<PAGE>
LMCG FUNDS
STATEMENT OF ADDITIONAL INFORMATION
December 28, 2000
This Statement of Additional Information (the "SAI") is not a prospectus.
It should be read in conjunction with the prospectuses dated
December 28, 2000 (each a "Prospectus") for LMCG Small Cap Growth Fund,
LMCG Mid Cap Growth Fund, LMCG Small Cap Tax-Sensitive Fund and
LMCG Technology Fund, each a series of LMCG Funds.
To obtain a free copy of a Prospectus, please write to LMCG Funds, 231
Royal Palm Way, Palm Beach FL 33480, or call 1-866-468-6337.
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION ABOUT THE FUNDS.............................. 2
INVESTMENT POLICIES AND RESTRICTIONS ............................ 2
PORTFOLIO TRANSACTIONS .......................................... 19
TRUSTEES AND EXECUTIVE OFFICERS ................................. 21
INVESTMENT MANAGEMENT AND OTHER SERVICES ........................ 22
TAXES AND DIVIDENDS ............................................. 25
SHARE PRICE CALCULATION ......................................... 29
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION .................. 30
PERFORMANCE ..................................................... 32
SHAREHOLDER INFORMATION ......................................... 34
FINANCIAL STATEMENTS ............................................ 36
<PAGE>
LMCG FUNDS
--------------------------------------------------------------------------------
PLEASE NOTE:
As used in this SAI, the following terms shall have the meanings listed:
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Fund" means LMCG Small Cap Growth Fund, LMCG Mid Cap Growth Fund,
LMCG Small Cap Tax-Sensitive Fund or LMCG Technology Fund individually, each
a series of the Trust.
"Funds" means LMCG Small Cap Growth Fund, LMCG Mid Cap Growth Fund,
LMCG Small Cap Tax-Sensitive Fund or LMCG Technology Fund collectively,
unless the context indicates otherwise.
"Investment Adviser" means Lee Munder Investments Ltd.
"Trust" means LMCG Funds, a Massachusetts business trust.
GENERAL INFORMATION ABOUT THE FUNDS
The Trust is registered under the 1940 Act as an open-end management investment
company. The Funds are currently the only series of the Trust. The Trust was
formed on June 29, 2000 as a Massachusetts business trust.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the discussion in the Prospectuses of the Funds'
investment objectives and their principal and additional investment strategies,
policies and risks. These investment strategies and policies may be changed
without shareholder approval unless otherwise noted. Capitalized terms not
otherwise defined in this SAI have the same meanings as in the Prospectuses.
Whenever an investment policy or restriction of a Fund described in a Prospectus
or in this SAI states a maximum percentage of assets that may be invested in a
security or other asset, or describes a policy regarding quality standards, that
percentage limitation or standard will, unless otherwise indicated, apply to the
Fund only at the time a transaction takes place. Thus, if a percentage
limitation is adhered to at the time of investment, a later increase or decrease
in the percentage that results from circumstances not involving any affirmative
action by the Fund will not be considered a violation.
-2-
<PAGE>
Descriptions in this SAI of a particular investment practice or technique in
which a Fund may engage or a financial instrument that the Fund may purchase are
meant to describe the spectrum of investments that the Investment Adviser, in
its discretion, might, but is not required to, use in managing the Fund's
portfolio assets. The Investment Adviser may, in its discretion, at any time
employ such practice, technique or instrument for one or more funds or accounts
but not for all funds or accounts advised by it. Furthermore, it is possible
that certain types of financial instruments or investment techniques described
herein may not, in the judgment of the Investment Adviser, be available,
permissible, economically feasible or effective for their intended purposes in
some or all markets, in which case the Fund would not use them. Certain
practices, techniques or instruments may not be principal activities of the Fund
but, to the extent employed, could from time to time have a material impact on
the Fund's performance.
Each Fund's investment objective, and its investment policies and restrictions
that are designated as fundamental, may not be changed without approval by
holders of a "majority of the outstanding voting securities" of the Fund. Except
as otherwise indicated, however, each Fund's investment policies are not
fundamental and may be changed without shareholder approval. As defined in the
1940 Act, and as used herein, the term "majority of the outstanding voting
securities" of the Trust, or of a Fund, means, respectively, the vote of the
holders of the lesser of (i) 67% of the shares of the Trust or of the Fund
present or represented by proxy at a meeting where more than 50% of the
outstanding shares of the Trust or the Fund are present or represented by proxy,
or (ii) more than 50% of the outstanding shares of the Trust or of the Fund.
COMMON STOCK AND PREFERRED STOCK
Shares of common stock represent a proportionate ownership interest in a
company. As a result, the value of common stock rises and falls with a company's
success or failure. The market value of common stock can fluctuate
significantly. Preferred stock is a class of stock having a preference over
common stock as to dividends and, generally, as to the recovery of investment.
Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. A preferred stockholder is a shareholder in the company
and not a creditor of the company as is a holder of the company's fixed income
securities. Dividends paid to common and preferred stockholders are
distributions of the earnings of the company and not interest payments, which
are expenses of the company.
Stock owned by a Fund may be traded on a securities exchange or in the
over-the-counter market and may not be traded every day or in the volume typical
of securities traded on a major national securities exchange. As a result,
disposition by a Fund of a portfolio security to meet redemptions by
shareholders or otherwise may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over an extended period of time. The
market value of all securities, including equity securities, is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measure of a company's worth.
-3-
<PAGE>
WARRANTS
To the extent that such investments are consistent with its investment
objective, the Funds may invest in warrants. The holder of a warrant has the
right, until the warrant expires, to purchase a given number of shares of a
particular issuer at a specified price. Such investments can provide a greater
potential for profit or loss than an equivalent investment in the underlying
security. However, prices of warrants do not necessarily move in tandem with the
prices of the underlying securities, and are, therefore, considered speculative
investments. Warrants pay no dividends and confer no rights other than a
purchase option. Thus, if a warrant held by a Fund were not exercised by the
date of its expiration, the Fund would lose the entire purchase price of the
warrant. Each Fund may only purchase warrants on securities in which the Fund
may invest directly.
INVESTMENT COMPANY SECURITIES
Each Fund may invest in securities issued by other investment companies that
principally invest in securities of the type in which the Fund invests. Under
the 1940 Act, each Fund's investment in such securities currently is normally
limited, subject to certain exceptions, to (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Fund's total assets with respect to
any one investment company, and (iii) 10% of the Fund's total assets in the
aggregate. Investments in the securities of other investment companies generally
will involve duplication of advisory fees and certain other expenses. These
investments may include shares of exchange-traded closed-end and open-end funds.
EXCHANGE-TRADED INDEX SECURITIES
Subject to the limitations on investment in investment company securities set
forth above, each Fund may invest in exchange-traded index securities such as
SPDRs, QQQs and WEBS. SPDRs (Standard & Poor's Depositary Receipts), for
example, typically trade like a share of common stock and provide investment
results that generally correspond to the price and yield performance of the
component common stocks of the Standard & Poor's 500 Index. There can be no
assurance that the issuer of SPDRs will replicate and maintain exactly the
composition and relative weightings of the securities in the index. QQQs
(Nasdaq-100 Tracking Stock) are similar to SPDRs except that they track the
Nasdaq-100 Index, an index of 100 non-financial domestic and international
companies listed on the National Association of Securities Dealers' Automated
Quotation System (NASDAQ). These securities are subject to the risks of an
investment in the underlying securities they hold. Because of their composition,
historically QQQs have been more volatile in price than SPDRs.
FOREIGN SECURITIES AND CURRENCIES
Subject to each Fund's investment policies and quality standards, each Fund may
invest in the securities of foreign issuers. The securities of foreign issuers
in which each Fund may invest include non-U.S. dollar-denominated securities,
Eurodollar securities, and sponsored and unsponsored depositary receipts.
Foreign investments may be affected favorably or unfavorably by changes in
currency rates and exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting,
-4-
<PAGE>
auditing and financial reporting standards and requirements comparable to those
applicable to U.S. companies. There may be less governmental supervision of
foreign securities markets, brokers and issuers of securities. Securities of
some foreign companies are less liquid or more volatile than securities of U.S.
companies, and foreign brokerage commissions and custodian fees are generally
higher than in the United States. Settlement practices may include delays and
may differ from those customary in United States markets. Investments in foreign
securities may also be subject to other risks that differ from those affecting
U.S. investments, including political or economic developments, expropriation or
nationalization of assets, restrictions on foreign investment and repatriation
of capital, imposition of withholding taxes on dividend or interest payments,
currency blockage (which would prevent cash from being brought back to the
United States), and difficulty in enforcing legal rights outside the United
States.
FOREIGN DEPOSITARY RECEIPTS. American Depositary Receipts ("ADRs"), Global
Depositary Receipts, American Depositary Shares, Global Depositary Shares, and
related securities are depositary instruments, the issuance of which is
typically administered by a U.S. or foreign bank or trust company. These
instruments evidence ownership of underlying securities issued by a U.S. or
foreign corporation. ADRs are publicly traded on exchanges or over-the-counter
("OTC") in the United States. Unsponsored programs are organized independently
and without the cooperation of the issuer of the underlying securities. As a
result, information concerning the issuer may not be as current or as readily
available as in the case of sponsored depositary instruments, and their prices
may be more volatile than if they were sponsored by the issuers of the
underlying securities.
FOREIGN CURRENCIES. Investment in foreign securities usually will involve
currencies of foreign countries. Moreover, each Fund may temporarily hold funds
in bank deposits in foreign currencies during the completion of investment
programs and may purchase forward foreign currency contracts. Because of these
factors, the value of the assets of a Fund as measured in U.S. dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and a Fund may incur costs in connection with
conversions between various currencies. Although each Fund's custodian values
the Fund's assets daily in terms of U.S. dollars, each Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
Each Fund will do so from time to time, however, and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. Each Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Each Fund may enter into forward foreign
currency contracts in order to protect against uncertainty in the level of
future foreign exchange rates in the purchase and sale of securities. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date (usually less than a year), and typically is individually
negotiated and privately traded by currency traders and their customers.
-5-
<PAGE>
A forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Although foreign exchange dealers do not charge
a fee for commissions, they do realize a profit based on the difference between
the price at which they are buying and selling various currencies. Although
these contracts are intended to minimize currency risk - the risk of loss due to
a decline in the value of the hedged currencies - at the same time, they tend to
limit any potential gain that might result should the value of such currencies
increase.
DEBT SECURITIES
Investments in fixed-income securities are subject to the general risks inherent
in such securities, primarily interest rate risk and credit risk. Interest rate
risk is the potential for fluctuations in bond prices due to changing interest
rates. In general, bond prices vary inversely with prevailing interest rates. If
prevailing interest rates rise, bond prices generally decline; if prevailing
interest rates fall, bond prices generally rise. In addition, for a given change
in interest rates, longer-maturity bonds generally fluctuate more in price than
shorter-maturity bonds. To compensate investors for these larger fluctuations,
longer-maturity bonds usually offer higher yields than shorter-maturity bonds,
other factors, including credit quality, being equal.
Credit risk is the possibility that an issuer of fixed-income securities held by
a Fund will be unable to make payments of either interest or principal or will
be perceived to have a diminished capacity to make such payments in the future.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Securities guaranteed by the U.S.
Government include: (1) direct obligations of the U.S. Treasury (such as
Treasury bills, notes, and bonds) and (2) federal agency obligations guaranteed
as to principal and interest by the U.S. Treasury (such as GNMA certificates,
which are backed by mortgages). When such securities are held to maturity, the
payment of principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to variations in
market value due to fluctuations in interest rates.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association, and Student Loan Marketing
Association.
CASH AND SHORT-TERM INVESTMENTS
Each Fund will hold from time to time a certain portion of its assets in cash or
short-term investments to retain flexibility in meeting redemptions, paying
expenses, and timing of new investments. Each Fund also may invest in cash or
short-term investments as part of a temporary
-6-
<PAGE>
defensive strategy when investment conditions warrant. Short-term investments
may include (i) short-term obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities, (ii) certificates of deposit,
bankers' acceptances and interest-bearing savings deposits of commercial banks
doing business in the United States that have a minimum rating of A-1 from
Standard & Poor's ("S&P") or P-1 from Moody's Investors Service ("Moody's")or a
comparable rating from another nationally recognized statistical rating
organization ("NRSRO") or unrated securities of comparable quality, (iii)
commercial paper rated at least A-1 by S&P or P-1 by Moody's or a comparable
rating from another NRSRO or unrated securities of comparable quality, (iv)
repurchase agreements covering any of the securities in which the Fund may
invest directly, and (v) money market mutual funds.
REPURCHASE AGREEMENTS
Each Fund may enter into a repurchase agreement wherein the seller of a security
to a Fund agrees to repurchase that security from the Fund at a mutually-agreed
upon time and price. The period of maturity is usually quite short, often
overnight or a few days, although it may extend over a number of months. Each
Fund may enter into repurchase agreements only with respect to securities that
could otherwise be purchased by the Fund and pursuant to an agreement that
requires that additional securities be deposited with the custodian if the value
of the securities purchased should decrease below the repurchase price.
A Fund may incur a loss on a repurchase transaction if the seller defaults and
the value of the underlying collateral declines or is otherwise limited or if
receipt of the security or collateral is delayed. The Fund's custodian (or a
sub-custodian) has custody of, and holds in a segregated account, securities
acquired as collateral by the Fund under a repurchase agreement. All repurchase
transactions must be collateralized.
In an attempt to reduce the risk of incurring a loss on a repurchase agreement,
each Fund limits investments in repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized financial institutions.
The Investment Adviser monitors on an ongoing basis the value of the collateral
to assure that it always equals or exceeds the repurchase price.
OPTIONS
GENERAL. A call option is a short-term contract (having a duration of less than
one year) pursuant to which the purchaser, in return for the premium paid, has
the right to buy the security underlying the option at the specified exercise
price at any time during the term of the option. The writer of the call option,
who receives the premium, has the obligation, upon exercise of the option, to
deliver the underlying security against payment of the exercise price. A put
option is a similar contract pursuant to which the purchaser, in return for the
premium paid, has the right to sell the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the put option, who receives the premium, has the obligation, upon exercise
of the option, to buy the underlying security at the exercise price. The premium
paid by the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the time remaining to expiration of the option, supply and
demand, and interest rates.
-7-
<PAGE>
If the writer of a U.S. exchange-traded option wishes to terminate the
obligation, the writer may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position will be
canceled by the Options Clearing Corporation. However, a writer may not effect a
closing purchase transaction after it has been notified of the exercise of an
option. Likewise, an investor who is the holder of an option may liquidate his
or her position by effecting a "closing sale transaction." This is accomplished
by selling an option of the same series as the option previously purchased.
There is no guarantee that either a closing purchase or a closing sale
transaction can be effected at any particular time or at an acceptable price. If
any call or put option is not exercised or sold, it will become worthless on its
expiration date. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligations in an OTC transaction, the
Fund would need to negotiate directly with the counterparty.
Exchange-traded options generally have standardized terms and are issued by a
regulated clearing organization (such as the Options Clearing Corporation),
which, in effect, guarantees the completion of every exchange-traded option
transaction. In contrast, the terms of OTC options are negotiated by the Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When the Fund purchases an OTC option,
it relies on the party from whom it has purchased the option (the
"counterparty") to make delivery of the instrument underlying the option. If the
counterparty fails to do so, the Fund will lose any premium paid for the option,
as well as any expected benefit of the transaction. Accordingly, the Investment
Adviser will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
PURCHASING OPTIONS. Each Fund may purchase put options on securities held in its
portfolio or securities indices the performance of which is substantially
correlated with securities held in its portfolio. When a Fund purchases a put
option, in consideration for an upfront payment (the "option premium") the Fund
acquires a right to sell to another party specified securities owned by the Fund
at a specified price (the "exercise price") on or before a specified date (the
"expiration date"), in the case of an option on securities, or to receive from
another party a payment based on the amount a specified securities index
declines below a specified level on or before the expiration date, in the case
of an option on a securities index. The purchase of a put option limits the
Fund's risk of loss in the event of a decline in the market value of the
portfolio holdings underlying the put option prior to the option's expiration
date. If the market value of the portfolio holdings associated with the put
option increases rather than decreases, however, the Fund will lose the option
premium and will consequently realize a lower return on the portfolio holdings
than would have been realized without the purchase of the put.
Each Fund also is authorized to purchase call options on securities it intends
to purchase or securities indices. When a Fund purchases a call option, in
consideration for the option premium the Fund acquires the right to purchase
from another party specified securities at the exercise price on or before the
expiration date, in the case of an option on securities, or to receive from
another party a payment based on the amount a specified securities index
increases beyond a specified level on or before the expiration date, in the case
of an option on a securities index. The purchase of a call option may protect
the Fund from having to pay more for a security as a
-8-
<PAGE>
consequence of increases in the market value for the security during a period
when the Fund is contemplating its purchase, in the case of an option on a
security, or attempting to maintain exposure to an index prior to purchasing the
underlying securities, in the case of an option on an index (an "anticipatory
hedge"). In the event the Fund determines not to purchase a security underlying
a call option, however, the Fund may lose the entire option premium.
Each Fund is also authorized to purchase put or call options in connection with
closing out put or call options it has previously sold.
WRITING OPTIONS. Each Fund may write (i.e., sell) call options on securities
held in its portfolio or securities indices, the performance of which is
substantially correlated to securities held in its portfolio. When a Fund writes
a call option, in return for an option premium the Fund gives another party the
right to buy specified securities owned by the Fund at the exercise price on or
before the expiration date, in the case of an option on securities, or agrees to
pay to another party an amount based on any gain in a specified securities index
beyond a specified level on or before the expiration date, in the case of an
option on a securities index. In the event the party to which the Fund has
written an option fails to exercise its rights under the option because the
value of the underlying securities is less than the exercise price, the Fund
will partially offset any decline in the value of the underlying securities
through the receipt of the option premium. By writing a call option, however,
the Fund limits its ability to sell the underlying securities, and gives up the
opportunity to profit from any increase in the value of the underlying
securities beyond the exercise price, while the option remains outstanding.
Each Fund also may write put options on securities or securities indices. When
the Fund writes a put option, in return for an option premium the Fund gives
another party the right to sell to the Fund a specified security at the exercise
price on or before the expiration date, in the case of an option on a security,
or agrees to pay to another party an amount based on any decline in a specified
securities index below a specified level on or before the expiration date, in
the case of an option on a securities index. In the event the party to which a
Fund has written an option fails to exercise its rights under the option because
the value of the underlying securities is greater than the exercise price, the
Fund will profit by the amount of the option premium. By writing a put option,
however, the Fund will be obligated to purchase the underlying security at a
price that may be higher than the market value of the security at the time of
exercise as long as the put option is outstanding, in the case of an option on a
security, or make a cash payment reflecting any decline in the index, in the
case of an option on an index. Accordingly, when a Fund writes a put option it
is exposed to a risk of loss in the event the value of the underlying securities
falls below the exercise price, which loss potentially may substantially exceed
the amount of option premium received by the Fund for writing the put option.
The Fund will write a put option on a security or a securities index only if the
Fund would be willing to purchase the security at the exercise price for
investment purposes (in the case of an option on a security) or is writing the
put in connection with trading strategies involving combinations of options --
for example, the sale and purchase of options on the same security or index but
different expiration dates or exercise prices (a technique called a "spread").
Each Fund may sell call or put options in connection with closing out call or
put options it has previously purchased.
-9-
<PAGE>
Other than with respect to closing transactions, each Fund will only write call
or put options that are "covered." A put option will be considered covered if
the Fund has segregated assets with respect to such option in the manner
described below. A call option will be considered covered if the Fund owns the
securities it would be required to deliver upon exercise of the option (or, in
the case of an option on a securities index, securities that substantially
replicate the performance of such index) or owns a call option, warrant or
convertible instrument that is immediately exercisable for, or convertible into,
such security.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options involves
certain risks. During the option period, the covered call writer has, in return
for the premium on the option, given up the opportunity to profit from a price
increase in the underlying securities above the exercise price, but, as long as
its obligation as a writer continues, has retained the risk of loss should the
price of the underlying security decline. The writer of a U.S. option has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying securities (or cash
in the case of an index option) at the exercise price. If a put or call option
purchased by a Fund is not sold when it has remaining value, and if the market
price of the underlying security (or index), in the case of a put, remains equal
to or greater than the exercise price or, in the case of a call, remains less
than or equal to the exercise price, the Fund will lose its entire investment in
the option. Also, where a put or call option on a particular security (or index)
is purchased to hedge against price movements in a related security (or
securities), the price of the put or call option may move more or less than the
price of the related security (or securities). In this regard, there are
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objective.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that a Fund will be able to close out an OTC
option position at a favorable price prior to its expiration. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, a Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although the Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, the Fund may experience losses in some cases as a result of
such inability.
When conducted outside the U.S., options transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies
-10-
<PAGE>
and other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the U.S. of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the U.S., (iv) the
imposition of different exercise and settlement terms and procedures and margin
requirements than in the U.S., and (v) lower trading volume and liquidity.
Each Fund's options activities also may have an impact upon the level of its
portfolio turnover and brokerage commissions.
Each Fund's success in using options techniques depends, among other things, on
the Investment Adviser's ability to predict accurately the direction and
volatility of price movements in the options and securities markets, and to
select the proper type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL. Each Fund may enter into futures contracts and options on futures
contracts for any number of reasons, including as a cash management tool and as
a means of managing its exposure to changes in securities prices and foreign
currencies, adjusting its overall exposure to certain markets, attempting to
enhance income, and protecting the value of its portfolio securities. A futures
contract provides for the future sale by one party and purchase by another party
of a specified quantity of a commodity at a specified price and time. When a
purchase or sale of a futures contract is made by a Fund, the Fund is required
to deposit with its custodian (or broker, if legally permitted) a specified
amount of cash or liquid securities ("initial margin"). The margin required for
a futures contract is set by the exchange on which the contract is traded and
may be modified during the term of the contract. The initial margin is in the
nature of a performance bond or good faith deposit on the futures contract that
is returned to the Fund upon termination of the contract, assuming all
contractual obligations have been satisfied. A futures contract held by the Fund
is valued daily at the official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called "variation margin,"
equal to the daily change in value of the futures contract. This process is
known as "marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead a settlement between the Fund and the broker of
the amount one would owe the other if the futures contract expired. In computing
daily net asset value, the Fund will mark-to-market its open futures position.
Each Fund also is required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a
-11-
<PAGE>
capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be
included in these calculations.
When purchasing a futures contract, each Fund will segregate (and mark-to-market
on a daily basis) cash or liquid securities that, when added to the amounts
deposited with a futures commission merchant ("FCM") as margin, are equal to the
market value of the futures contract. Alternatively, a Fund may "cover" its
position by purchasing a put option on the same futures contract with a strike
price as high as or higher than the price of the contract held by the Fund, or,
if lower, may cover the difference with cash or short-term securities.
When selling a futures contract, each Fund will segregate (and mark-to-market on
a daily basis) cash or liquid securities that, when added to the amounts
deposited with an FCM as margin, are equal to the market value of the
instruments underlying the contract. Alternatively, each Fund may "cover" its
position by owning the instruments underlying the contract (or, in the case of
an index futures contract, a portfolio with a volatility substantially similar
to that of the index on which the futures contract is based), or by holding a
call option permitting the Fund to purchase the same futures contract at a price
no higher than the price of the contract written by the Fund (or at a higher
price if the difference is maintained in liquid assets with the Fund's
custodian).
When selling a call option on a futures contract, each Fund will segregate (and
mark-to-market on a daily basis) cash or liquid securities that, when added to
the amounts deposited with an FCM as margin, equal the total market value of the
futures contract underlying the call option. Alternatively, each Fund may cover
its position by entering into a long position in the same futures contract at a
price no higher than the strike price of the call option, by owning the
instruments underlying the futures contract, or by holding a separate call
option permitting the Fund to purchase the same futures contract at a price not
higher than the strike price of the call option sold by the Fund, or covering
the difference if the price is higher.
When selling a put option on a futures contract, each Fund will segregate (and
mark-to-market on a daily basis) cash or liquid securities that equal the
purchase price of the futures contract less any margin on deposit.
Alternatively, each Fund may cover the position either by entering into a short
position in the same futures contract, or by owning a separate put option
permitting it to sell the same futures contract so long as the strike price of
the purchased put option is the same or higher than the strike price of the put
option sold by the Fund, or, if lower, the Fund may hold securities to cover the
difference.
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no guarantee
that there will be a correlation between price movements in the futures contract
or option and in the securities to which these instruments relate, which may
result in a strategy employing these instruments not to achieve its objective.
The degree of imperfection of correlation depends on circumstances such as
variations in speculative market demand for futures and futures options on
securities, including technical influences in futures trading and futures
options, and differences between the financial instruments being hedged and the
instruments underlying the standard contracts available for trading in such
respects as interest rate levels, maturities and creditworthiness of
-12-
<PAGE>
issuers. A decision as to whether, when and how to hedge involves the exercise
of skill and judgment, and even a well-conceived hedging strategy may be
unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
Future exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures or a futures option position, and the Fund would
remain obligated to meet margin requirements until the position is closed. In
addition, there can be no assurance that an active secondary market will
continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS. Each Fund also may enter into securities
index futures contracts as an efficient means of gaining exposure to the equity
and bond markets. Each Fund will not engage in transactions in futures contracts
for speculation.
An index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
RISKS OF SECURITIES INDEX FUTURES. Each Fund's success in using futures and
options for hedging depends, among other things, on the Investment Adviser's
ability to predict correctly the direction and volatility of price movements in
the futures and options markets as well as in the securities markets and to
select the proper type, time and duration of the hedging instrument.
-13-
<PAGE>
The skills necessary for successful use of hedging instruments are different
from those used in the selection of individual stocks.
Each Fund's ability to hedge effectively all or a portion of its securities
through transactions in index futures (and therefore the extent of its gain or
loss on such transactions) depends on the degree to which price movements in the
underlying index correlate with price movements in the Fund's securities.
Inasmuch as such securities will not duplicate the components of an index, the
correlation probably will not be perfect. Consequently, the Fund will bear the
risk that the prices of the securities being hedged will not move in the same
amount as the hedging instrument. This risk will increase as the composition of
the Fund's portfolio diverges from the composition of the hedging instrument.
Although each Fund intends to establish positions in futures only when there
appears to be an active market, there is no assurance that a liquid market will
exist at a time when the Fund seeks to close a particular option or futures
position. Trading could be interrupted, for example, because of supply and
demand imbalances arising from a lack of either buyers or sellers. In addition,
the futures exchanges may suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. In some cases, a Fund
may experience losses as a result of its inability to close out a position, and
it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, each Fund generally
realizes a capital gain, or if it is more, the Fund generally realizes a capital
loss. Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
Each Fund will only enter into index futures contracts or futures options that
are standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. Certain futures
strategies employed by the Fund may not be deemed to be for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the Commodity
Futures Trading Commission. The Fund may enter into these futures contracts only
if the aggregate of initial margin deposits for open futures contract positions
does not exceed 5% of the Fund's total assets.
FORWARD COMMITMENTS, WHEN-ISSUED PURCHASES AND DELAYED-DELIVERY TRANSACTIONS
Each Fund may purchase or sell securities on a when-issued or delayed-delivery
basis and make contracts to purchase or sell securities for a fixed price at a
future date beyond customary settlement time. Securities purchased or sold on a
when-issued, delayed-delivery or forward commitment basis involve a risk of loss
if the value of the security to be purchased declines, or the value of the
security to be sold increases, before the settlement date. Although the Funds
will generally purchase securities with the intention of acquiring them, the
Funds may dispose of
-14-
<PAGE>
securities purchased on a when-issued, delayed-delivery or a forward commitment
basis before settlement when deemed appropriate.
Certain of the securities in which the Funds may invest will be purchased on a
when-issued basis, in which case delivery and payment normally take place within
45 days after the date of the commitment to purchase. The Funds will make
commitments to purchase securities on a when-issued basis only with the
intention of actually acquiring the securities, but may sell them before the
settlement date if it is deemed advisable. When-issued securities are subject to
market fluctuation, and no income accrues to the purchaser during the period
prior to issuance. The purchase price and the interest rate that will be
received on debt securities are fixed at the time the purchaser enters into the
commitment.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed-upon purchase price,
in which case there could be an unrealized loss at the time of delivery. The
Funds will segregate cash or liquid securities in an amount at least equal in
value to each Fund's commitments to purchase when-issued securities. If the
value of these assets declines, the Funds will segregate additional liquid
assets on a daily basis so that the value of the segregated assets is equal to
the amount of such commitments.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Fund sells a security
and simultaneously commits to repurchase that security from the buyer at an
agreed-upon price on an agreed-upon future date. The resale price in a reverse
repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the sold security. For certain demand agreements,
there is no agreed-upon repurchase date and interest payments are calculated
daily, often based upon the prevailing overnight repurchase rate.
Generally, a reverse repurchase agreement enables a Fund to recover for the term
of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are advantageous only if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. In addition, interest costs on the money received
in a reverse repurchase agreement may exceed the return received on the
investments made by the Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
While a reverse repurchase agreement is outstanding, the Fund will maintain
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Fund will enter into reverse repurchase
agreements only with parties whose creditworthiness has been found satisfactory
by the Investment Adviser.
ILLIQUID SECURITIES
Each Fund may purchase securities other than in the open market. While such
purchases may often offer attractive opportunities for investment not otherwise
available on the open market, the securities so purchased are often "restricted
securities" or "not readily marketable" (i.e., they cannot be sold to the public
without registration under the 1933 Act, or the availability of an
-15-
<PAGE>
exemption from registration (such as Rule 144A) or because they are subject to
other legal or contractual delays in or restrictions on resale). This investment
practice, therefore, could have the effect of increasing the level of
illiquidity of the Funds. It is the Funds' policy that illiquid securities
(including repurchase agreements of more than seven days duration, certain
restricted securities, and other securities that are not readily marketable) may
not constitute, at the time of purchase, more than 15% of the value of each
Fund's net assets. The Trust's Board of Trustees has approved guidelines for use
in determining whether a security is illiquid.
Generally speaking, restricted securities may be sold (i) only to qualified
institutional buyers; (ii) in a privately negotiated transaction to a limited
number of purchasers; (iii) in limited quantities after they have been held for
a specified period of time and other conditions are met pursuant to an exemption
from registration; or (iv) in a public offering for which a registration
statement is in effect under the 1933 Act. Issuers of restricted securities may
not be subject to the disclosure and other investor protection requirements that
would be applicable if their securities were publicly traded. If adverse market
conditions were to develop during the period between a Fund's decision to sell a
restricted or illiquid security and the point at which the Fund is permitted or
able to sell such security, the Fund might obtain a price less favorable than
the price that prevailed when it decided to sell. Where a registration statement
is required for the resale of restricted securities, the Fund may be required to
bear all or part of the registration expenses. Each Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public and, in such event, a Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer is materially
inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, the
Investment Adviser will monitor such restricted securities. Among the factors
the Investment Adviser may consider in reaching liquidity decisions relating to
Rule 144A securities are: (1) the frequency of trades and quotes for the
security; (2) the number of dealers wishing to purchase or sell the security and
the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
SECURITIES LENDING
Each Fund may lend securities from its portfolios to brokers, dealers and
financial institutions (but not individuals) in order to increase the return on
its portfolio. The value of the loaned securities may not exceed 33 1/3% of each
Fund's total assets and loans of portfolio securities must be fully
collateralized based on values that are marked-to-market daily. Each Fund will
not enter into any portfolio security lending arrangement having a duration of
longer than one year. In determining whether to lend a security to a particular
broker, dealer or financial institution, the Investment Adviser considers all
relevant facts and circumstances, including the size, creditworthiness and
reputation of the broker, dealer or financial institution. The principal risk of
portfolio lending is potential default or insolvency of the borrower. In either
of these cases, the Fund could experience delays in recovering securities or
collateral or could lose all or part of the value of the loaned securities. Each
Fund may pay reasonable administrative and custodial
-16-
<PAGE>
fees in connection with loans of portfolio securities and may pay a portion of
the interest or fee earned thereon to the borrower or a placing broker.
Any securities that a Fund may receive as collateral will not become part of a
Fund's investment portfolio at the time of the loan and, in the event of a
default by the borrower, the Fund will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which the Fund is
permitted to invest. During the time securities are on loan, the borrower will
pay the Fund any accrued income on those securities, and the Fund may invest the
cash collateral and earn income or receive an agreed upon fee from a borrower
that has delivered cash-equivalent collateral.
BORROWING
Borrowing may exaggerate the effect on the Funds' net asset value of any
increase or decrease in the value of the Funds' portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of a Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk. Each Fund's borrowings may not exceed 33 1/3% of its total assets. Each
Fund may borrow up to an additional 5% of its total assets (not including the
amount borrowed) from a bank for temporary or emergency purposes (but not for
leverage or the purchase of investments). If a Fund's borrowings were to exceed
33 1/3%, a Fund may be required to sell securities in order to reduce its
borrowings. Each Fund may not make additional purchases when borrowings exceed
5%.
DIVERSIFICATION
Each Fund other than LMCG Technology Fund is classified as "diversified,"
which generally means that, with respect to 75% of its total assets (i) no
more than 5% of the Fund's total assets may be invested in the securities of
a single issuer and (ii) each fund will purchase no more than 10% of the
outstanding voting securities of a single issuer.
LMCG Technology Fund is classified as "non-diversified," which means that it
is not limited by the 1940 Act with regard to the portion of its assets that
may be invested in the securities of a single issuer. To the extent a Fund
makes investments in excess of 5% of its assets in the securities of a
particular issuer, its exposure to the risks associated with that issuer is
increased. Because the Fund invests in a limited number of issuers, the
performance of particular securities may adversely affect the performance of
the Fund or subject the Fund to greater price volatility than that
experienced by diversified investment companies.
A Fund may not change its classification from "diversified" to "non-diversified"
without obtaining shareholder approval for such a change.
COMBINED TRANSACTIONS
Each Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions and multiple currency transactions
(including forward currency contracts) and some combination of futures, options,
and currency transactions ("component" transactions),
-17-
<PAGE>
instead of a single transaction, as part of a single or combined strategy when,
in the opinion of the Investment Adviser, it is in the best interests of the
Fund to do so. A combined transaction will usually contain elements of risk that
are present in each of its component transactions. Although combined
transactions are normally entered into based on the Investment Adviser's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
management objective.
FUTURE DEVELOPMENTS
Each Fund may take advantage of opportunities in new types of securities or
derivative investments that are not presently contemplated for use by the Fund
or that are not currently available but that may be developed, to the extent
such opportunities are both consistent with the Fund's investment objective and
legally permissible for the Fund.
PORTFOLIO TURNOVER
A change in securities held by a Fund is known as "portfolio turnover." A high
turnover rate may increase transaction costs and result in additional taxable
gains. Each Fund's portfolio turnover rate is calculated by dividing the lesser
of purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year.
The portfolio turnover rate will not be a limiting factor when the Investment
Adviser deems portfolio changes appropriate.
INVESTMENT RESTRICTIONS
THE FOLLOWING ARE THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS. THE
FUNDS MAY NOT (UNLESS NOTED OTHERWISE):
Each Fund may not:
(1) issue senior securities, except as permitted under the 1940 Act;
(2) borrow money, except as permitted under the 1940 Act;
(3) act as an underwriter (except as it may be deemed such in a sale of
restricted securities);
(4) invest 25% or more of its total assets (taken at market value at the time
of such investment) in the securities of issuers in any particular industry
except that (i) there shall be no limitation with respect to investments in
obligations of the U.S. Government, its agencies or instrumentalities (or
repurchase agreements relating thereto) and (ii) LMCG Technology Fund will
invest at least 25% of its total assets in the securities of companies
expected to benefit from the development, advancement, and use of science and
technology, except when investing for defensive purposes;
-18-
<PAGE>
(5) purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business); or
(6) buy or sell physical commodities or physical commodity (futures) contracts,
although any Fund may buy, sell or hold financial futures and options thereon.
In addition, each Fund may lend securities and make any other loan to the
maximum extent permitted under the 1940 Act.
THE FOLLOWING INVESTMENT RESTRICTIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED BY
VOTE OF THE BOARD OF TRUSTEES WITHOUT SHAREHOLDER APPROVAL.
Each Fund may not:
(i) purchase or hold any security if, as a result, more than 15% of its net
assets would be invested in securities that are deemed to be illiquid because
they are subject to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued, including repurchase
agreements not entitling the holder to payment of principal and interest within
seven days upon notice and securities restricted as to disposition under federal
securities laws, except for certain securities, including commercial paper
issued in reliance on the "private placement" exemption afforded by Section 4(2)
of the 1933 Act, securities eligible for resale pursuant to Rule 144A under the
1933 Act and other securities, that are determined to be liquid pursuant to
procedures adopted by the Trust's Board of Trustees;
(ii) make short sales of securities, except as may be described in the Fund's
Prospectus and SAI from time to time, or purchase securities on margin (but the
Fund may obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities); or
(iii) purchase securities of other investment companies, except to the extent
permitted by the 1940 Act; however, the Fund may, notwithstanding any other
investment policy or limitation, invest all of its assets in the securities of a
single open-end management investment company with substantially the same
fundamental investment objectives, policies, and restrictions as the Fund.
PORTFOLIO TRANSACTIONS
The Investment Adviser places orders for the purchase and sale of assets with
brokers and dealers selected by and in the discretion of the Investment Adviser.
In placing orders for the Funds' portfolio transactions, the Investment Adviser
seeks "best execution".
-19-
<PAGE>
Consistent with the policy of "best execution," orders for portfolio
transactions are placed with broker-dealer firms giving consideration to the
quality, quantity and nature of the firms' professional services, which include
execution, clearance procedures, reliability and other factors. In selecting
among the firms believed to meet the criteria for handling a particular
transaction, the Investment Adviser may give consideration to those firms that
provide market, statistical and other research information to the Funds and the
Investment Adviser. The Investment Adviser also may consider sales of Fund
shares as a factor in the selection of broker-dealers to execute portfolio
transactions for the Funds.
In addition, the Funds may pay higher than the lowest available commission rates
when the Investment Adviser believes it is reasonable to do so in light of the
value of the brokerage and research services provided by the broker effecting
the transaction, viewed in terms of either the particular transaction or the
Investment Adviser's overall responsibilities with respect to accounts as to
which it exercises investment discretion. Any research benefits derived from
such services are available for all clients of the Investment Adviser and might
not be used solely in connection with the Funds. The receipt of research
information may reduce Fund expenses.
The Investment Adviser may employ broker-dealer affiliates of the Investment
Adviser (collectively "Affiliated Brokers") to effect portfolio transactions for
the Funds, provided certain conditions are satisfied. Payment of brokerage
commissions to Affiliated Brokers is subject to Section 17(e) of the 1940 Act
and Rule 17e-1 thereunder, which require, among other things, that commissions
for transactions on securities exchanges paid by a registered investment company
to a broker that is an affiliated person of such investment company, or an
affiliated person of another person so affiliated, not exceed the usual and
customary brokers' commissions for such transactions. The Board of Trustees,
including a majority of the trustees who are not "interested persons" of the
Trust within the meaning of such term as defined in the 1940 Act
("Non-Interested Trustees"), has adopted procedures designed to ensure that
commissions paid to affiliates of the Investment Adviser by the Funds satisfy
the standards of Section 17(e) and Rule 17e-1. Certain transactions may be
effected for the Funds by a broker-dealer affiliate of the Investment Adviser at
no net cost to the Funds; however, the broker-dealer may be compensated by
another broker-dealer in connection with such transaction for the order flow to
the second broker-dealer. Receipt of such compensation will be subject to the
Funds' procedures pursuant to Section 17(e) and Rule 17e-1.
The investment decisions for each Fund will be reached independently from
those for each other Fund and any other accounts managed by the Investment
Adviser. On occasions when the Investment Adviser deems the purchase or sale
of securities to be in the best interests of one or more clients of the
Investment Adviser, the Investment Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be so sold or purchased in order to obtain the
most favorable price or lower brokerage commissions and efficient execution.
In such event, allocation of the securities so purchased or sold, as well as
the expenses incurred in the transaction, will be made by the Investment
Adviser in accordance with its policy for aggregation of orders, as in effect
from time to time. In some cases, this procedure may affect the size or price
of the position obtainable for the Funds.
-20-
<PAGE>
Purchases and sales of equity securities on exchanges are generally effected
through brokers who charge commissions. In transactions on stock exchanges in
the United States, these commissions generally are negotiated. In all cases, the
Fund will attempt to negotiate best execution.
Purchases and sales of fixed income portfolio securities are generally effected
as principal transactions. These securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. There
usually are no brokerage commissions paid for such purchases. Purchases from
underwriters of portfolio securities include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers serving as market
makers include the spread between the bid and ask prices. In the case of
securities traded in the over-the-counter markets, there is generally no stated
commission, but the price usually includes an undisclosed commission or markup.
TRUSTEES AND EXECUTIVE OFFICERS
Responsibility for overall management of the Funds rests with the Board of
Trustees of the Trust in accordance with Massachusetts law.
The trustees and executive officers of the Trust, along with their principal
occupations over the past five years and their affiliations, if any, with the
Investment Adviser and Funds Distributor, Inc. ("FDI" or the "Distributor"), the
Funds' distributor, are listed below.
LEE P. MUNDER*+, Trustee, Chairman and President. Chairman of the Investment
Adviser. Owner and President, LPM Investment Services, Inc.; Director, Capital
Automotive REIT; Chairman of Munder Capital Management ("Munder") (from
February 1998 to January 2000); Chief Executive Officer of Munder (1995 to
1998); Chief Executive Officer, World Asset Management (1995 to 1998); Chief
Executive Officer, MCM (predecessor of Munder) (since 1985). He is 55 years
old.
LISA A. ROSEN**, Trustee. General Counsel and Director of Mutual Fund
Operations of Munder Capital Management (May 1996 to May 1999). Counsel of
First Data Investor Services Group, Inc. (July 1993 to May 1996). She is 33
years old.
ROBERT A. SMITH**, Trustee. President (since January 1997), Co-Chief Executive
Officer (since May 1999), Co-Chief Operating Officer (January 1997 to November
1999) and Director (since 1989) of Harcourt General, Inc. Co-Chief Operating
Officer of The Neiman Marcus Group, Inc. (since May 1999). Chief Executive
Officer of The Neiman Marcus Group, Inc. (December 1998 to May 1999); President
and Chief Operating Officer of The Neiman Marcus Group, Inc. (January 1997 to
December 1998); prior thereto, Group Vice President of Harcourt General, Inc.
and The Neiman Marcus Group, Inc.; President and Chief Operating Officer of GC
Companies, Inc. (since November 1995). He is 43 years old.
TERRY H. GARDNER+, Vice President, Chief Financial Officer, Treasurer and
Secretary. Managing Director and Chief Financial Officer of the Investment
Adviser. Treasurer, LPM Investment Services, Inc. Vice President and Chief
Financial Officer, Munder, the Munder Funds and MCM (from February 1993 to May
2000). He is 40 years old.
NICHOLAS S. BATTELLE+, Vice President. Managing Director of the Investment
Adviser. Vice President and Director of Standish, Ayer & Wood, Inc. (1984-2000).
He is 50 years old.
MARGARET W. CHAMBERS**, Vice President and Assistant Secretary. Senior Vice
President and General Counsel of FDI since April, 1998. From August 1996 to
March 1998, Ms. Chambers was Vice President and Assistant General Counsel for
Loomis, Sayles & Company, L.P. From January 1986 to July 1996, she was an
associate with the law firm of Ropes & Gray. She is 41 years old.
CHRISTOPHER J. KELLEY**, Vice President and Assistant Secretary. Mr. Kelley is
Senior Vice President and Deputy General Counsel of FDI, and an officer of
certain investment companies distributed by FDI or its affiliates. From April
1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. He
is 36 years old.
* THIS TRUSTEE IS AN "INTERESTED PERSON" OF THE TRUST.
+ ADDRESS: 231 ROYAL PALM WAY, PALM BEACH FL 33480
** ADDRESS: 60 STATE STREET, SUITE 1300, BOSTON, MA 02109
Officers and trustees who are interested persons of the Investment Adviser or
FDI receive no compensation from the Funds. Each trustee who is not an
interested person receives $25,000 annually. Trustees who are interested persons
of the Trust may be compensated by the Investment Adviser or its affiliates for
their services to the Trust.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGEMENT
Lee Munder Investments Ltd., 231 Royal Palm Way, Palm Beach FL 33480, the
investment advisory arm of the Lee Munder Capital Group, is the Funds'
Investment Adviser. The Investment Adviser oversees the Funds' investment
program, places orders for the Funds' purchases and sales of portfolio
securities and maintains records relating to such purchases and sales.
The Investment Adviser was organized in January 2000 and is registered with the
SEC. In addition to the Funds, the Investment Adviser provides investment
advisory services to private
-21-
<PAGE>
accounts and, as of September 30, 2000, had approximately $500 million under
management. Lee P. Munder, Chairman of the Investment Adviser, directly and
indirectly owns or controls a majority of the partnership interests in the
Investment Adviser.
For its services, the Investment Adviser receives an annual fee based on each
Fund's average daily net assets at the following rates: 0.90% for LMCG Small
Cap Growth Fund, 0.80% for LMCG Mid Cap Growth Fund, 0.90% for LMCG Small Cap
Tax-Sensitive Fund and 0.80% for LMCG Technology Fund, respectively. The
Investment Adviser has contractually undertaken to reduce Fund expenses (by
paying certain expenses and/or waiving fees) so that each Fund's total
operating expenses for the first 12 months of its operations will not exceed
1.50% for for LMCG Small Cap Growth Fund, 1.40% for LMCG Mid Cap Growth Fund,
1.50% for LMCG Small Cap Tax-Sensitive Fund and 1.40% for LMCG Technology Fund,
respectively. Thereafter, any such expense reductions will be voluntary and may
be reduced or eliminated at any time upon notifying investors.
The investment advisory agreement will continue in effect for an initial
two-year term, and thereafter from year to year so long as continuation is
specifically approved at least annually by a vote of the Board of Trustees or by
vote of the shareholders of the Funds, and in either case by a majority of
Non-Interested Trustees who have no direct or indirect financial interest in the
agreement. The investment advisory agreement may be terminated at any time upon
60 days' prior written notice, without penalty, by either party, or by a
majority vote of the outstanding shares of the Funds, and will terminate
automatically upon assignment as defined in the 1940 Act.
The investment advisory agreement provides that the Investment Adviser will not
be liable for any error of judgment or of law, or for any loss suffered by the
Funds in connection with the matters to which such agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
Investment Adviser's part in the performance of its obligations and duties, or
by reason of its reckless disregard of its obligations and duties under such
agreement. The services of the Investment Adviser to the Funds under the
investment advisory agreement are not exclusive and it is free to render similar
services to others.
The Investment Adviser and its affiliates may, from time to time, reduce the
Funds' operating expenses (by paying certain expenses and/or waiving fees).
Expense reductions by the Investment Adviser or its affiliates will increase the
Funds' total return. Unless otherwise provided, expense reductions are voluntary
and may be reduced or eliminated at any time upon notifying investors.
CODES OF ETHICS
The Trust, the Investment Adviser and the Distributor have adopted codes of
ethics pursuant to Rule 17j-1 under the 1940 Act with respect to their personnel
with access to information about the purchase or sale of securities by the
Funds. These codes are designed to protect the interests of Fund shareholders.
While these codes contain provisions reasonably necessary to prevent personnel
subject to the codes from engaging in unlawful conduct and require compliance
review of securities transactions, they do not prohibit such personnel from
investing in securities, including securities that may be purchased or held by
the Funds so long as such investments are made pursuant to the code's
requirements.
-22-
<PAGE>
ADMINISTRATION
State Street Bank and Trust Company ("State Street"), 2 Avenue de Lafayette,
Boston, MA 02111, serves as an administrator for the Trust. Pursuant to its
administration agreement with the Trust, State Street oversees the
computation of the Funds' net asset value, net income and realized capital
gains, if any; furnishes statistical and research data, clerical services,
and stationery and office supplies; prepares and files various reports with
the appropriate regulatory agencies; and prepares various materials required
by the Securities and Exchange Commission. State Street may enter into an
agreement with one or more third parties pursuant to which such third parties
will provide administrative services on behalf of the Funds. The
administration agreement provides that State Street shall not be liable under
the agreement except for its negligence or willful misconduct in the
performance of its duties and obligations thereunder.
For its services, State Street receives from the Trust an annual fee on a
graduated basis equal to 0.08% of the first $250 million of average daily net
assets of the Funds, 0.06% of the next $125 million, and 0.04% of average daily
net assets over $375 million, subject to a minimum fee of $90,000 per Fund.
DISTRIBUTION
FDI is the Distributor of the Funds. Pursuant to a distribution agreement
between the Trust and FDI, FDI has the exclusive right to distribute shares
of the Funds. FDI may enter into dealer or agency agreements with
broker-dealers or other financial intermediaries, including affiliates of the
Investment Adviser, for the sale of Fund shares. FDI receives no fee from the
Trust under the distribution agreement for acting as Distributor. From time
to time and out of its own resources, the Investment Adviser, the
Distributor, or either of their affiliates, may pay fees to broker-dealers or
other persons for distribution or other services related to the Funds.
The distribution agreement will continue in effect only if such continuance is
specifically approved at least annually by a vote of the Board of Trustees,
including a majority of Non-Interested Trustees who have no direct or indirect
financial interest in the agreement. The Funds may terminate the distribution
agreement on 60 days' prior written notice without penalty. Termination by the
Funds may be by vote of a majority of the Board of Trustees, or a majority of
the Non-Interested Trustees, or by a majority of the outstanding voting
securities of the Funds. The agreement terminates automatically in the event of
its "assignment" as defined in the 1940 Act.
CUSTODIAN
State Street also serves as the custodian (in this capacity, the "Custodian") to
each Fund pursuant to a custodian agreement between the Trust and State Street.
State Street is also the custodian with respect to the custody of any foreign
securities held by each funds. State Street has in turn
-23-
<PAGE>
entered into additional agreements with financial institutions located in
foreign countries with respect to the custody of such securities. Under the
custodian agreement, the Custodian (i) maintains a separate account in the name
of each Fund, (ii) holds and transfers portfolio securities on account of each
Fund, (iii) accepts receipts and makes disbursements of money on behalf of each
Fund, (iv) collects and receives all income and other payments and distributions
on account of each Fund's securities and (v) makes periodic reports to the Board
of Trustees concerning each Fund's operations.
TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC Global Fund Services (the "Transfer Agent"), 4400 Computer Drive,
Westborough, MA 01581, serves as the transfer and dividend disbursing agent for
the Funds pursuant to a transfer agency agreement with the Trust, under which
the Transfer Agent (i) issues and redeems shares of the Funds, (ii) addresses
and mails all communications by the Funds to its record owners, including
reports to shareholders, dividend and distribution notices and proxy materials
for its meetings of shareholders, (iii) maintains shareholder accounts, (iv)
responds to correspondence by shareholders of the Funds and (v) makes periodic
reports to the Board of Trustees concerning the operations of the Funds.
OTHER EXPENSES
The Trust pays the expenses of its operations, including the costs of
shareholder and board meetings; the fees and expenses of blue sky and pricing
services, independent auditors, counsel, the Custodian and the Transfer Agent;
reports and notices to shareholders; the costs of calculating net asset value;
brokerage commissions or transaction costs; taxes; interest; insurance premiums;
Investment Company Institute dues; and the fees and expenses of qualifying the
Funds and its shares for distribution under federal and state securities laws.
In addition, the Funds pays for typesetting, printing and mailing proxy
material, prospectuses, statements of additional information, notices and
reports to existing shareholders, and the fees of the Non-Interested Trustees.
The Funds are also liable for such nonrecurring expenses as may arise, including
costs of any litigation to which the Trust be a party, and any obligation it may
have to indemnify the Trust's officers and trustees with respect to any
litigation. The Trust's expenses generally are allocated among its investment
portfolios (such as the Funds) on the basis of relative net assets at the time
of allocation, except that expenses directly attributable to a particular
investment portfolio are charged to that portfolio. The Trust's service
providers may voluntarily waive all or a portion of their respective fees from
time to time.
DISTRIBUTION SERVICES ARRANGEMENTS
The Funds have adopted a Service Plan with respect to its A Shares class
pursuant to which it uses its assets to finance activities relating to the
provision of certain shareholder services. Under the Service Plan, the
Distributor is paid an annual service fee at the rate of 0.25% of the value of
average daily net assets of the Funds' A Shares.
Under the terms of the Service Plan, the plan continues from year to year,
provided such continuance is approved annually by vote of the Board of Trustees,
including a majority of the Non-Interested Trustees who have no direct or
indirect financial interest in the operation of the plan. The plan may not be
amended to increase the amount to be spent for the services provided by the
Distributor without shareholder approval, and all amendments of the plan also
-24-
<PAGE>
must be approved by the Board of Trustees in the manner described above. The
plan may be terminated at any time, without penalty, by vote of a majority of
the Non-Interested Trustees or by a vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of A Shares of the respective Funds on
not more than 30 days' written notice to the Distributor.
The Board of Trustees has determined that the Plan will benefit the Funds and
its shareholders by (i) providing an incentive for broker or bank personnel to
provide continuous shareholder servicing after the time of sale; (ii) retaining
existing accounts; (iii) facilitating portfolio management flexibility through
continued cash flow into the Funds; and (iv) maintaining a competitive sales
structure in the mutual fund industry.
The Investment Adviser may use its own resources to make payments to the
Distributor or dealers authorized to sell the Funds' shares to support their
sales efforts.
TAXES AND DIVIDENDS
TAX STATUS OF THE TRUST
Each Fund intends to meet the requirements of the Code applicable to regulated
investment companies and to distribute annually all of its investment company
taxable income and net realized gain, if any, to shareholders. Accordingly, it
is not anticipated that the Funds will be liable for federal income or excise
taxes to which it would otherwise be subject. Qualification as a regulated
investment company does not, of course, involve governmental supervision of
management or investment practices or policies.
To qualify for the special tax treatment accorded regulated investment companies
and their shareholders, each Fund must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, payments
with respect to securities loans and gains from the sale or other disposition of
stock, securities or foreign currencies or other income derived with respect to
its business of investing in such stock, securities or currencies; (b) diversify
its holdings so that, at the end of each quarter of the taxable year, (i) at
least 50% of the market value of the Fund's assets is represented by cash and
cash items (including receivables), U.S. Government securities, the securities
of other regulated investment companies and other securities, with such other
securities of any one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of the Fund's total assets and not
greater than 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its total assets is invested in the securities
(other than U.S. Government securities or the securities of other regulated
investment companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar, or related trades or
businesses; and (c) distribute each taxable year at least 90% of the sum of its
investment company taxable income (which includes, among other items, dividends,
interest and the excess of net short-term capital gains over net long-term
capital losses) and its net tax-exempt interest income, if any.
As a regulated investment company qualifying for special tax treatment, each
Fund generally will not be subject to U.S. federal income tax on its investment
company taxable income and net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, that it distributes
to shareholders. Each Fund intends to distribute to its shareholders, at least
-25-
<PAGE>
annually, substantially all of its investment company taxable income and net
capital gains. A portion of the amount not distributed on a timely basis in
accordance with a calendar year distribution requirement is subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, each Fund
must distribute during each calendar year an amount equal to or exceeding the
sum of (1) 98% of its ordinary income (not taking into account any capital gains
or losses) for the calendar year, (2) 98% of its capital gains in excess of its
capital losses (adjusted for certain ordinary losses, as prescribed by the Code)
for the one-year period ending on October 31 of the calendar year (or later if
the Fund is permitted to elect and so elects), and (3) any ordinary income and
capital gains for previous years that was not distributed during those years. A
distribution will be treated as paid on December 31 of the current calendar year
if it is declared by a Fund in October, November or December with a record date
in such a month and paid by such Fund during January of the following calendar
year. Such distributions will be taxable to shareholders in the calendar year in
which the distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, each Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.
If a Fund failed to qualify as a regulated investment company accorded special
tax treatment in any taxable year, such Fund would be subject to tax on its
taxable income at corporate rates, and all distributions from earnings and
profits, including any distributions of net tax-exempt income and net long-term
capital gains, would be taxable to shareholders as ordinary income. In addition,
such Fund could be required to recognize unrealized gains, pay substantial taxes
and interest and make substantial distributions before requalifying as a
regulated investment company that is accorded special tax treatment.
Each Fund will be treated as a separate entity from any other investment
portfolio of the Trust for tax purposes.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
It is currently contemplated that dividends of the Funds' net investment income
will be declared and paid annually. No dividends will be declared for a Fund on
any day on which such Fund does not receive dividends or interest income from
the securities in its portfolio. In addition, any dividends declared will be net
of Fund expenses accrued to date. In the event the Board of Trustees changes the
daily dividend policy, shareholders will be notified. If a Fund realizes any net
capital gain, such gain will be distributed at least once during the year as
determined by the Board of Trustees.
Non-tax-exempt shareholders of a Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares.
Distributions from a Fund derived from interest, dividends, and certain other
income, including in general short-term capital gains, if any, will be taxable
to shareholders as ordinary income. Distributions of net capital gains (that is,
the excess of net gains from capital assets held more than one year over net
losses from capital assets held for not more than one year) will be taxable to
shareholders as such, regardless of how long a shareholder has held the shares
in the Fund.
-26-
<PAGE>
Dividends and distributions on a Fund's shares generally are subject to federal
income tax as described herein to the extent they do not exceed the Fund's
realized income and gains, even though such dividends and distributions
economically may represent a return of a particular shareholder's investment.
Such dividends and distributions are likely to occur in respect of shares
purchased at a time when the Fund's net asset value reflects gains that are
either unrealized, or realized but not distributed. If a Fund makes a
distribution to shareholders in excess of its current and accumulated "earning
and profits" in any taxable year, the excess distribution will be treated as a
return of capital to the extent of the tax basis in the shares, and thereafter
as capital gain. A return of capital is not taxable, but it reduces the tax
basis in the shares, thus reducing any loss or increasing any gain on a
subsequent taxable disposition of the shares.
It is expected that a portion of each Fund's dividends from net investment
income will be eligible for the dividends received deduction for corporate
shareholders. The amount of such dividends eligible for the dividends received
deduction is in general, limited to the amount of qualifying dividends from
domestic corporations received during the Fund's fiscal year. You should consult
with your tax adviser in this regard.
The Transfer Agent will send each shareholder a notice in January describing the
tax status of dividend and capital gain distributions (where applicable) for the
prior year.
HEDGING TRANSACTIONS
If a Fund engages in hedging transactions, including hedging transactions in
options, futures contracts, and straddles, or other similar transactions, it
will be subject to special tax rules (including constructive sale,
mark-to-market, straddle, wash sale, and short sale rules), the effect of which
may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, convert long-term
capital gains into short-term capital gains or convert short-term capital losses
into long-term capital losses. These rules could therefore affect the amount,
timing and character of distributions to shareholders. The Fund will endeavor to
make any available elections pertaining to such transactions in a manner
believed to be in the best interests of the Fund.
Certain of the Fund's hedging activities (including its transactions, if any, in
foreign currencies or foreign currency-denominated instruments) are likely to
produce a difference between its book income and its taxable income. If the
Fund's book income exceeds its taxable income, the distribution (if any) of such
excess will be treated as (i) a dividend to the extent of the Fund's remaining
earnings and profits (including earnings and profits arising from tax-exempt
income), (ii) thereafter as a return of capital to the extent of the recipient's
basis in the shares, and (iii) thereafter as gain from the sale or exchange of a
capital asset. If the Fund's book income is less than its taxable income, the
Fund could be required to make distributions exceeding book income to qualify as
a regulated investment company that is accorded special tax treatment.
SALE OR REDEMPTION OF FUND SHARES
Sales, exchanges or redemptions of Fund shares are taxable events, and,
accordingly, shareholders may recognize gains or losses on such transactions.
Except for dealers, any such gains or losses will be capital gains or losses,
and will be long-term capital gains or losses if such
-27-
<PAGE>
shares were held for more than 12 months. In the case of an individual, any such
capital gain will be taxable at reduced rates. In the case of a corporation,
long-term capital gain is taxable at the same rates as ordinary income. A loss
realized on a redemption of Fund shares will be disallowed if other shares of
the same Fund are acquired (whether through dividend reinvestment or otherwise)
within a 61-day period beginning 30 days before and ending 30 days after the
date the shares are redeemed. In such case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss. If a shareholder holds shares
for six months or less and during that period receives a distribution taxable to
the shareholder as a capital gain, any loss realized on the sale of the shares
during that six-month period would be a long-term capital loss to the extent of
the distribution.
For taxable years beginning after December 31, 2000, the maximum capital gain
tax rates for capital assets (including Fund shares) held by a non-corporate
shareholder for more than 5 years will be 8 percent and 18 percent (rather than
10 percent and 20 percent). The 18-percent rate applies only to assets the
holding period for which begins after December 31, 2000 (including by way of an
election to mark the asset to the market, and to pay the tax on any gain
thereon, as of January 2, 2001). The mark-to-market election may be
disadvantageous from a federal tax perspective, and shareholders should consult
their tax advisors before making such an election.
SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS
Special tax rules apply to investments though defined contribution plans and
other tax-qualified plans. Shareholders should consult their tax adviser to
determine the suitability of shares of a Fund as an investment through such
plans.
BACKUP WITHHOLDING
Each Fund generally is required by law to withhold 31% ("backup withholding") of
certain dividends, distributions of capital gains and redemption proceeds paid
to certain shareholders who do not furnish a correct taxpayer identification
number (in the case of individuals, a social security number and in the case of
entities, an employer identification number) and in certain other circumstances.
Any tax withheld as a result of backup withholding does not constitute an
additional tax imposed on the shareholder of the account, and may be claimed as
a credit on such shareholder's federal income tax return. You should consult
your own tax adviser regarding the withholding requirement. Dividends (but not
distributions of long-term capital gain) paid to foreign investors generally
will be subject to a 30% (or lower treaty rate) withholding tax.
GENERAL
The information above, together with the information set forth in each Fund's
Prospectus and this SAI, is only a summary of some of the federal income tax
consequences generally affecting each Fund and its shareholders, and no attempt
has been made to present a detailed explanation of the tax treatment of the
Funds or to discuss individual tax consequences. In addition to federal income
taxes, shareholders may be subject to state and local taxes on Fund
distributions and on redemptions or other dispositions of shares of the Funds,
and shares may be subject to state and local personal property taxes. Investors
should consult their tax advisers regarding specific questions as to federal,
state and local taxes or to determine whether one or more of the Funds are
suitable to their particular tax situation.
-28-
<PAGE>
Foreign shareholders should consult their tax advisers regarding foreign tax
consequences applicable to their purchase of Fund shares.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS
The Trust's independent auditors, Arthur Andersen LLP, 225 Franklin Street,
Boston, MA 02110, audit and report on the Funds' annual financial statements,
review certain regulatory reports and the Funds' federal income tax returns, and
perform other professional accounting, auditing, tax and advisory services when
engaged to do so by the Trust. Shareholders will receive audited annual
financial statements and unaudited semi-annual financial statements.
SHARE PRICE CALCULATION
The net asset value ("NAV") of a class of a Fund's shares is determined by
dividing the total value of a Fund's portfolio investments and other assets
attributable to that class, less any liabilities, by the total number of shares
outstanding of that class.
For purposes of calculating the NAV, portfolio securities and other assets for
which market quotes are available are stated at market value. Market value is
generally determined on the basis of last reported sales prices, or if no sales
are reported, based on quotes obtained from a quotation reporting system,
established market makers, or pricing services. Certain securities or
investments for which daily market quotes are not readily available may be
valued, pursuant to guidelines established by the Board of Trustees, with
reference to other securities or indices. Short-term investments having a
maturity of 60 days or less are generally valued at amortized cost. Exchange
traded options, futures and options on futures are valued at the settlement
price determined by the exchange. Other securities for which market quotes are
not readily available are valued at fair value as determined in good faith by
the Board of Trustees or persons acting at their direction.
Investments initially valued in currencies other than the U.S. dollar are
converted to U.S. dollars using exchange rates obtained from pricing services.
As a result, the NAV of a Fund's shares may be affected by changes in the value
of currencies in relation to the U.S. dollar. The value of securities traded in
markets outside the United States or denominated in currencies other than the
U.S. dollar may be affected significantly on a day that the New York Stock
Exchange (the "NYSE") is closed and an investor is not able to purchase, redeem
or exchange shares.
Fund shares are valued at the close of regular trading (normally 4:00 p.m.,
Eastern time) (the "NYSE Close") on each day that the NYSE is open. For purposes
of calculating the NAV, the Funds normally use pricing data for domestic equity
securities received shortly after the NYSE Close and do not normally take into
account trading, clearances or settlements that take place after the NYSE Close.
Domestic fixed income and foreign securities are normally priced using data
reflecting the earlier closing of the principal markets for those securities.
Information that becomes known to the Funds or their agents after the NAV has
been calculated on a particular day will not generally be used to retroactively
adjust the price of the security or the NAV determined earlier that day.
-29-
<PAGE>
In unusual circumstances, instead of valuing securities in the usual manner, the
Funds may value securities at fair value or estimate their value as determined
in good faith by the Board of Trustees, generally based upon recommendations
provided by the Investment Adviser. Fair valuation may also be used by the Board
of Trustees if extraordinary events occur after the close of the relevant market
but prior to the NYSE Close.
The Trust expects that the holidays upon which the NYSE will be closed are as
follows: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
PURCHASES
GENERAL. Shares of the Funds are sold on a continuous basis by the Distributor.
As described in the Prospectuses, shares of the Funds may be purchased in a
number of different ways. Such alternative sales arrangements permit an investor
to choose the method of purchasing shares that is most beneficial depending on
the amount of the purchase, the length of time the investor expects to hold
shares and other relevant circumstances. An investor may place orders directly
through the Transfer Agent or through arrangements with his/her authorized
broker.
The minimum initial investment in shares of each Fund is $1,000. The minimum
subsequent investment is $250. Minimum requirements may be imposed or changed at
any time and each Fund may waive minimum investment requirements in its
discretion.
PURCHASES IN KIND. Payment for shares may, in the discretion of the Investment
Adviser, be made in the form of securities that are permissible investments for
the relevant Fund as described in the Fund's Prospectus. For further information
about this form of payment please contact the Transfer Agent. In connection with
an in-kind securities payment, the Fund will require, among other things, that
the securities (a) meet the investment objectives and policies of the Fund; (b)
are acquired for investment and not for resale; (c) are liquid securities that
are not restricted as to transfer either by law or liquidity of markets; (d)
have a value that is readily ascertainable by a listing on a nationally
recognized securities exchange or NASDAQ; and (e) are valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receive satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other tax matters relating to the securities.
RETIREMENT PLANS. Shares of the Funds may be purchased in connection with
various types of tax deferred retirement plans, including individual retirement
accounts ("IRAs"), qualified plans, deferred compensation for public schools and
charitable organizations (403(b) plans) and simplified employee pension IRAs. An
individual or organization considering the establishment of a retirement plan
should consult with an attorney and/or an accountant with respect to the terms
and tax aspects of the plan. A $10.00 annual custodial fee is also charged on
IRAs. This
-30-
<PAGE>
custodial fee is due by December 15 of each year and may be paid by check or
shares liquidated from a shareholder's account.
REDEMPTIONS
SUSPENSION. The Funds reserve the right to suspend or postpone redemptions
during any period when: (i) trading on the NYSE is restricted by applicable
rules and regulations of the SEC; (ii) the NYSE is closed other than for
customary weekend and holiday closings; (iii) the SEC has by order permitted
such suspension or postponement for the protection of the shareholders; or (iv)
an emergency, as determined by the SEC, exists, making disposal of portfolio
securities or valuation of net assets of the Funds not reasonably practicable.
INVOLUNTARY REDEMPTIONS. Each Fund may involuntarily redeem an investor's shares
if the net asset value of such shares is less than $1,000 or such other amount
established from time to time by the Board of Trustees; provided that
involuntary redemptions will not result from fluctuations in the value of an
investor's shares. A notice of redemption, sent by first-class mail to the
investor's address of record, will fix a date not less than 30 days after the
mailing date, and shares will be redeemed at the net asset value at the close of
business on that date unless sufficient additional shares are purchased to bring
the aggregate account value up to $1,000 or more. A check for the redemption
proceeds payable to the investor will be mailed to the investor at the address
of record.
REDEMPTIONS IN KIND. If the Board of Trustees determines that existing
conditions make cash payments undesirable, redemption payments may be made in
whole or in part in securities or other property, valued for this purpose as
they are valued in computing the Fund's NAV. Shareholders receiving securities
or other property on redemption may realize a gain or loss for tax purposes, and
will incur any costs of sale, as well as the associated inconveniences. An in
kind distribution of portfolio securities will be less liquid than cash. The
shareholder may have difficulty in finding a buyer for portfolio securities
received in payment for redeemed shares. Portfolio securities may decline in
value between the time of receipt by the shareholder and conversion to cash. A
redemption in kind of a Fund's portfolio securities could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund's portfolio.
REDEMPTION FEE -- A SHARES. In general, A Shares the Funds may be redeemed at
net asset value. However, A Shares of the Funds held for 180 days or less are
redeemable at a price equal to 99.25% of the then-current NAV of A Shares (the
"discount"). This discount, referred to in the Prospectuses and this Statement
of Additional Information as a redemption fee, directly affects the amount a
shareholder who is subject to the discount receives upon redemption. It is
intended to encourage long-term investment in the Funds, to avoid transaction
and other expenses caused by early redemptions and to facilitate portfolio
management. The fee, which is paid to the Funds, is not a deferred sales charge,
and is not a commission paid to the Investment Adviser, the Distributor or their
respective subsidiaries. The Funds reserve the right to modify the terms of or
terminate this fee at any time.
-31-
<PAGE>
PERFORMANCE
The historical performance calculation for each Fund generally is shown in the
form of "total return," which is described below.
Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Funds is
historical and is not intended to indicate future returns. Each Fund's total
return fluctuates in response to market conditions and other factors. The value
of a Fund's shares when redeemed may be more or less than their original cost.
In performance advertising, the Funds may compare their performance information
with data published by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc., or other companies that track the investment
performance of investment companies ("Fund Tracking Companies"). The Funds may
also compare any of their performance information with the performance of
recognized stock, bond and other indexes, including but not limited to the
Russell 2000 Index, Dow Jones Industrial Average, Standard & Poor's 500 Index,
Morgan Stanley - Europe, Australian and Far East Index, Lehman Brothers
Intermediate Government Index, Lehman Brothers Intermediate Government/Corporate
Index, Salomon Brothers Bond Index, Shearson Lehman Bond Index, U.S. Treasury
bonds, bills or notes and changes in the Consumer Price Index as published by
the U.S. Department of Commerce. The Funds may refer to general market
performances over past time periods such as those published by Ibbotson
Associates (for instance, its "Stocks, Bonds, Bills and Inflation Yearbook"). In
addition, the Funds may refer in such materials to mutual fund performance
rankings and other data published by Fund Tracking Companies. Performance
advertising may also refer to discussions of the Funds and comparative mutual
fund data and ratings reported in independent periodicals, such as newspapers
and financial magazines.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the Fund's net asset value per
share over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in a Fund
over a stated period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth or decline
in value had been constant over the period. For example, a cumulative return of
100% over ten years would produce an average annual return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis in ten
years. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of a Fund.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
-32-
<PAGE>
n
P(1+T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a hypothetical
$1,000 payment made at the beginning of the
applicable period.
In addition to average annual returns, the Funds may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gain and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Period total return
is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return.
The other definitions are the same as in average annual total
return above.
OTHER ADVERTISEMENT MATTERS
The Funds may advertise other forms of performance. For example, the Funds may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a series of
redemptions over any time period.
The Funds may also include various information in its advertisements.
Information included in a Fund's advertisements may include, but is not limited
to (i) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer, industry or by maturity, (ii) statements or illustrations relating to
the appropriateness of types of securities and/or mutual funds that may be
employed by an investor to meet specific financial goals, such as funding
retirement, paying for children's education and financially supporting aging
parents, (iii) information regarding the effects of automatic investment and
systematic withdrawal plans, including the principle of dollar cost averaging,
(iv) descriptions of the Fund's portfolio manager(s) and the portfolio
management staff of the Investment Adviser or summaries of the views of the
portfolio managers with respect to the financial markets, (v) the results of a
hypothetical investment in a Fund over a given number of years, including the
amount that the investment would be at the end of the period, (vi) the effects
of investing in a tax-deferred account, such as an individual retirement account
or Section 401(k) pension plan and (vii) the net asset value, net assets or
number of shareholders of the Fund as of one or more dates.
-33-
<PAGE>
The Funds may advertise information regarding the effects of periodic
investment, including the principle of dollar cost averaging. In a dollar cost
averaging program, an investor invests a fixed dollar amount in a Fund at
periodic intervals, thereby purchasing fewer shares when prices are high and
more shares when prices are low. While such a strategy does not ensure a profit
or guard against a loss in a declining market, the investor's average cost per
share can be lower than if fixed numbers of shares had been purchased at those
intervals. In evaluating such a plan, investors should consider their ability to
continue purchasing shares through periods of low price levels. For example, if
an investor invests $100 a month for a period of six months in a Fund, the
following will be the relationship between average cost per share ($14.35 in the
example given) and average price per share:
<TABLE>
<CAPTION>
Systematic Share Shares
PERIOD INVESTMENT PRICE PURCHASED
------ ---------- ----- ---------
<S> <C> <C> <C>
1 $100 $10 10.000
2 $100 $12 8.333
3 $100 $15 6.666
4 $100 $20 5.000
5 $100 $18 5.555
6 $100 $16 6.250
---- --- -----
Total Invested $600 Avg. Price $15.17 Total Shares 41.804
</TABLE>
SHAREHOLDER INFORMATION
MASSACHUSETTS BUSINESS TRUST
The Trust is a Massachusetts business trust of which the Funds are series. A
copy of the Agreement and Declaration of Trust of the Trust (the "Declaration of
Trust") is on file in the office of the Secretary of The Commonwealth of
Massachusetts. Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Declaration of Trust disclaims shareholder liability for the
acts or obligations of the Funds. The Declaration of Trust also provides that,
in case any shareholder or former shareholder shall be held to be personally
liable solely by reason of his or her being or having been a ahareholder of the
Trust (and not because of his or her acts or omissions or for some other
reason), the shareholder shall be indemnified against all loss and expense
arising from such liability. In light of these provisions, Massachusetts law and
the nature of the Trust's business, the Investment Adviser believes that the
risk of personal liability to shareholders is remote.
The Declaration of Trust further provides that the trustees will not be liable
for errors of judgment or mistakes of fact or law. However, nothing the
Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office. The By-Laws of the Trust provide for indemnification by the
Trust of the trustees and officers of the Trust except with respect to any
matter as to which any such person did not act in good faith in the reasonable
belief that his or her action was in or not opposed to the best interests of the
Trust. Such person may not be indemnified against any
-34-
<PAGE>
liability to the Trust or the Trust's shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
DESCRIPTION OF SHARES
Each Fund represents a separate series of shares of beneficial interest of the
Trust. Fund shares are further divided into separate classes.
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of one or more series and classes within any series
and to divide or combine the shares of any series without changing the
proportionate beneficial interest of each shareholder in the Funds.
Each share of a Fund represents an equal proportional interest in that Fund with
each other share of the same class. Upon liquidation of a Fund, holders are
entitled to share pro rata in the net assets of the Fund available for
distribution to such shareholders. Shares of the Funds have no preemptive or
conversion rights.
The shareholders of the Trust are entitled to one full or fractional vote for
each dollar or fraction of a dollar invested in shares. Subject to the 1940 Act,
the Trustees have the power to fix the number of Trustees, fill vacancies in the
Trustees, including vacancies arising from an increase in the number of
Trustees, and remove Trustees with or without cause, subject to certain removal
procedures. However, immediately after such appointment, the requisite majority
of the Trustees must have been elected by the shareholders of the Trust. The
voting rights of shareholders are not cumulative. The Trust does not intend to
hold annual meetings of shareholders. The Trustees may call meetings of
shareholders for action by shareholder vote if required by law, the Declaration
of Trust, or the Trust's By-Laws.
Shareholders of the Trust have the right, upon the declaration in writing or
vote of shareholders whose shares represent two-thirds of the outstanding shares
of the Trust, to remove a Trustee.
The Trustees will call a meeting of shareholders to vote on removal of a Trustee
upon the written request of the shareholders whose shares represent 10% of the
outstanding shares of the Trust. The Trustees also are required, under certain
circumstances, to assist shareholders in communicating with other shareholders.
-35-
<PAGE>
SHARE OWNERSHIP
Prior to the public issuance of shares of beneficial interest of the Funds,
due to his initial investment, Lee P. Munder owned all outstanding shares of
each Fund, and, accordingly, may have been deemed to control the Fund. Upon
the investment in the Fund by public shareholders, Mr. Munder will have
ceased to be a controlling person. From time to time, certain shareholders
may own a large percentage of the shares of a Fund. Accordingly, those
shareholders may be able to greatly affect, if not determine, the outcome of
a shareholder vote.
FINANCIAL STATEMENTS
The Funds' financial statements are attached hereto.
-36-
<PAGE>
LMCG FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 15, 2000
TOGETHER WITH
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
-------------------------------------------------------------------------------
LMCG FUNDS
-------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 15, 2000
<TABLE>
<CAPTION>
Small Cap Mid Cap Technology Small Cap
Growth Growth Fund Tax Sensitive
<S> <C> <C> <C> <C>
ASSETS
Cash........................... $10 $10 $100,000 $10
------------------------------------
TOTAL ASSETS................ 10 10 100,000 10
------------------------------------
TOTAL LIABILITIES.............. 0 0 0 0
-------------------------------------
NET ASSETS..................... $10 $10 $100,000 $10
====================================
NET ASSETS
Capital paid-in................ 10 10 100,000 10
-------------------------------------
NET ASSETS................. $10 $10 $100,000 $10
====================================
NET ASSET VALUE PER SHARE
Outstanding shares of beneficial
interest (Unlimited number of shares
authorized, no par value)........... 1 1 10,000 1
Net asset value per share........... $10.00 $10.00 $10.00 $10.00
=======================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-------------------------------------------------------------------------------
LMCG FUNDS
-------------------------------------------------------------------------------
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES
NOTE 1 - ORGANIZATION
LMCG Funds (the "Trust"), organized as a Massachusetts business trust on June
29, 2000, is being registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended (the 1940 Act) as an open-end
series management investment company. Since June 29, 2000, the Trust's
activities have been limited to organizational matters with no operating
activities. The Trust has an unlimited number of authorized shares, which are
divided among five investment funds.
Included in this report are the statements of assets and liabilities of the
LMCG Small Cap Growth Fund, a diversified portfolio, the LMCG Mid Cap Growth
Fund, a diversified portfolio, the LMCG Technology Fund, a non-diversified
portfolio and the LMCG Small Cap Tax-Sensitive Fund, a diversified portfolio
(collectively, the "Funds"). Each Fund has a different investment objective.
The LMCG Small Cap Growth Fund will seek capital growth by investing in
equity securities of smaller capitalization U.S. companies. The LMCG Mid Cap
Growth Fund will seek capital growth by investing in equity securities of
medium capitalization U.S. companies. The Technology Fund will seek capital
growth by investing in securities of technology companies. The LMCG Small Cap
Tax-Sensitive Fund will have the primary objective of capital growth through
investing in equity securities of smaller capitalization U.S. companies with
a secondary objective of minimizing taxable distributions to shareholders.
The Funds intend to qualify as regulated investment companies under Subchapter M
of the Internal Revenue Code of 1986, as amended.
NOTE 2 - INVESTMENT ADVISOR
The Trust has entered into an investment advisory agreement with Lee Munder
Investments Ltd. (the "Advisor"). Under this agreement, the Advisor provides
investment management services to the Funds and is entitled to receive for its
services compensation, payable monthly, at the annual rates of each Fund's
average daily net assets as follows:
<TABLE>
<S> <C>
LMCG Small Cap Growth Fund .90%
LMCG Mid Cap Growth Fund .80%
LMCG Technology Fund .80%
LMCG Small Cap Tax-Sensitive Fund .90%
</TABLE>
The Advisor has agreed to limit the total expenses to 1.50% of the average daily
net assets of the LMCG Small Cap Growth Fund and the LMCG Small Cap
Tax-Sensitive Fund and 1.40% of average daily net assets of the LMCG Mid Cap
Growth Fund and the LMCG Technology Fund. This agreement is voluntary and
temporary and may be revised or terminated at any time.
The Advisor has agreed to pay the organizational costs of the Trust.
NOTE 3 - ADMINISTRATOR, CUSTODIAN, DISTIBUTOR AND TRANSFER AGENT
State Street Bank & Trust Company (`State Street") provides administration
services to the Trust. For its services, State Street is entitled to receive
compensation at an annual rate, payable monthly, calculated as a percentage of
the average daily net assets of each Fund. State Street also provides custodial
services to the Trust.
Funds Distributor Inc. (FDI) provides distribution services to the Trust at
negotiated rates pursuant to a Distribution Agreement.
PFPC Inc. provides transfer agent and shareholder services to the Trust at
negotiated rates pursuant to a Transfer Agency Services Agreement.
NOTE 4 - SERVICE PLANS
The Funds have entered into a Shareholder Servicing Plan and Shareholder Service
Agreement (collectively, "the Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under the Plans, FDI as service agent, itself or through intermediaries,
provides shareholder support services to the Trust and the holders of the shares
of the Funds. To compensate FDI for the provision of these services, the Trust
pays FDI a fee on behalf of each Fund, calculated as 0.25% of the average daily
net assets of each Fund.
<PAGE>
-------------------------------------------------------------------------------
Report of Independent Public Accountants
To the Shareholder and Board of Trustees of LMCG Funds:
We have audited the accompanying statements of assets and liabilities of LMCG
Funds (a Massachusetts business trust comprising the LMCG Small Cap Growth
Fund, the LMCG Mid Cap Growth Fund, the LMCG Technology Fund, and the LMCG
Small Cap Tax-Sensitive Fund) as of December 15, 2000. These financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the financial position of each of the respective Funds
constituting the LMCG Funds as of December 15, 2000 in conformity with
accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Boston, Massachusetts
December 15, 2000
