
7. That the Affiliated Person is not going to sell/cover this
security within thirty days of this personal security
transaction.
Failure to obtain pre-clearance for a
personal security transaction is a serious
breach of Essex's rules and will be treated
as such. Violations of the pre-clearance
requirement may subject the employee to
disciplinary action. Failure to obtain pre-
clearance may also result in the trade being
canceled with the Affiliated Person bearing
any losses that may occur. Any profits that
may result from an unauthorized traded will
be donated to a charity designated by Essex.
B. If a previously entered Affiliated Person's transaction
falls within the applicable blackout period, the Affiliated
Person must contact the Compliance Officer who may, in his/her
sole discretion, cancel the transaction prior to settlement. If
the transaction cannot be canceled prior to settlement, then the
Compliance Officer may, in his/her sole discretion, require the
Affiliated Person to disgorge any resulting profits to Essex, who
will then donate the payment to a charity it designates. The
amount of any profits disgorged will be determined by the
Compliance Officer whose decision will be final.
C. An Affiliated Person who is not an employee of Essex may be
completely or partially exempted from the pre-clearance
provisions set forth above in Section V (A) upon written
application to the Compliance Officer demonstrating good cause
for such exemption. Any exemption shall be in writing, may be
subject to such conditions as the Compliance Officer shall
determine, and may be revoked at any time by giving written
notice to the Affiliated Person. If a request for exemption is
denied or revoked, the Affiliated Person must follow the
procedures set forth in Section V (A). The denial or revocation
of an exemption is a final decision.
D. Each Affiliate Person must submit an Initial Holdings Report
to the Compliance Officer no later thank10 days after becoming
affiliated with Essex. A copy of the Initial Holdings Report is
attached.
E. Each Affiliated Person must submit a monthly transaction
report to the Compliance Officer listing the Affiliated Person's
securities transactions for the month by the 10th day of the
following month. A copy of the report is attached.
F. Each Affiliated Person must submit an Annual Holdings Report
to the Compliance Officer by January 31 of each calendar year.
A copy of the Annual Holdings Report is attached.
G. An Affiliated Person who purchases or sells a security
exempted under the provisions of Section II(1) is still required
to report such securities on a monthly basis pursuant to Section
V(E) above.
H. The Compliance Officer and/or the Management Committee will
have complete and final authority to enforce this Code.
VI. Client and Company Confidentiality
The services that you perform for Essex may expose you to
confidential information including (but not limited to):
1. Information about the clients of Essex, such as client
names, addresses, telephone numbers, personal financial data and
other client information;
2. Information about Essex's client prospects;
3. Information regarding Essex's employees such as personal
information, phone numbers, addresses etc.;
4. Information regarding Essex's legal matters, such as SEC
inquiries or audits, legal claims or litigation, etc.;
5. Information relating to the performance of any client
account or fund managed by Essex;
6. Information regarding clients' transactions and/or holdings;
and
7. Information relating to companies visiting Essex's office.
Such information should not be discussed with
anyone outside the company without the
express knowledge and permission of the
management of Essex.
All matters relating to Essex and becoming
known to any employee must be held in the
strictest confidence. Employees must assume
that all information relating to Essex is
confidential and should not be discussed or
released to any outside party (including
insurance representative, attorney, banker,
brokers, former employees, family members, or
friends) without the express knowledge and
permission of Essex's management. Outside
parties who insist on knowing confidential
information should be directed to management.
Employees also must not use or release any
Essex proprietary information without
authorization. Proprietary information would
include (without limitation) any information
relating to portfolio management decisions,
analysts reports, methods used to select
investments, etc.
Employees should not discuss any security
holdings including short positions with
anyone outside the company. In addition,
employees should not discuss with anyone
outside the company any research, analysis,
or pending purchase or sale of securities by
Essex.
APPENDIX
STATEMENT OF POLICIES AND PROCEDURES WITH RESPECT TO THE FLOW AND
USE OF MATERIAL NONPUBLIC (INSIDE) INFORMATION
I. Statement of Policy
Essex Investment Management Company, LLC ("Essex") forbids
any officer or employee from trading, either personally or
on behalf of others, including client accounts, while in
possession of material nonpublic information in violation of
the law. Every officer and employee must read, retain and
sign a copy of this Statement of Policy and Procedures. Any
questions regarding Essex's Policy and Procedures should be
referred to Christopher P. McConnell, Essex's Compliance
Officer.
Generally, it is illegal to trade in securities while you
are in possession of material, nonpublic, information that
might affect the value of those securities or to transmit
that information to anyone who may then trade in such
security. Because the law of insider trading involves a
number of complex legal interpretations, Essex requires
every officer or employee to confer with the Compliance
Officer and obtain clearance in writing, before any
securities transaction involving perceived, possible,
material, nonpublic information is entered into. The
Compliance Officer will determine whether proceeding with
the proposed transaction would involve substantial risks
that the transactions would violate the law. Many aspects
of the implementation of the law are "gray" and in this
connection, it is Essex's desire that all of our employees
operate in the most conservative manner, thereby avoiding
even the appearance of any impropriety. Every officer and
employee of Essex must follow the procedures described below
or risk serious sanctions, including dismissal, substantial
personal liability and criminal penalties, including jail
sentences.
II. INSIDE INFORMATION
General Discussion
Federal and state securities law generally make it unlawful
to:
_ trade,
_ tip, or
_ recommend securities
while in possession of material nonpublic information.
These so-called "insider" trading restrictions come
into play if such information:
_ relates to a tender offer,
_ has been acquired improperly, or
_ though acquired properly, has been obtained in circumstances
in which there is a reasonable expectation that it will not be
used for trading purposes.
By not adhering to these rules you may subject Essex,
yourself and your co-workers to unwanted notoriety and
possible business failure. Furthermore, violation of
these restrictions may lead to civil penalties, fines
and even imprisonment to the violator.
III. General Prohibitions
A. Whether or not Rule 14e-3 (the Tender Offer Rule, described
below) is applicable, the federal securities laws, and in
particular, Section 10(b) of the Securities Exchange Act,
prohibit you from trading, tipping or recommending securities if
you possess material nonpublic information that you have reason
to know was obtained improperly, or though properly obtained, was
obtained in circumstances that indicate it should not be used for
trading purposes. In particular, you should not trade, tip or
recommend securities if you have obtained material nonpublic
information on a confidential basis, from an insider in breach of
his or her duty, or through "misappropriation".
B. Under SEC Rule 14e-3, you may not trade, tip, or recommend
securities of a company that is a target of a tender offer if you
possess material nonpublic information regarding the tender
offer. This prohibition applies if you have reason to know that
the information was obtained, directly or indirectly, from the
bidder, the target or a person acting on behalf of the bidder or
target.
Moreover, the rule applies to trading, tipping and
recommendations even before a tender offer has been
made. A substantial step includes, for example,
_ the formulation of a plan to make a tender offer,
_ arranging the financing for a tender offer,
_ preparation of tender offer materials, or
_ commencement of negotiations with dealers to participate in
a tender offer.
IV. MATERIALITY
Information is "material" if a reasonable investor would
want to know it before making an investment decision. In
general, information that would affect the value of the
securities is material. While it is impossible to list all
types of information which might be deemed material under
particular circumstances, information dealing with the
following subjects is reasonably likely to be considered
material:
_ earnings estimates;
_ dividends;
_ major new discoveries or advances in research;
_ acquisitions, including mergers and tender offers;
_ the sale of substantial assets;
_ changes in debt ratings;
_ significant write-downs of assets or additions to reserves
for bad debts or contingent liabilities;
_ liquidity problems;
_ extraordinary management developments;
_ public offerings;
_ major price or marketing changes;
_ labor negotiations; and
_ significant litigation or government agency investigations.
On the other hand, information is generally not material if
its public dissemination would not have a market impact.
Since such judgments may ultimately be challenged with 20/20
hindsight and the consequences of a wrong decision are
potentially severe, you should contact the Compliance
Officer for advice if you are uncertain whether information
you possess is material. Here again, it is Essex's desire
to take the most conservative approach and hopefully
completely avoid even the appearance of an impropriety.
V. NON-PUBLIC
A. General Discussion
Information that has not been disclosed to the public
generally is "nonpublic." To show that information is
public, you should be able to point to some fact
showing that it is widely available. Information would
generally be deemed widely available if it has been
disclosed, for example, in:
_ the broad tape,
_ Reuters,
_ daily newspapers,
_ widely circulated public disclosure documents, such as
prospectuses or proxies; or
_ in certain instances, brokerage reports.
Nonpublic information may include:
_ information available to a select group of analysts or
brokers or institutional investors. However, this may not
prohibit an analyst from taking pieces of non-public information,
combining it with certain public information, and weaving a
mosaic from which an investment conclusion is drawn;
_ undisclosed facts which are the subject or rumors, even if
the rumors are widely circulated; and
_ information that has been specifically conveyed to you on a
confidential basis until enough time has elapsed for the market
to respond to a public announcement of the information.
B. When You Cannot Trade, Tip or Recommend Securities
_ You cannot trade, tip or recommend securities of a target
whenever you possess material nonpublic information acquired from
the bidder or target or one of their agents.
_ As noted above, outside the tender offer context, you are
prohibited from trading, tipping, or recommending securities
while in possession of material nonpublic information if you
obtained the information (1) on a confidential basis from a
client or other person, (2) from an insider in breach of his or
her fiduciary duty, or (3) through misappropriation.
B. Information Obtained on a Confidential Basis
When the firm obtains information from an outside
source, typically a client or a potential client,
with the expectation that it will keep such
information confidential, you are prohibited from
using that information to trade, tip or recommend
securities, whether or not such an action would
involve a violation of the securities laws. The
expectation of confidentiality may be explicitly set
forth or implied by the nature of the firm's
relationship with the source of the information, as
when the firm obtains information from an investment
banking client.
C. Information Obtained though a Breach of Fiduciary Duty
_ Even in the absence of an expectation of confidentiality,
you are prohibited from trading, tipping or recommending
securities on the basis of material nonpublic information
disclosed by an insider in breach of fiduciary duty or similar
duty.
_ Whether an insider breaches his fiduciary duty by disclosing
information to you is not always an easy determination to make
and depends in large part on the purpose of the disclosure, it is
improper for you to use that information to recommend or trade
securities. The "personal benefit" test is satisfied if the
insider receives a pecuniary or reputational benefit by
disclosing the information.
_ Temporary insiders--You should be aware that for purposes of
finding a breach by an "insider," the term "insider" is broadly
defined to include not only traditional insiders, such as
officers and directors, but also "temporary insiders." Temporary
insiders" include, for example, investment bankers, accountants,
lawyers, or consultants who have entered into a relationship with
the corporation that gives them access to information solely for
corporate purposes.
_ The "personal benefit" and "temporary insider" standards are
difficult to apply in some situations. You should contact the
Compliance Officer if you are unsure of how these test should be
applied in a particular case.
E. Information Obtained Through Misappropriation
"Misappropriated" information is information that has
been improperly obtained or though obtained
properly, is being used improperly for a purpose
contrary to the purpose for which it was given. For
example, if a printer, a commercial banker or a
lawyer trades on the basis of material nonpublic
information entrusted to him by a client, it is
likely that he will be found to have misappropriated
the information. Likewise if such a person divulges
the information to you, and you trade, tip or
recommend securities, you may be found liable as a
"tippee" with respect to the misappropriated
information. For this reason, absent approval by
the Compliance Officer on the basis of a full
exploration of the facts, you cannot in such
circumstances trade, tip or make recommendations
regarding the affected securities.
F. Qualification on Prohibition
_ Improper disclosures should be distinguished from the
situation in which company officers routinely answer questions
from you about previously-issued press releases, earnings
reports, regulatory filings, or otherwise help you to fill in the
gaps of your analysis.
_ In brief, you are not prohibited from using information
obtained legitimately through your own analysis or appropriate
investigative efforts, if you are satisfied that the disclosure
of such information to you was not unlawful.
G. Possession vs. Use
_ The "possession" test has been adopted in the Exchange Act,
Rule 14e-3, relating to tender offers. The treble damage penalty
of the Insider Trading Sanctions Act ("ITSA") as well as the
damage provisions of the Insider Trading and Securities Fraud
Enforcement Act of 1988, explicitly apply to persons who
"possess" material nonpublic information.
_ However, under Section 10(b) there is a conflict. While the
SEC argues that "possession" rather than "use" is the appropriate
standard, language in some court decisions appears to support the
"use test." That is, the requirement that the material non-
public information has been a factor (i.e., has been used) in
the decision to buy or sell. To deal with the potentially
difficult proof problem, however, courts create a rebuttable
presumption that trading is caused by possession of the
information where the information is both material and non-
public.
_ It is, therefore, very important to document that one's
purchase or sale decision or recommendation was based on
legitimate investigatory work and was not based on material non-
public information. While such a demonstration may not provide
an absolute defense to all charges, it can support the argument
that there can be no breach of duty to support a fraud charge
under Section 10(b) unless the defendants used the improper
information.
VI. SCIENTER
_ The Supreme Court has held that to prove a violation of
Section 10(b), a plaintiff (whether the government or a private
plaintiff) must prove "scienter." The Court defined scienter as
an "intent to deceive, manipulate or defraud," but also stated
that it embraces "knowing" misconduct and reserved the issue
whether it includes recklessness. Lower courts have held that in
most cases recklessness satisfies the scienter requirement of
Section 10(b).
_ There is some uncertainty about exactly how the scienter
requirement fits into insider trading cases. Under the
possession test, it would appear sufficient if the insider knew
(or was reckless in not knowing) that the information was
material and nonpublic. Under the fiduciary duty/fraud theory,
however, it is not enough that the insider trade on the basis of
information that is material and nonpublic. Insider trading is
not actionable unless the person trades in breach of a fiduciary
duty owed to the other party in the transaction. In this
situation, the interpretation most consistent with the Court's
theory is that the insider must know of (or be reckless in not
knowing) the facts that made the trade a breach of duty to the
other party in the transaction. Under the misappropriation
theory, the insider must know (or be reckless in not knowing) the
facts that make the trade a breach of duty owned to someone other
than the other party to the transaction.
_ Scienter generally arises as an issue in tippee cases. Even
under the possession test, it was necessary to show that the
tippee knew (or at least should have known) that the information
was material and nonpublic. Dirks, however, adds the further
requirement that the tippee "[know] or should know that there has
been a breach." As one district court stated, to prove that a
tippee acted with scienter, the plaintiff must prove that he/she"
knew or had reason to know that [the tipper] communicated
material, nonpublic information for direct or indirect personal
gain . . . ." The "should know" and "reason to know"
formulations are curious since they are more akin to a negligence
formulation than a recklessness standard.
VII. FRONT-RUNNING RESTRICTIONS
_ The purchase or sale of securities while in possession of
material non-public information concerning block transactions in
those securities is known as "front-running."
_ Trading before a research recommendation is announced or
before its market impact has been felt is also known as "front-
running." It has been interpreted to violate the requirements of
the Exchanges and the NASD that brokers adhere to just and
equitable principles of trade.
VIII. COMPLIANCE WITH THESE GUIDELINES
_ These guidelines will be distributed to all present
employees and to all new employees at the time of their
employment. The guidelines will be acknowledged by all employees
in writing. From time to time they will be re-circulated and
revised in light of new developments.
_ If there is any unresolved question in your mind as to the
applicability and interpretation of these guidelines or the
propriety of any desired action, the matter must be discussed
with the Compliance Officer prior to trading or disclosure of the
information.
ACKNOWLEDGMENT FORM
To be completed by all Essex employees
TO: Compliance Officer
FROM: __________________________
DATE: ___________________________
SUBJECT: Acknowledgment Form - Essex Code of Ethics
I acknowledge that I have received, read, understood and I hereby
assure that I will comply with Essex Investment Management
Company, LLC's Code of Ethics.
NAME DATE
PRE-CLEARANCE AUTHORIZATION FORM
TO: Compliance Officer
FROM: __________________________
DATE: ___________________________
SUBJECT: Proposed Personal Security Transactions
I am currently considering a buy/sell, long/short transaction
involving ____________ shares of the following security:
Symbol: ____________________________________________________________
In an attempt to avoid a conflict of interest or even the
appearance of a conflict of interest,
I hereby certify that there are not any open orders currently
pending for the above-referenced
security. In addition, I am not aware of any interest that might
result in any activity in the above-
referenced security during the immediate days ahead. Lastly, I
hereby confirm there has been no
activity during the prior three business days (and up to the time
I sign this form) by any of our
clients.
Head Trader Time Date
I hereby certify that, to the best of my knowledge, there is not
any research currently being conducted and I have not directed
any person to perform such research which might result in
transaction activity in the above-referenced security during the
immediate days ahead.
Director of Research, Date
President, Compliance
Officer or Chairman
Pursuant to section II. J. of the Code of Ethics, I certify that
the above contemplated transaction is in a large, liquid stock
with high trading volume and whose purchase or sale by the
employee will not impact the stock. Further, any current or
subsequent purchase or sale by Essex would not generally be
expected to impact the stock and thereby benefit the employee.
Head Trader Time Date
Based upon the above certifications, I have determined that my
transaction activity will not conflict with any transaction
placed or contemplated on behalf of Essex clients. I certify
that I will not sell/cover this security within thirty days of
this transaction. Beyond this, I do not believe there to be even
the appearance of a possible conflict of interest. In addition,
I am not aware of any information which has not been disclosed to
the Investment Committee, which, if it had been disclosed might
have resulted in either the purchase or sale of a security for
any of Essex's clients accounts. Further, I understand that in
the event that a subsequent transaction occurs which would, in
the opinion of the Compliance Officer, create or result in a
conflict of interest or the appearance of a conflict, the
Compliance Officer may require the cancellation of my
transaction.
Employee Date
PERSONAL SECURITIES HOLDINGS REPORT
(For use as an Initial or Annual Holdings Report)
Pursuant to Section V.D. or V.F. of the Code, please list all
securities accounts and securities holdings for each securities
account in which you or any Affiliated Person as listed in
Section IV has a beneficial interest. You do not need to list
those securities that are exempt pursuant to Section II.I.
Is this an Initial or Annual Report?
_________________________
Name of Affiliated Person:
_________________________
Name of Account Holder: _________________________
Relationship to Affiliated Person:
_________________________
SECURITIES HOLDINGS:
Attach to this Report your most recent account statement and/or
list securities held below:
Security Name Quantity Principal Amount
Broker/Dealer/Bank
1.
2.
3.
4.
(Attach separate sheets as necessary)
SECURITIES ACCOUNTS:
Account Name Account # Date Acct. Opened
Broker/Dealer/Bank
1.
2.
3.
4.
(Attach separate sheets as necessary)
I certify that this Report and the attached statements (if any)
constitute all the securities accounts and securities that must
be reported pursuant to this Code.
________________________ _______________________
Affiliated Person Signature(s) Print Name(s)
Date
<PAGE>
Exhibit p.5
-------------
POLICY STATEMENT AND PROCEDURES OF FIRST QUADRANT, L.P.
REGARDING MATERIAL INSIDE INFORMATION AND INSIDER TRADING
August 2000
POLICY STATEMENT AND PROCEDURES OF FIRST QUADRANT, L.P.
REGARDING MATERIAL INSIDE INFORMATION AND INSIDER TRADING
I. Policy Statement
First Quadrant, L.P. ("First Quadrant") takes the position
that strict adherence to the Securities Exchange Act of
1934, as amended, the Investment Advisers Act of 1940, as
amended, and the rules and regulations promulgated
thereunder, is in the best interests of First Quadrant, its
clients and prospective clients ("Clients"), its employees,
the security industry and the investing public. In
particular, First Quadrant believes that misuse of material,
non-public information in the trading of securities is
detrimental to the securities industry and the investing
public. Therefore, First Quadrant maintains and enforces
written policies and procedures, reasonably designed taking
into consideration the nature of First Quadrant's business,
to prevent the misuse of material, non-public information by
First Quadrant or any limited partner or employee of First
Quadrant.
No First Quadrant limited partner or employee shall (i)
purchase or sell either personally or on behalf of others
(such as private accounts managed by First Quadrant), any
security while in possession of material, non-public
information or (ii) communicate material, non-public
information to others except with the consent of the
Compliance Officer and after due consideration of the
appropriateness of such communication. This policy applies
to every limited partner and employee and extends to
activities within and outside their duties at First
Quadrant. Every limited partner and employee must read,
become familiar with, acknowledge receipt of and retain a
copy of this Policy Statement and Procedures of First
Quadrant, L.P. Regarding Material Inside Information and
Insider Trading ("Procedures").
II. Criminal Acts and Anti-Fraud Provisions
Purchasing or selling a security while in possession of
material, nonpublic information or communication of such
information in connection with a transaction in securities
may constitute a criminal act and subject the person
committing such violation to criminal and civil sanctions.
Section 206 of the Investment Advisers Act of 1940, as
amended ("Advisers Act"), contains general anti-fraud
provisions applicable to all investment advisers. Section
17(a)* of the Securities Act of 1933, as amended
("Securities Act"), Section 10(b)* of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and Rule
10(b)-5* thereunder contain additional anti-fraud provisions
applicable in connection with every purchase or sale of a
security.
*See Appendix A
The anti-fraud provisions of the Securities Act and the
Exchange Act encompass the defrauding of any person,
directly or indirectly, in connection with the purchase or
sale of any security.
The Insider Trading and Securities Fraud Enforcement Act of
1988 has added new Sections 20A* and 21A* to the Exchange
Act and amended Section 32* of the Exchange Act to
significantly increase the civil and criminal penalties for
misuse of inside information. * See Appendix A
III. Procedures Applicable to Limited Partners and Employees of
First Quadrant
A.Definitions - These Procedures set forth guidelines
regarding the duty of each limited partner and employee
of First Quadrant to avoid professional or personal
investment transactions which would constitute a
prohibited activity and to comply with First Quadrant's
policy regarding material inside information and insider
trading. For purposes of these Procedures, the following
definitions shall apply:
1."Advisory Representative" means any limited partner or
employee of First Quadrant; any limited partner or
employee who makes any recommendation, who participates
in the determination of which recommendation shall be
made, or whose functions or duties relate to the
determination of which recommendation shall be made;
any limited partner or employee who, in connection with
his duties, obtains any information concerning which
securities are being recommended prior to the effective
dissemination of such recommendations or of the
information concerning such recommendations; and any of
the following persons who obtain information concerning
securities recommendations being made by First Quadrant
prior to the effective dissemination of such
recommendations or of the information concerning such
recommendations: (i) any person in a control
relationship to First Quadrant, (ii) any affiliated
person of such controlling person and (iii) any
affiliated person of such affiliated person (Rule 204-
2(a)(12)(A)).
2."Security" means any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of
interest or participation in any profit-sharing
agreement, collateral-trust certificate,
preorganization certificate or subscription,
transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security,
fractional undivided interest in oil, gas, or other
mineral rights, any put, call, straddle, option or
privilege on any security (including a certificate of
deposit) or any group or index of securities (including
any interest therein or based on the value thereof), or
any put, call, straddle, option or privilege entered
into on a national securities exchange relating to
foreign currency, or, in general, any interest or
instrument commonly known as a "security," or any
certificate of interest or participation in, temporary
or interim certificate for, receipt for, guaranty of,
or warrant or right to subscribe to or purchase any of
the foregoing.
3.A security is "under consideration for recommendation,"
with respect to the person making the recommendation,
when such person is considering making such a
recommendation.
4."Purchase or sale of a security" includes, among other
things, the writing of an option to purchase or sell a
security or entering into any other contract for the
purchase or sale of such security, whether or not such
contract is conditioned upon intervening events.
5."Chief Compliance Officer" and "Assistant Compliance
Officer" means the person or persons designated from
time to time by the limited partners of First Quadrant
to receive reports pursuant to Section III.E. of this
procedure.
6."Inside Information" is information directly or
indirectly pertaining to a company that has not been
publicly disclosed. Information received with respect
to a company under circumstances that indicate that it
is not yet in general circulation should be deemed to
be inside information. Facts indicating that
information is generally available include, for
example, the announcement of the information on the
broad tape or by Reuters, The Wall Street Journal or
trade publications.
7."Material Inside Information" is any Inside Information
about a company, the dissemination of which is likely
to affect the market price of any of the company's
securities or is likely to be considered of importance
by reasonable investors in determining whether to trade
in such securities. Inside Information should be
presumed "Material" if it relates to such matters as
(but is not limited to) significant changes in
financial condition, proposed dividend increases or
decreases, significant deviations from analysts'
earnings estimates, significant changes in previously
released earnings estimates by the company, significant
expansion or curtailment of operations, a significant
increase or decline of orders, significant merger or
acquisition proposals or agreements, significant new
products or discoveries, extraordinary management
developments or purchase or sale of substantial assets.
Information concerning any changes of the type
described in the preceding sentence, even if such
change is not significant, may also be "Material" in
some instances.
8. "Material Information" generally is defined as
information for which there is a reasonable likelihood
that a reasonable investor would consider it when
making his or her investment decisions, or information
that is reasonably likely to have an effect on the
price of a company's securities.
Material information does not have to be obtained from
an insider of the company to which such information
pertains. For example, in Carpenter v. U.S., 108 U.S.
316 (1987), the Supreme Court considered as material
certain information about the contents of a forthcoming
newspaper column that was expected to affect the market
price of a security. In that case, a Wall Street
Journal reporter was found criminally liable for
disclosing to others the dates that reports on various
companies would appear in the Journal and whether those
reports would be favorable or not.
B.Prohibited Purchases and Sales
No Advisory Representative shall cause or permit the
purchase or sale, directly or indirectly, of any security
in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership*
and which to his actual knowledge at the time of such
purchase or sale:
(i) is being recommended to a First Quadrant Client;
(ii) is under consideration for such recommendation;
(iii) is being purchased or sold by a Client;
(iv) is being purchased or sold by First Quadrant on
behalf of a Client; or
(v) is being purchased or sold by First Quadrant.
* See Appendix B
C.Material Inside Information
Although, to supplement its own research and analysis, to
corroborate data compiled by its staff and to consider
the views and information of others in arriving at its
investment decisions, First Quadrant, consistent with its
efforts to secure best price and execution, may allocate
brokerage business to those broker-dealers in a position
to provide such services, it is the policy of First
Quadrant not to allocate brokerage in consideration of
the furnishing of Material Inside Information and First
Quadrant limited partner and employees, when recommending
the allocation of brokerage to broker-dealers or
otherwise, should not give consideration to any Material
Inside Information furnished by any broker-dealer.
First Quadrant's limited partners and employees have no
obligation to its Clients that would require First
Quadrant or its limited partners or employees to trade or
recommend trading on the basis of Material Inside
Information in its possession. Such person's fiduciary
responsibility to First Quadrant's Clients does not
require that they disregard the limitations imposed by
the Federal Securities Laws, particularly Rule 10b-5.*
Whenever a limited partner or employee of First Quadrant
receives Material Inside Information about a company that
is not public, he should not trade or recommend trading
on the basis of such information or divulge such
information to persons other than the First Quadrant
Chief Compliance Officer until he/she is satisfied that
the information is public. If he/she has any question at
all as to whether the information is material or whether
it is inside and not public information, he/she must
resolve the question or questions before trading,
recommending trading or divulging the information.
Any question as to the applicability or interpretation of
the foregoing standards or the propriety of any desired
action, must be discussed with the Chief Compliance
Officer prior to trading or recommending trading of a
security.
* Court and SEC administrative decisions interpreting
Rule 10b-5 promulgated under the Securities Exchange Act
of 1934 make it unlawful for any person to trade or
recommend trading in securities on the basis of Material
Inside Information.
D.Nondisclosure of Client Information
No limited partner or employee of First Quadrant shall
disclose the identity, investments, portfolio positions
or transactions or other confidential investment
information regarding any Client unless such disclosure
has been approved by the Chief Compliance Officer. This
prohibition shall not apply to any disclosure required by
law. However, notification to the Chief Compliance
Officer must be made prior to any disclosure of
information.
E.Reports on Securities Transactions
A list of securities in which First Quadrant has engaged
in transactions on behalf of its clients ("Restricted
List") is generated daily by the Equity Trading
Department. No limited partner or employee of First
Quadrant, their family members, or trusts of which they
are trustees or in which they have a beneficial interest
(see Appendix B) may purchase or sell any securities on
this Restricted List for three days after such security
has been placed on the Restricted List. Prior to any
purchase or sale of a security, every limited partner and
employee of First Quadrant must obtain written pre-
clearance of such transaction from the Director of
Trading using the Personal Securities Trade Authorization
Form. The original must be forwarded to the Chief
Compliance Officer. In the case of transactions on the
part of the Director of Trading, the Chief Compliance
Officer must sign the written pre-clearance before the
transaction is executed. An approved Personal Securities
Trade Authorization Form is effective for only one
trading day at a time. The specific trading date will be
so noted on the form at the time of approval. If the
trade is not executed by a broker on that particular
trading day and the limited partner or employee wants to
execute the trade on a subsequent trading day they must
obtain a new approved form. This policy effectively
prohibits the use of "good till cancelled" limit orders
of any kind. Limit orders involving same day execution
are permissible.
Every limited partner and employee shall instruct his
broker(s) to send a duplicate monthly statement to the
Chief Compliance Officer, which statement will minimally
state the trade and settlement dates, the name of
security traded, the type of transaction and the price of
the security.
In addition, every Advisory Representative shall file
with the Chief Compliance Officer a report of the
information required by the Personal Investment
Transaction Report (Appendix C) with respect to a
transaction in a security in which the Advisory
Representative has or acquires any direct or indirect
beneficial interest. An Advisory Representative shall not
be required to make a report with respect to transactions
in securities which are direct obligations of the United
States or are issued by open-end investment companies
(mutual funds). Notwithstanding anything herein to the
contrary, an Advisory Representative shall, however, be
required to make a report with respect to transactions in
securities of any mutual fund which is managed by First
Quadrant or to which First Quadrant acts as an investment
adviser. Any report filed pursuant hereto may contain a
statement declaring that the reporting of any
transactions shall not be construed as an admission that
the Advisory Representative has any direct or indirect
beneficial ownership in the security. Every report shall
be made not later than 10 days after the end of the
calendar month in which the transaction was effected.
If no transactions have been entered into during a
calendar quarter, a Personal Securities Transaction
Report must be completed, stating that no transactions
occurred during that quarter.
The Chief Compliance Officer shall compare the personal
securities transactions as reported on the broker's
monthly statement and the Personal Investment Transaction
Reports with the Restricted Lists to determine whether a
violation of this procedure may have occurred. If he/she
believes that a violation may have been committed by any
person, the Chief Compliance Officer shall give such
person an opportunity to supply additional explanatory
material.
If the Chief Compliance Officer believes that a violation
of this Procedure has or may have occurred, he/she shall
submit their determination in writing, together with the
duplicate monthly statement of the broker, the Personal
Securities Transaction Report and any additional
explanatory material provided by the reporting
individual, to the Management Committee of First
Quadrant, which shall make an independent determination
of whether a violation has occurred. Except as required
by law, information provided by the reporting individual
may only be disclosed to the Chief Compliance Officer and
the Management Committee of First Quadrant.
The duplicate monthly statement of the broker and the
Personal Investment Transaction Reports of the Chief
Compliance Officer shall be reviewed by the Chief
Executive Officer, who shall act in all respects in the
manner prescribed herein for the Chief Compliance
Officer.
The Chief Compliance Officer shall review the securities
transaction for each Advisory Representative quarterly.
After such quarterly review, the Chief Compliance Officer
will complete a Review Certificate for each Advisory
Representative.
On an annual basis, each limited partner, Advisory
Representative and employee will be asked to update their
current outside brokerage accounts, including the
disclosure of other investments not held at a brokerage
firm, e.g., participation in a limited partnership,
private placements, joint ventures, etc. Additionally,
all individuals will be asked to disclose whether they
are an owner, director, officer or partner of an
organization unaffiliated with the firm.
IV. Enforcement of the Procedures
The following procedure is hereby established for the
enforcement of this Procedure:
A copy of this Procedure shall be delivered to each limited
partner and employee of First Quadrant. Each limited partner
and employee of First Quadrant shall certify in writing
(Appendix E) to First Quadrant annually:
(a) That he or she is in compliance with the
requirements of this Procedure;
(b) That to his or her knowledge, he or she has no
beneficial interest in any brokerage or securities
account other than as set forth in such certificate.
V. Sanctions
Upon determination that a violation of this Procedure has
occurred, the Management Committee of First Quadrant may
impose the following sanctions as appropriate. The first
violation will result in a verbal warning. A second
violation will result in a written warning, with a copy
placed in your personal file. A third violation will result
in First Quadrant restricting you in writing from opening
any new positions for one month from the date the letter is
written. Continued violations beyond the scenario presented
may lead to termination of employment.
VI. Recordkeeping
First Quadrant shall maintain in an easily accessible place
a copy of this Procedure. Copies of (I) Annual Code of
Ethics Certifications filed by all limited partners and
employees of First Quadrant, (ii) broker's monthly
statements, (iii) Personal Securities Trade Authorizations
Reports, (iv) Personal Securities Transaction Reports filed
by Advisory Representatives, and (v) records of any
violations of this Procedure and of any action taken in
connection therewith by the Management Committee shall also
be maintained in an easily accessible place for a period of
at least six (6) years from the date thereof.
VII. Review of Procedures
The Chief Compliance Officer will review these policies and
procedures at least annually to ensure continuity of
compliance under the current state of the law regarding
insider trading.
VIII. Annual Reports to Management
On an annual basis, the Chief Compliance Officer will
prepare a written report to the Management Committee of
First Quadrant setting forth the following:
1. A summary of existing procedures to detect and prevent
insider trading;
2. Full details of any investigation, either internal or
by a regulatory agency, of any suspected insider
trading and the results of such investigation;
3. An evaluation of the current procedures and any
recommendations for improvement; and
4. A description of First Quadrant's continuing
educational program regarding insider trading,
including the dates of such programs since the last
report to management.
<PAGE>
APPENDIX A
ANTI-FRAUD PROVISIONS
SEC. 206 of the Investment Advisers Act of 1940.
It shall be unlawful for any investment adviser, by use of
the mails or any means or instrumentality of interstate
commerce, directly or indirectly-
(1)to employ any device, scheme, or artifice to
defraud any client or prospective client;
(2)to engage in any transaction, practice, or course
of business which operates as a fraud or deceit upon
any client or prospective client;
(3)acting as principal for his own account, knowingly
to sell any security to or purchase any security from a
client, or acting as broker for a person other than
such client, knowingly to effect any sale or purchase
of any security for the account of such client, without
disclosing to such client in writing before the
completion of such transaction the capacity in which he
is acting and obtaining the consent of the client to
such transaction. The prohibitions of this paragraph
(3) shall not apply to any transaction with a customer
of a broker or dealer if such broker or dealer is not
acting as an investment adviser in relation to such
transaction;
(4)to engage in any act, practice, or course of
business which is fraudulent, deceptive, or
manipulative. The Commission shall, for the purposes of
this paragraph (4) by rules and regulations define, and
prescribe means reasonably designed to prevent, such
acts, practices, and courses of business as are
fraudulent, deceptive, or manipulative.
SEC. 17 of the Securities Act of 1933.
(a)It shall be unlawful for any person in the offer
or sale of any securities by the use of any means or
instruments of transportation or communication in
interstate commerce or by the use of the mails, directly
or indirectly
(1) to employ any device, scheme, or artifice to
defraud, or
(2) to obtain money or property by means of any untrue
statement of a material fact or any omission to
state a material fact necessary in order to make the
statements made, in the light of the circumstances
under which they were made, not misleading, or
(3) to engage in any transaction, practice, or course
of business which operates or would operate as a fraud
or deceit upon the purchaser...
SEC. l0(b) of the Securities Exchange Act of 1934.
It shall be unlawful for any person, directly or indirectly,
by the use of any means or instrumentality of interstate
commerce or of the mails, or of any facility of any national
securities exchange
(b)to use or employ, in connection with the purchase
or sale of any security registered on a national
securities exchange or any security not so registered,
any manipulative or deceptive device or contrivance in
contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors.
RULE 10(b)-5 pursuant to the Securities Exchange Act of 1934
It shall be unlawful for any person, directly or indirectly,
by the use of any means or instrumentality of interstate
commerce, or of the mails, or of any facility of any
national securities exchange
(1) to employ any device, scheme, or artifice to
defraud,
(2) to make any untrue statement of a material fact or
to omit to state a material fact necessary in order to
make the statements made, in the light of the
circumstances under which they were made, not
misleading, or
(3) to engage in any act, practice, or course of
business which operates or would operate as a fraud or
deceit upon any person, in connection with the purchase
or sale of any security.
SEC. 20A of the Securities Exchange Act of 1934
(a)Private Rights of Action Based on Contemporaneous
Trading. Any person who violates any provision of this
title or the rules or regulations thereunder by
purchasing or selling a security while in possession of
material, nonpublic information shall be liable in an
action in any court of competent jurisdiction to any
person who, contemporaneously with the purchase or sale
of securities that is the subject of such violation, has
purchased (where such violation is based on a sale of
securities) or sold (where such violation is based on a
purchase of securities) securities of the same class.
(b)Limitations on Liability.
(1)Contemporaneous Trading Actions Limited to Profit
Gained or Loss Avoided. The total amount of damages
imposed under subsection (a) shall not exceed the
profit gained or loss avoided in the transaction or
transactions that are the subject of the violation.
(2)Offsetting Disgorgements Against Liability. The
total amount of damages imposed against any person
under subsection (a) shall be diminished by the
amounts, if any, that such person may be required to
disgorge, pursuant to a court order obtained at the
instance of the Commission, in a proceeding brought
under section 21(d) of this title relating to the same
transaction or transactions.
(3)Controlling Person Liability. No person shall be
liable under this section solely by reason of employing
another person who is liable under this section, but
the liability of a controlling person under this
section shall be subject to 20(a) of this title.
(4)Statute of Limitations. No action may be brought
under this section more than 5 years after the date of
the last transaction that is the subject of the
violation.
(c)Joint and Several Liability for Communicating. Any
person who violates any provision of this title or the
rules or regulations thereunder by communicating
material, nonpublic information shall be jointly and
severally liable under subsection (a) with, and to the
same extent as, any person or persons liable under
subsection (a) to whom the communication was directed.
(d)Authority Not to Restrict Other Express or Implied
Rights of Action. Nothing in this section shall be
construed to limit or condition the right of any person
to bring an action to enforce a requirement of this title
or the availability of any cause of action implied from a
provision of this title.
(e)Provision Not to Affect Public Prosecutions. This
section shall not be construed to bar or limit in any
manner any action by the Commission or the Attorney
General under any other provision of this title, nor
shall it bar or limit in any manner any action to recover
penalties, or to seek any other order regarding
penalties.
SEC. 21A of the Securities Exchange Act of 1934
(a)Authority to Impose Civil Penalties.
(1) Judicial Actions by Commission Authorized.
Whenever it shall appear to the Commission that any
person has violated any provision of this title or the
rules or regulations thereunder by purchasing or
selling a security while in possession of material,
nonpublic information in, or has violated any such
provision by communicating such information in
connection with, a transaction on or through the
facilities of a national securities exchange or from or
through a broker or dealer, and which is not part of a
public offering by an issuer of securities other than
standardized options, the Commission:
(A) may bring an action in a United States district court to
seek and the court shall have jurisdiction to impose, a
civil penalty to be paid by the person who committed such
violation; and
(B) may, subject to subsection (b)(l) bring an action in a
United States district court to seek, and the court shall
have jurisdiction to impose, a civil penalty to be paid by a
person who, at the time of the violation directly or
indirectly controlled the person who committed such
violation.
(2)Amount of Penalty for Person who Committed
Violation. The amount of the penalty which may be
imposed on the person who committed such violation
shall be determined by the court in light of the fact
and circumstances, but shall not exceed three times the
profit gained or loss avoided as a result of such
unlawful purchase, sale, or communication.
(3)Amount of Penalty for Controlling Person. The
amount of the penalty which may be imposed on any
person who, at the time of the violation, directly or
indirectly controlled the person who committed such
violation, shall be determined by the court in light of
the facts and circumstances, but shall not exceed the
greater of $1,000,000 or three times the amount of the
profit gained or loss avoided as a result of such
controlled person's violation. If such controlled
person's violation was a violation by communication,
the profit gained or loss avoided as a result of the
violation shall, for purposes of this paragraph only,
be deemed to be limited to the profit gained or loss
avoided by the person or persons to whom the controlled
person directed such communication.
(b) Limitations on Liability.
(1)Liability of Controlling Persons. No controlling
person shall be subject to a penalty under subsection
(a)(l)(B) unless the Commission establishes that:
(A) such controlling person knew or recklessly disregarded the
fact that such controlled person was likely to engage in the
act or acts constituting the violation and failed to take
appropriate steps to prevent such act or acts before they
occurred; or
(B) such controlling person knowingly or recklessly failed to
establish, maintain, or enforce any policy or procedure
required under section 15(f) of this title or section 204A
of the Investment Advisers Act of 1940 and such failure
substantially contributed to or permitted the occurrence of
the act or acts constituting the violation.
(2)Additional Restrictions on Liability. No person
shall be subject to a penalty under subsection (a)
solely by reason of employing another person who is
subject to a penalty under such subsection, unless such
employing person is liable as a controlling person
under paragraph (1) of this subsection. Section 20(a)
of this title shall not apply to actions under
subsection (a) of this section.
(3)Authority of Commission. The Commission, by such
rules, regulations, and orders as it considers
necessary or appropriate in the public interest or for
the protection of investors, may exempt, in whole or in
part, either unconditionally or upon specific terms and
conditions, any person or transaction or class of
persons or transactions from this section.
(d) Procedures for Collection.
(1)Payment of Penalty to Treasury. A penalty imposed
under this section shall (subject to subsection (e)) be
payable into the Treasury of the United States.
(2)Collection of Penalties. If a person upon whom
such a penalty is imposed shall fail to pay such
penalty within the time prescribed in the court's
order, the Commission may refer the matter to the
Attorney General who shall recover such penalty by
action in the appropriate United States district court.
(3)Remedy not Exclusive. The actions authorized by this
section may be brought in addition to any other actions
that the Commission or the Attorney General are
entitled to bring.
(4)Jurisdiction and Venue. For purposes of section 27
of this title, actions under this section shall be
actions to enforce a liability or a duty created by
this title.
(5)Statute of Limitations. No action may be brought
under this section more than 5 years after the date of
the purchase or sale. This section shall not be
construed to bar or limit in any manner any action by
the Commission or the Attorney General under any other
provision of this title, nor shall it bar or limit in
any manner any action to recover penalties, or to seek
any other order regarding penalties, imposed in an
action commenced within 5 years of such transaction.
(e)Authority to Award Bounties to Informants.
Notwithstanding the provisions of subsection (d)(l),
there shall be paid from amounts imposed as a penalty
under this section and recovered by the Commission or the
Attorney General, such sums, not to exceed 10 percent of
such amounts, as the Commission deems appropriate, to the
person or persons who provide information leading to the
imposition of such penalty. Any determinations under this
subsection, including whether, to whom, or in what amount
to make payments, shall be in the sole discretion of the
Commission, except that no such payment shall be made to
any member, officer, or employee of any appropriate
regulatory agency, the Department of Justice, or a self-
regulatory organization. Any such determination shall be
final and not subject to judicial review.
(f)Definition. For purposes of this section, "profit
gained" or "loss avoided" is the difference between the
purchase or sale price of the security and the value of
that security as measured by the trading price of the
security a reasonable period after public dissemination
of the nonpublic information.
SEC. 32 of the Securities Exchange Act of 1934
(a)Any person who willfully violates any provision of
this title (other than section 30A), or any rule or
regulation thereunder the violation of which is made
unlawful or the observance of which is required under the
terms of this title, or any person who willfully and
knowingly makes, or causes to be made, any statement in
any application, report, or document required to be filed
under this title or any rule or regulation thereunder or
any undertaking contained in a registration statement as
provided in subsection (d) of section 15 of this title or
by a self-regulatory organization in connection with an
application for membership or participation therein or to
become associated with a member thereof, which statement
was false or misleading with respect to any material
fact, shall upon conviction be fined not more than
$1,000,000 or imprisoned not more than 10 years, or both,
except that when such person is a person other than a
natural person, a fine not exceeding $2,500,000 may be
imposed; but no person shall be subject to imprisonment
under this section for the violation of any rule or
regulation if he proves that he had no knowledge of such
rule or regulation.
(b)Any issuer which fails to file information,
documents, or reports required to be filed under
subsection (d) of section 15 of this title or any rule or
regulation thereunder shall forfeit to the United States
the sum of $100 for each and every day such failure to
file shall continue. Such forfeiture, which shall be in
lieu of any criminal penalty for such failure to file
which might be deemed to arise under subsection (a) of
this section, shall be payable into the Treasury of the
United States and shall be recoverable in a civil suit in
the name of the United States.
(c) (l)(A) Any issuer that violates section 30A(a)
shall be fined not more than $2,000,000.
(B) Any issuer that violates section 30A(a)
shall be subject to a civil penalty of not more
than $10,000 imposed in an action brought by the
Commission.
(2)(A) Any officer or director of an issuer, or
stockholder acting on behalf of such issuer, who
willfully violates section 30A(a) shall be fined
not more than $100,000, or imprisoned not more than
5 years, or both.
(B) Any employee or agent of an issuer who
is a United States citizen, national, or resident
or is otherwise subject to the jurisdiction of the
United States (other than an officer, director, or
stockholder acting on behalf of such issuer), and
who willfully violates section 30A(a), shall be
fined not more than $100,000, or imprisoned not
more than 5 years, or both.
(C) Any officer, director, employee, or
agent of an issuer, or stockholder acting on behalf
of such issuer, who violates section 30A(a) shall
be subject to a civil penalty of not more than
$10,000 imposed in an action brought by the
Commission.
(3) Whenever a fine is imposed under
paragraph (2) upon any officer, director, employee,
agent, or stockholder of an issuer, such fine may
not be paid, directly or indirectly, by such
issuer.
<PAGE>
APPENDIX B
Beneficial Ownership - Interpretive Guide
"Beneficial Ownership" shall be interpreted in the same
manner as it would be in determining whether a person is
subject to the provisions of Section 16 of the Securities
Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or
indirect beneficial ownership shall apply to all securities
which an advisory representative has or acquired (and not
only those of companies registered under Section 12 of such
Act).
Securities owned of record or held in a person's name are
generally considered to be beneficially owned by that
person.
Securities held in the name of any other person are deemed
to be beneficially owned by the person in question if by
reason of any contract, understanding, relationship,
agreement or other arrangement, the person in question
obtains therefrom benefits substantially equivalent to those
of ownership, including the power to vote, or to direct the
disposition of, such securities.
Beneficial ownership includes securities held by others for
a person's benefit (regardless of record ownership), e.g.
securities held for a person or member of the person's
immediate family (as defined below) by agents, custodians,
brokers, trustees, executors or other administrators;
securities owned by a person, but which have not been
transferred into that persons name on the books of the
company; securities which that person has pledged;
securities owned by a partnership of which that person is a
member; and securities owned by a corporation that should be
regarded as that persons personal holding corporation.
Beneficial ownership also includes securities held in the
name or for benefit of a persons immediate family (which
includes his or her spouse, minor children, stepchildren and
relatives or relatives of his or her spouse who are sharing
his or her home) unless because of special and
countervailing circumstances (such as a divorce or
separation), such person does not enjoy benefits
substantially equivalent to those of ownership, such as
application of the income derived from such securities to
maintain a common home or to meet expenses which he or she
otherwise would meet from other sources. He or she is also
deemed the beneficial owner of securities held in the name
of some other person, even though he or she does not obtain
benefits of ownership, if he or she can vest or revest title
at once, or at some future time.
In addition, the Securities and Exchange Commission ("SEC")
has promulgated certain rules which provide that a person
shall be deemed the beneficial owner of a security which he
or she has the right to acquire through the exercise of any
presently exercisable option, warrant or right or through
the conversion of a presently convertible security.
With respect to ownership of securities held in trust,
beneficial ownership includes the ownership of securities as
a trustee in instances where either a person as trustee or a
member of his or her "immediate family" have a vested
interest in the income or corpus of the trust, the ownership
by such person of a vested beneficial interest in the trust
and the ownership of securities as a settlor of a trust in
which he or she as the settlor has the power to revoke the
trust without obtaining the consent of the beneficiaries.
Certain exemptions to these trust beneficial ownership rules
exist, including an exemption for instances where beneficial
ownership is imposed solely by reason of his or her being
settlor or beneficiary of the securities held in trust where
the ownership, acquisition and disposition of such
securities by the trust is made without his or her prior
approval as settlor or beneficiary. "Immediate family" of a
person as a trustee means such person's son or daughter
(including a legally adopted child) or any descendants of
either, a stepson or stepdaughter, a father or mother or any
ancestor of either, a stepfather or stepmother and a spouse.
The SEC has promulgated rules with respect to indirect
beneficial ownership. To the extent that stockholders of a
company use it as a personal trading or investment medium
and the company has no other substantial business,
stockholders are regarded as beneficial owners, to the
extent of their respective interests, of the stock thus
invested or traded in. A general partner in a partnership is
considered to have indirect beneficial ownership in the
securities held by the partnership to the extent of his or
her pro rata interest in the partnership. Indirect
beneficial ownership is not, however, considered to exist
solely by reason of an indirect interest in portfolio
securities held by any holding company registered under the
Public Utility Holding Company Act of 1935, any investment
company registered under the Investment Company Act of 1940,
a pension or retirement plan holding securities of an issuer
whose employees generally are beneficiaries of the plan and
a business trust with over 25 beneficiaries.
The final determination of the existence of beneficial
ownership is, of course, a question to be determined in the
light of the facts of the particular case. It should be
noted that although a report filed under Section III(E)
includes the holdings of other members of a person's family,
such person may disclaim that such report is an admission of
beneficial ownership of such securities.
<PAGE>
APPENDIX C
<PAGE>
APPENDIX D
CODE OF ETHICS
This Code of Ethics sets forth standards of business ethical
conduct to be maintained by directors, officers and employees in
First Quadrant, L.P. ("First Quadrant").
1. No limited partner or employee of First Quadrant shall
knowingly compete or aid or advise any person, firm, or
corporation in competing with First Quadrant in any way, or
engage in any activity in which his personal interests in
any manner conflict, or might conflict with those of First
Quadrant.
2. No limited partner or employee of First Quadrant shall be
employed by or have, directly or indirectly, a significant
financial interest in any firm, corporation or business of
any sort which is engaged in the same or similar lines of
business as that carried on by First Quadrant. A significant
financial interest is one, which is so substantial as to
create a potential risk of interference with such
individual's independent exercise of judgment in the best
interest of First Quadrant.
3. No limited partner or employee of First Quadrant shall
accept or request, directly or indirectly, any favor or
thing of value from any person, firm, or non-affiliated
corporation, negotiating, contracting, or in any way dealing
with First Quadrant or likely to negotiate, contract, or
deal with First Quadrant, if such favor or thing of value is
such as might influence him in negotiating, contracting or
dealing with such person, firm, or corporation; and any
limited partner or employee who is offered any such favor or
thing of value, directly or indirectly, by any such person,
firm or corporation shall immediately report such offer to
the Chief Executive Officer for communication to the
Management Committee.
4. No limited partner or employee of First Quadrant shall,
directly or indirectly, give any favor or thing of value to
or engage in the entertainment of any person, firm or non-
affiliated corporation, negotiating, contracting or in any
way dealing with First Quadrant or likely to negotiate,
contract, or deal with First Quadrant, except as may be
consistent with generally acceptable ethical standards and
accepted business practices and not in violation of any
applicable law.
5. No limited partner or employee shall participate on behalf
of First Quadrant in any negotiations or dealings of any sort
with any person, firm, or non-affiliated corporation in which he
has, directly or indirectly, an interest, whether through a
personal relationship which is more than mere acquaintance, or
through stockholding or otherwise, except an ordinary investment
not sufficient to in any way affect his judgment, conduct, or
attitude in the matter, or give him a personal interest therein.
6. No limited partner or employee shall receive, in addition
to his regular salary, fees, or other compensation as
fixed by the Management Committee, any money or thing of
value, directly or indirectly, or through any substantial
interest in any non-affiliated corporation or business of
any sort, or through any personal relationship, for
negotiating, procuring, recommending, or aiding in any
purchase, sale or rental of property or any loan made by
or to First Quadrant or for endeavoring so to do; nor
shall he have any pecuniary or other personal interest,
directly or indirectly, or through any other non-
affiliated corporation or business or through any
personal relationship, in or with respect to any such
purchase, sale, rental or loan. Except as provided by
law, the foregoing shall not prohibit any director from
receiving his normal share of the usual commission
earnings of a stock exchange or other brokerage firm of
which he is a partner nor shall it prohibit First
Quadrant from making payments to a director for services
rendered to First Quadrant so long as such services are
not in violation of any applicable law.
7. No limited partner or employee of the First Quadrant
shall, without proper authority, give or release to
anyone not employed by First Quadrant, or to another
employee who has no need for the information, data or
information of a confidential nature concerning First
Quadrant.
<PAGE>
FIRST QUADRANT, L.P.
PROCEDURES REGARDING MATERIAL INSIDE INFORMATION
AND INSIDER TRADING
AND
Code of Ethics
Annual Certification
In accordance with the requirements of the First Quadrant's
Code of Ethics, I hereby certify the following:
(a) I was in compliance with the requirements of the
Code of Ethics for the year ended December 31,
1999; and
(b) There is no interest, affiliation or activity, of
any sort, on my part which conflicts or which I
believe is likely to conflict with my official
duties; and
(c) That I will disclose any facts which may appear to
present a possible conflict of interest under the
Code of Ethics to the Management Committee so that
a determination can be made as to whether a
conflict of interest does exist and that I will
take whatever action requested of me by the
Management Committee to resolve any conflict of
interest which it finds to exist.
Additionally, I hereby certify that I have received, read
and understand First Quadrant's Policy Statement and
Procedures regarding Material Inside Information and Insider
Trading and am in compliance with the requirements of the
Policy Statement.
Signed ______________________________________
Date ____________________
Print Name _______________________________
<PAGE>
APPENDIX E
FIRST QUADRANT, L.P.
PERSONAL SECURITIES TRANSACTION REPORT
REVIEW CERTIFICATION FOR
1st 2nd 3rd 4th Quarter of 20 ____
Name of Advisory Representative:
_________________________________________________________
Date of Review:__________________________
1.Duplicate Broker's Monthly Statement on file. Yes_____
No_____N/A _____
If not, for which transactions are the statements missing?
______________________________________________________________
___________________
2.Personal Securities Transaction Reports on file, whether or
not transactions occurred in the quarter.
Yes_____ No_____
3.If reports are missing, list actions taken to obtain
documents. Date _______________________
Action ____________________________________________________
By Whom___________
4.Do any of the transactions reported appear to be a violation
of the Policy Statement and Procedures of First Quadrant, L.P.
Regarding Material Inside Information?
Yes_____ No_____ N/A _____
5.If there is an apparent violation, list actions taken to make
such a determination.
Date__________
Action________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
(Attach supporting documentation.)
6.Date results of determination sent to Senior Management and to
whom. ______________________
I certify that for the calendar quarter referenced above, the
Personal Securities Transaction Report, Broker's Monthly
Statements and Personal Securities Trade Authorization Forms, if
applicable, are on file and that no violation of the Policy
Statement and Procedures of First Quadrant, L.P. Regarding
Material Inside Information and Insider Trading has occurred,
other than that identified in Item 5 above.
Date: ______________ By: ____________________________________
Chief Compliance Officer
<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 Registration Statement under Rule 485(b) of
the Securities Act of 1933 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Boston and the Commonwealth
of Massachusetts, on the 14th day of November, 2000.
MANAGERS AMG FUNDS
BY:/s/John Kingston III
----------------------
John Kingston, III
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated.
Signature Title Date
---------- ------ -----
/s/Jack W. Aber
---------------
Jack W. Aber* Trustee November 14, 2000
/s/William E. Chapman, II
-------------------------
William E. Chapman, II* Trustee November 14, 2000
/s/Sean M. Healey
-------------------
Sean M. Healey* Trustee November 14, 2000
/s/Edward J. Kaier
-------------------
Edward J. Kaier* Trustee November 14, 2000
/s/Eric Rakowski
----------------
Eric Rakowski* Trustee November 14, 2000
/s/Peter M. Lebovitz
--------------------
Peter M. Lebovitz President and Principal November 14, 2000
Executive Officer
/s/Donald S. Rumery
--------------------
Donald S. Rumery Treasurer, Principal November 14, 2000
Financial Officer and
Principal Accounting Officer
/s/John Kingston, III
-----------------------
*By John Kingston, III pursuant to Power of Attorney filed herewith
<PAGE>
